What if I told you there was a class of investors who are involved in 29 percent of venture funding and whose investments are three times more likely to see an exit than other investors’ startups? Would you know who they are? Would you want to meet them? Would you want to know the secrets to their success?
These investors are corporate venture capitalists and they occupy a unique position in the ecosystem of both the traditional corporation and the startup community. Andrew Siegel, who worked at GE and Yahoo before joining Advance Publications as the EVP of Strategy and Development, pointed out that for CVCs, investments in startups have value beyond the anticipated financial returns.
Often, what traditional corporations are seeking in the operating units — quarterly profits and the maintenance of the status quo — is out of sync with the speed of consumer disruption that’s happening in the marketplace. A corporate investment in a startup, however, allows the bigger and less nimble corporation to participate in the new research and product development in which startups tend to excel.
On the flip side, the operating expertise and long-established clout a corporation brings to the table can bring exponential value — and growth — to a startup. For example, Conde Nast, an investor in Rent the Runway, added Vogue’s accessories editor Rickie De Sole to the startup’s board of directors, and she helped scale the business into a new category.
Other expertise startups can gain from corporate venture investors includes a strong operational foundation, which can compensate for a startup’s relative inexperience in the business. Modeling, forecasting and advisement on logistics and execution — the kind of details traditional corporations are used to dealing in — can help a startup chart a breakthrough course.
But let’s not forget the most important piece: talent.
Of course, not all corporate venture firms are created equally. Salesforce Ventures’ Sr. Director Matt Garratt explains that one of the real advantages Salesforce Ventures brings to its startup holdings is the expertise of top operators who’ve been through the experience of building and growing a company. Salesforce Ventures leverages its corporate investments to help achieve specific strategic goals.
Many investments they make in SaaS startups help them extend their global ecosystem of partners. An example is FinancialForce, a cloud-based services company built on the Salesforce platform.
As an early an investor, Salesforce played an integral part in advising and guiding the company as it has grown. FinancialForce has gone on to raise more than $186 million in funding from TCV and other leading institutions.
That kind of insight, experience and advice from Salesforce may be the reason why so many of the company’s investments have had successful successive funding rounds and exits. Salesforce Ventures has also made investments in platforms that support the nonprofit sector, and provides resources to help portfolio companies adopt the integrated philanthropy model that Salesforce pioneered 16 years ago.
Don’t underestimate the value of the more strategic aspects of corporate venture either. According to eBay’s Director of Entrepreneurship and Venture Outreach David Ramadge, who came to eBay when the online marketplace acquired his startup, a real edge corporate investors bring to startups is scale and distribution.
For eBay, that scale often comes in the form of access to enormous quantities of data. In Israel, they have established a big data lab where select academics and startups can securely access more than 70 million gigabytes of anonymized commerce data dating back to 2012. Some uses have included analysis of shopping behaviors after natural disasters, and developing faster querying technologies for data stored in Hadoop clusters.
The founders of Sparkbeyond, a predictive analytics company, began their company inside eBay’s big data lab, using the anonymized eBay data to develop and train their predictive analytics algorithms. Sparkbeyond customers now include the World Bank, QPX and eBay itself.
Corporate venture investments offer differentiated advantages — both to the corporations and to the startups in which they invest. There are so many parts to the puzzle and exchange: capital, information, operating experience, research and distribution.
But let’s not forget the most important piece: talent. Inspiring top corporate talent and entrepreneurs alike, and engaging them in new methods, points of view (vis-a-vis scale) and speed to market is priceless. While the financial value is obvious, often it is the engagement and strategically deployed expertise and execution of the exchange that differentiates the role these investors play.