“Did you see my apology to the corporate VC [venture capital] universe?”
This is not a regular email into Global Corporate Venturing’s inbox from a venture capitalist, but Fred Wilson wrote to point out his public comments on the subject in a PandoDaily video could have been more nuanced than his “they suck” argument.
You can read – and then link to his video from his Musings of a VC in NYC blog here – but Wilson’s argument is most “passive” corporate venturers, “don’t suck” while “active strategic investments… have almost universally ‘sucked’ for our [Union Square Ventures’] portfolio companies.
“The corporate strategic investor’s objectives are generally at odds with the objectives of the entrepreneur, the company, and the financial investors. I strongly advise against entering into these kinds of relationships.”
His blog has acted as a lightning rod for others to opine. Deborah Hopkins, chief innovation officer at US-listed bank Citigroup, at the Bloomberg Next Big Thing conference last week, said her team acted as the “champion of the entrepreneur” at the large corporation, which otherwise had a tendency to kill more nascent businesses.
She gave the example of Silver Tail Systems, in which Citi invested and made a six-times return in 14 months after its sale to database provider EMC for about $230m last year. Hopkins said: “We are strategic, we look for companies that have the potential to be commercialised inside Citi.
“We took Silver Tail over the top to the right people, who took its technology inside and pilot it. Our [technology team] already had three companies being tested for similar technology but they loved [Silver Tail] and gave it a very large deal. Unlike VCs, we [corporate venturing units] can help a portfolio scale, and do so at Citi volume.”
The Silver Tail example is good because it shows how corporate venturers can help effectively open the “right” doors but then it is down to the portfolio company to prove its worth against the others being tested. The frustration of many entrepreneurs is the pace of this testing seems slow or the corporate venturers’ promises of access and relevance change as the political winds and people shift inside the corporation.
But the chance of a major windfall and support from an incumbent is attractive to many start-ups. As Eric Anderson, co-founder of asteroid mining developer Planetary Resources, put it also at the Bloomberg summit, the company is about to sign up two more corporate venturing investors. They would join engineering, procurement, and construction specialist Bechtel, which invested in April. As Riley Bechtel, Bechtel executive chairman, said at the time of its investment: “Our companies share a common vision to continually innovate and push boundaries, all aimed at contributing to a better quality of life.”
Many business unit heads at corporations, however, retain the view that their size gives them the right to bully or undermine the start-up. A factor made more complicated for outsiders to realise by what Michael Yang, a partner at Comcast Ventures, the corporate venturing unit of the eponymous cable company, said at the Bloomberg conference was the reality that corporate venturing was “no monolithic thing”.
Each corporate is unique. Yang advised other syndicate partners and entrepreneurs to look at the corporate venturing unit’s economic incentives and whether they aligned with the management team’s, as well as if they had people to support the business development potential between both parties.
That Global Corporate Venturing tracks more than 120 corporate venturing units with a 10-year track record and still active – a similar number to active VCs (depending on the figures used from Flag, CB Insights, NVCA or SVB) – indicates plenty have built a strong reputation for the right reasons. These are among the “many many more” that Wilson talks about beyond Comcast Ventures, Google Ventures, Intel Capital and SAP Ventures.
Sadly, there is a general view among entrepreneurs that most investors, of whatever ilk or background, “suck”. Whether by returns, changing senior portfolio management, lack of support or whatever criteria is chosen, most VCs – corporate, philanthropic, independent, angel, hedge funds, government – appear as lifestyle-type businesses run for the intermediaries themselves rather than the investee companies or those providing the capital.
But while corporations have a strategic need to invest – whether partly just to invest cash for better returns (as Google Ventures and its nascent Google Capital are doing – read more in our forthcoming July issue) or to identify disruptive threats and opportunities for the main business – independent VCs retain an entrepreneurial edge required by any small business to keep going.
At the 24th annual Venture Capital Investing Conference organised by IBF this month, a succession of speakers said how VCs are dividing into a full-service model, such as Andreessen Horowitz, or entrepreneur-turned-investor partnerships looking to tap nascent regions or sectors, all driven by the need to raise capital by showing decent returns.
It is a renewal currently underway for VCs and while corporate venturing has been in its Golden Age for the past few years, the signs are optimistic that surviving VCs will also be able to capitalise on this remarkable age of innovation around the world especially if they retain a sense of the humility shown by Wilson to change their opinions as the facts change. The evolving links between VC and corporate will form part of the discussion of our next Global Corporate Venturing Webinar, sponsored by Relevant. Register here.