The idea of a startup pitching to get investment is a familiar concept. But what about an investor pitching to a startup they want to invest in? 

CVCs have always had to fight a little harder to get onto the investor table for the best startups — lack of familiarity with CVC investing or concerns about the terms that a corporate might ask for sometimes make startups hesitant about the relationship.

Even now, when startups are finding it harder overall to raise capital, competition to back the best-performing startups can remain fierce. Corporate investors may still find themselves having to sell themselves to a prospective portfolio company. It is worth having the pitch well-honed.

We spoke to both sides – Mike Smeed of InMotion Ventures, Jaguar LandRover’s investment arm, and for the startup perspective, Martin MacDonald of embedded technology startup weeteq about what a corporate can do to make themselves an attractive investment prospect.

The need for speed

“Being able to move quickly through the CVC process is the biggest goal for me” says MacDonald. Corporates have a reputation for moving slowly, and while that is well known to be at odds with startups timescales, there quite often isn’t a straightforward way around it.

To combat this common pain point, Mike Smeed has gone to great lengths to mitigate that issue.

“We have done everything in our power to adopt the best behaviours and traits of a VC, one of those being shortening the time for decision making processes,” Smeed says. “We’re never going to be able to have 24 hour, 48 hour decision making processes that some VCs seem to be able to operate, involving large values as well, but we have developed methods in which we can move incredibly quickly from decision to invest.”

InMotion’s investment committee contains three people who are board members of the subsidiaries of Jaguar LandRover and they are time poor. So Smeed has introduced an investment panel that sits below the investment committee, which can do a lot of the preparatory work for investments before bringing things to the investment committee’s attention. It’s a small thing that can show potential portfolio companies that efforts are being made.

Access to the business

Many corporate venture capital units are at great pains to advertise how separate they are from their parent entity. And while that separation can be beneficial in terms of speed of decision making and independence, it can also be a con from a portfolio perspective.

“Access to the business is absolutely key. We need to validate what we are doing and the best way to do that is getting access to customer pilot projects or research and development projects,” says MacDonald, who sees the parent’s customer base or internal clients as a the main benefit in taking on a corporate investor.  

From Smeed’s perspective, one of his biggest wins so far for InMotion is the fact that 25% of the portfolio (5 out of 21) has commercial contracts with Jaguar LandRover. Each contract was won on its own merits, but seeing the potential for collaboration is always a key consideration when the unit are investing. If the technology is particularly niche or complex, they often enlist various units of the business as part of the due diligence process. Access to the corporate business units can start even prior to investment.

Legal considerations

Most startups have small teams and limited resources, so keeping the investment process as simple and as straightforward as possible will be a green flag. “We don’t have a lot of internal resources in things like contracting, legal and finance, we bring people in as and when required. Anything too complex from a contractual perspective could really tie us up and slow us down” MacDonald says.

Other things like restrictions or vertical integration, where a corporate wants to own and control multiple stages of a startups supply chain, should be considered extremely carefully. Smeed says they just give the startup more reasons to say no. Exclusivity clauses, in particular, could end up limiting business opportunities for the portfolio company, slowing growth and ultimately hurting the investor, too.

Exclusivity clauses aren’t always a dealbreaker for MacDonald, however. An exclusivity clause, for a initial period of say, six months, could even be considered to be a benefit, he says, as it is a signal that the CVC unit and parent company will get out of the blocks quickly and put a dedicated team behind the product. 

There is also the benefit from a legal perspective of working with a big corporate, especially if a startup is interesting in expanding to new territories. “We don’t have our own dedicated legal team, we use the JLR group legal structure,” Smeed says. “That can be really helpful in different jurisdictions because, through our parent, we’ve got links in pretty much with every legal jurisdiction in the world”.

Communication and network

One of the big benefits of getting investment from a corporate is the business network that they bring. That can mean being able to get introductions to other potential investors or customers, or it can mean being plugged into a network of other portfolio companies.   

“We come with a very strong network,” says Smeed. He says being able to help their portfolio companies raise future rounds or form business connections on other continents is a key benefit that InMotion emphasises, especially for startups with plans to expand worldwide.

Reputation (or lack of it)

Another way corporates sell themselves to startups is by following through on promises. Startups will have their own method of due diligence when they are considering investment, and speaking to or researching other companies in the portfolio is a great way to find out what sort of investor your unit is.

“You’re always looking at the portfolio that they’ve already got, and seeing where the potential is and how it could work together. But conversely, you’d look and say, who have they invested in? They might have companies that aren’t doing much or moving in a completely different direction to the one that we would want to go in,” says MacDonald.

“There have been a few times when we’ve looked at investors and said ‘We don’t want to touch them with a bargepole because they’ve invested in these companies’,” says MacDonald

The number of investments is important to MacDonald as well.  “I think there’s a sweet spot to the number of companies in a portfolio. Some CVCs make 20-30 investments a year and they’ve got a huge portfolio of companies. It makes you wonder, how many can of these can they really support?” MacDonald says.

Brand new CVC with no experience whatsoever can work for or against a company. The important thing is to be ready for questions about this. A CVC that is just starting out won’t have many startups yet in the portfolio, for example, meaning they can give a higher level of support to the initial companies they back.  

For Smeed, building a strong reputation is key to his definition of success. And it involves eating a bit of humble pie. “Working for a big corporate, it can be very easy to get sucked into the idea that your company is the centre of the universe, and that the employees were lucky to even be drawing a salary. That stuff doesn’t wash when you’re speaking to a potential investment company,” he says.

A startup investment, says Smeed, needs to be a symbiotic relationship, where both parties benefit. If the reputation is high, the connections and potential investments will be of a higher quality and success will follow for all involved.