More money to invest, greater technology insights and better support for startups are some of the reasons corporates are bringing multiple limited partners.

When United Airlines opened its Sustainable Flight Fund to outside investors, the fund doubled in size to $200m just five months after its launch in early 2023. Today it has 13 limited partners, including several US airlines.

A clear benefit of opening up to external limited partners is the bigger pot of money that fund manager United Airlines Ventures has to invest in startups that develop sustainable aviation fuel (SAF), with the increased coming from like-minded partners. Having multiple partners, some of which directly compete with United for passengers, also sends a signal that airlines want to work together on a global climate problem, says Andrew Chang, managing director of the airline’s corporate venture capital unit.

United Airlines is one of a recent wave of corporates that have launched funds open to outside investors. In a break with the traditional CVC playbook, some have even taken on institutional investors and operate more like their peers in the financial venture capital sector.

As more corporations see the benefits of having multiple LP funds, these kinds of structures are likely to become a more common part of corporate venture capital practice.

There are three main ways that corporates do multi-LP fund structures: multiple LPs from the same group, multiple LPs from the same sector or taking on LPs from a variety of sectors looking mainly for financial returns from the fund.

Type 1: Group multi-LP funds

One model that has been around for a while is when a corporation launches a fund that has multiple limited partners from its own company or a federation of companies that share a common brand. An example is Blue Venture Fund, a corporate venture programme in which 36 Blue Cross Blue Shield health plans invest in startups that have strategic value to the US health insurance plan affiliates.

Type 2: Sector multi-LP funds

Another model is when corporates come together from the same sector to do strategic investing. A recently launched fund in this category is Amberra, an investment arm for the largest banking and insurance groups in Germany. Its mission is to invest in startups looking beyond banking. The Oil and Gas Climate initiative, which brings together 12 energy sector companies to invest in climate-tech also operates in this way.

Type 3: Cross-sector multi-LP funds

Another variant of the multi-LP model is where the investors are from different sectors but they are focused on a specific area where their strategic interests converge. United Airlines’ Sustainable Aviation Fuel fund is a good example of this. While a number of other airlines are LPs in the fund, the backers also include Honeywell, the aerospace and materials conglomerate, airport owner ADP, financial services company American Express and energy company Saudi Aramco. It might otherwise be difficult to reconcile the different investment interests of these companies, but in a very clearly focused fund they can be brought together.

Type 4: Financial multi-LP funds

A fourth multi-LP fund model, which splits the most from traditional CVC, is when a corporation sets up a fund that takes on limited partners from different sectors and often includes institutional investors seeking purely financial returns.

Sony Ventures chose to open its Innovation Fund 3 to between 10 and 20 external limited partners when it launched the fund in 2022. Limited partners in the ¥25 bn ($165m) fund include Mizuho Group, Sumitomo Mitsui Trust Bank and Mitsubishi Estate. The head of Sony Ventures, Gen Tsuchikawa, said it plans to keep close ties with Sony.

Testing the model

TDK Ventures recently dipped a toe into a multi-LP fund with the idea of showing that this arrangement, far from leading to a separation between the parent company and the CVC unit, will actually bring even more strategic and ecosystem value to the mothership.

“We want to prove the model of multi-LP,” says Nicolas Sauvage, president of TDK Ventures. “We want to prove the value to TDK, to the LPs, and the governance.”

TDK Ventures started relatively small as it explores the model, launching the $150m Fund EX1 in May to invest in energy and climate tech startups. The fund has two LPs: parent TDK and Amperex Technology Limited (ATL), TDK’s Hong Kong-based lithium-ion rechargeable batteries specialist.

TDK Ventures’ multi-LP fund is somewhere between type 1 and type 2 — ATL is owned by TDK so they are part of the same group.  Investors in this kind of fund can band together to help scale the portfolio companies effectively.

Sauvage says ATL is an especially meaningful LP because of the value it can bring to portfolio companies. “If we are smart in selecting the right LPs to join the multi-LP fund, they are thinking from a go-to-market point of view. Anyone receiving investment from this multi-LP fund would get privileged access to the LPs which would bring them go-to-market more quickly,” says Sauvage.

Benefits of multi-LP funds

Limited partners can get several benefits from joining a corporate fund. They can, for example, make portfolio companies customers for their own businesses or help them discover new markets.

For the CVCs, opening up their fund to external investment can bring a degee of freedom. One of the issues it can help with is attracting and retaining talent, says Sauvage. This is especially the case in the highly competitive climate and clean energy sectors. CVCs are vulnerable to poaching of staff by financial VCs because they can pay better than corporate venture capital units. Having multiple-LP fund structure gives CVCs more flexibility to provide VC-like compensation, such as carried interest.

“In a sector that is very competitive, like energy transformation, there are a lot of climate tech VCs that have billion-dollar-plus investments. This means they attract the best of the best in the ecosystem. A multi-fund structure will allow us to recruit and retain the best talent,” says Sauvage.

“A multi-fund structure will allow us to recruit and retain the best talent.”

CVCs may also be attracted the added safety net of a multi-LP fund structure. It is harder for the parent corporation to shut down a fund that has external LP money. CVC fund managers spend a lot of time explaining the value that corporate venture capital brings to the mothership. This time could be spent on other tasks with a multi-LP fund structure.

Dong-Su Kim, CEO of LG Technology Ventures, the investment arm of the Korean conglomerate LG, says sole LPs can have “too much influence on decision-making because they see it as their money. In a multi-LP fund, the fund manager has more control.”

LG Technology Ventures manages several funds for LG subsidiaries. Each fund has a sole LP. Kim says the firm is globalventuring.com 3 interested in setting up a multiple-LP fund in future. A clear benefit is the added insights that several limited partners can bring to investment decisions, he says.

“Even strategically, the interaction among multiple LPs can be very beneficial to LG. At LG Technology Ventures we have invested as an LP in financial venture capital funds and there are always insights that can be obtained from the perspective of the LPs.”

Challenges

Having multiple LPs does, however, bring an extra layer of complexity that single-LP funds don’t have to bother with. Multi- LP is not a small undertaking, says Sauvage. “There is much more governance and overhead to run a multi-LP fund,” he says.

Managers of multiple-LP funds have to make sure the investment team understand all partners’ interests and goals. And all limited partners have to agree on common goals. This reduces the risk of running into disagreements over investment decisions.

Despite the challenges, those who run these kinds of funds say the benefits outweigh the complexities. Being able to have the perspectives of various stakeholders can give funds a competitive edge in sourcing successful startups.

For Chang at United Airlines Ventures, the chance to bring on external LPs brings benefits that are “immeasurable in terms of expanding the scope and nature of discussions. There is heightened credibility,” he says.