After almost a decade in corporate venture capital, I’ve concluded that my world is highly misunderstood in the venture and startup ecosystem.
CVC is a large and growing player in the venture industry. According to CB Insights, corporate VC firms invested $18 billion in North America in 2015, which is roughly 25 percent of all venture investments that year. Yet I continue to be surprised by the outdated thinking that drives some very smart entrepreneurs and investors to discount CVCs as a source of capital, relationships, and strategic partnerships.
I hear it occasionally from startup leaders. “Working with the VC arm of a corporation is a necessary evil to get a strategic partnership,” one told me. “We are too early for corporate VC — we’ll call you after we close our Series A,” said another.
Even some fellow VCs express flawed opinions, dismissing corporate venture arms as “dumb money” prone to overpaying.
I’ll be first to admit that part of the blame for these perceptions rests with corporate venture funds themselves. Despite more than 900 collective deals in 2015 — a 15-year high — we could do a better job highlighting success stories and explaining the value we bring to the table at all stages of a startup’s growth.
So consider this column a step toward demystifying CVC. Let’s start with clearing up a few misperceptions, which I’ll call the three big myths of corporate venture funds.
Myth #1: It’s dumb money
I hear it all the time: Corporate funds don’t care about financial returns and only make investments for “strategic reasons.” Hence, the best time to engage them is for your Series E3 investment — or when they’re the lenders of last resort.
While I of course can’t speak for everyone, here are the facts about Intel Capital: We made 35 new investments in 2016, yet led only three new Series C or later deals. My partners and I spend the vast majority of our time looking for early-stage opportunities we believe can drive both financial and strategic value.
As to the perception that CVCs “overpay” for deals, well, our top-quartile returns show we are consistently making great investments. Frankly, I’m not so sure this is a myth I actually want to debunk, as it leads to excellent deal flow.
Myth #2: CVCs aren’t involved enough to build great companies
Many…