Though corporate capital may be just a sliver of the overall funding scene, the money is nothing to sneeze it.
Corporate venture groups in 2014 invested $5.4 billion in U.S. startups—making up 11 percent of venture dollars spent—across 775 deals. That was the word from a panel at last week’s New York Venture Summit, citing a MoneyTree report by PricewaterhouseCoopers.
The panel included corporate venture capitalists such as Imran Eba, partner with Action Potential Venture Capital—a strategic fund of GlaxoSmithKline; as well as Chris Zock, vice president with Sandbox Industries, which connects established companies to startups they may want to invest in. YoungStartup Ventures hosted the all-day event.
Basically corporate venture capital is a way for big companies to fund startups, and in some cases get a look at innovation they want to see developed. As more people from traditional venture capital join the ranks of corporate venture groups, the sophistication in this niche has improved, said moderator Dov Hass, an associate with Morgan, Lewis & Bockius.
Like any investor worth their salt, corporate venture capitalists should offer expertise and resources that may benefit the startups they back. For example, memory chip maker SanDisk might lend its knowledge of working with retailers and distributors, said Aymerik Renard, director with SanDisk Ventures.
There are tradeoffs when trying to land this type of funding. Given the interests at play within big companies, some might not want to be early investors. “We’re not usually leading Series A rounds,” said Allison Goldberg, managing director and vice president with Time Warner Investments. “We’ll come in as a lead more in a B or C.”
Waiting until later rounds is a way for corporate backers, and young startups, to avoid situations where a pivot unravels what once was a strategic fit, she said.
A bit of maturity is especially helpful for medical device startups, who may have collected credible data by the time the pursue Series B and later rounds, said Eba.
Some corporate venture capital groups do not seek board seats, but that does not mean they willy-nilly throw money at new ideas. “We only invest if there is some kind of relationship or strategy with that company,” said Joseph King, managing director with DuPont Ventures.
As a minority in the venture landscape, corporate venture capitalists at times face critics and doubters who question their involvement, said Claus Schmidt, managing director for Robert Bosch Venture Capital, part of Bosch Group. Backing startups that are in line with company goals, though, allays some of those naysayers. “If the deals fit strategically with the Bosch Group, from there on it’s just a normal VC deal,” he said.
Going back a decade or more, some folks in biotech and health tech were downright suspicious of doing deals with corporate investors, said Rajeev Dadoo, partner with SR One, which is also a fund of GlaxoSmithKline. Now such deals are being cast in a more positive light—at least by the panelists. “Especially when the venture industry was going through a downturn because of the financial crisis,” he said. “It was mainly corporate VCs who were active at the early stages of investments.”
