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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 Yet I continue to be surprised by the outdated thinking that drives some very smart entrepreneurs and investors to discount CVCs as a source of capital, relationships, and strategic partnerships.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 entrepreneurs think corporate VCs don’t lead investment rounds or take board seats. While it used to be true for most CVCs, and is still true for some, at my firm we lead a majority of the investments we make, are an active board participant, and take a hands-on role advising CEOs how to build great companies. Our team wakes up every morning thinking about what we can do to help our portfolio. This culture is embedded in our DNA.
However, talk is cheap. After all, every VC out there claims to do everything I just outlined. To actually “walk the talk,” we spend a tremendous amount of energy thinking through how we can use Intel’s depth and breadth to benefit our portfolio companies. How can we leverage our global sales organization of 4,000 field professionals — a scale and reach few VCs can claim — to help our portfolio firms acquire customers? How can we leverage Intel’s engineering and technology depth to help our startups build even better products? While we don’t get it right every time, I think we’ve cracked the code on corporate venture funding.
For example, every few days, somewhere in the world our portfolio companies are talking to executives at Global 2000 companies in meetings set up by our business-development and sales teams. Many of our early-stage companies have found their first significant customers through these events. Last year alone, Intel Capital made nearly 5,000 such introductions. While we may be the outlier in terms of scale and scope, CVCs in general are well positioned to leverage their massive networks of partners and customers to facilitate these kinds of meetings on a regular basis.
Myth #3: CVCs limit a startup’s strategic options
Many entrepreneurs fear that if they take capital from a corporate venture fund, it will limit their potential partnerships, customers, and exit options. This is simply not true.
At Intel Capital, for instance, we invest $400 to $500 million annually, and for us to achieve our financial objectives, we need to help our portfolio companies generate the best financial and strategic outcomes. The simple truth is that we only achieve our strategic objectives by helping build large, winning companies — not by limiting their options. After all, a company that’s not doing well financially cannot, by definition, be strategic.
My partner Ken Elefant wrote about this recently, explaining how CVCs can be instrumental in helping startups achieve the best possible outcome. Spoiler alert: It’s not by acquiring them. Of the nearly 1,500 startups Intel Capital has invested in since 1991, Intel has acquired only a handful.
Yet over the same period, more than 400 of our portfolio companies have been acquired; in fact, we’ve led the venture industry in exits since 2005, according to PitchBook.
Intel Capital, like other large corporate venture firms, is made up of a global team of investors with extensive experience and track records of working with entrepreneurs to build great companies.
It’s all about fit
I will admit not all CVCs (just like not all traditional VCs) are good at investing and company building. I would venture — pun intended — to say the percentage of “dumb money” in corporate VC is about equal to that in traditional firms.
When an entrepreneur comes to me seeking funding, here’s what I say: Do your due diligence, consider all your options, and don’t fall prey to stereotypes. Most of all, do your homework on the partner who will champion the deal and sit on your board, regardless of whether it’s a corporate or traditional venture firm.
In other words, seek a smart, active, and savvy investor who can help build the company you’ve always dreamed of running.
Igor Taber is a director in Intel Capital’s datacenter investment group, which focuses on artificial intelligence, big data, analytics, and cloud investments.
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