By Jesse Jones
Last month, I had the pleasure of attending the Fusion Conference, a gathering of entrepreneurs and investors in the technology startup ecosystem, held in Washington, DC. Fusion—and conferences like it—offer a great opportunity for professionals dedicated to advising early-stage and venture-backed companies to tap into the latest thinking that’s fueling growth of tech companies across the country.
I have been fascinated with the rise of corporate venture capital, where companies provide funding to startups, typically those in their same industry sector or complementary businesses whose success may fuel their own. At the conference, I was eager to hear a panel discussion on corporate VC, featuring Yujin Chung of SignalFire, Eklavya Saraf of NASDAQ, and Christopher Langford of Lowes Ventures.
Langford discussed some advantages of operating a corporate venture capital fund. Speaking to risk, he pointed out that corporations can do more than just invest in startups to help them. Instead, they can offer them a commercial deal, purchasing goods and services that also fuel the startup’s success. To further boost the startup partner’s success, Langford said that corporations should avoid rights of first refusal or exclusivity in dealings with early-stage entities. Furthermore, corporate VCs should also be very transparent about the value they bring with their investments. Overall, he presented a very ethical approach that looked for mutual wins for both VCs and their investments.
SignalFire’s Chung (a “traditional” VC) shared similar sentiments, saying that he preferred for corporate VCs to stay away from seed deals, so as not to hamper the growth of startups and their options for funding.
With regard to investment approach, Chung said that he typically looks for technology that will work for old industries. Thus, you’ll have a new technology that bolts onto something that’s proven successful for a generation. On another, seemingly funnier point, he said that he seeks out ideas that others may label as “stupid.” While many of these ideas fail, the ones that do make it out of the early life cycle stages will typically have huge success. All things considered, Chung concluded that nothing should impede financial return when considering a corporate VC investment.
The panel shared some other pieces of wisdom from the maturing corporate VC mindset. They agreed that corporate venture arms wouldn’t even take meetings with startup entrepreneurs if their companies didn’t fit strategically with the larger visions of their corporations. Also, the panelists put forth a set of questions that investors should ask themselves prior to committing funds:
- Does the startup address a large problem with its products or services?
- Is the team in place capable of leading the startup to sustainable success in its maturity?
- What financial investors will be joining the deal?
These questions cut to the very core of operating a business, and I think they can be useful for investors in almost any situation, even outside of the world of corporate venture capital. You want to believe that you’ll be investing in something with a big enough market to generate enough success for a nice return. It’s much easier to invest in a good team and watch them succeed or provide timely guidance versus jumping in to bail out the leadership at some point. Finally, things can certainly get tangled at times when investors with different approaches and philosophies get involved with the same startups.