CVC Best Practices from the Field — Diverse Strategies for CVC Success
By Geetha Dholakia — Portfolio Program Manager at TDK Ventures
In the dynamic world of corporate venture capital (CVC), one truth is clear: there is no one-size-fits-all formula for success, and numerous paths lead to establishing and maintaining a successful CVC arm. Unlike traditional venture capital, where specific patterns, strategies, and best practices may yield consistent results, CVCs demand a more flexible and adaptable approach due to their unique objectives compared to traditional VC firms. Affiliated with large corporations, CVCs often follow decision-making processes distinct from those of traditional VCs, particularly regarding risk appetite and strategic alignment with the parent corporation for gaining insights into innovative technologies, market dynamics, and talent acquisition. CVCs vary in their investment strategies, methods of fostering synergistic engagement with the parent company, facilitating access to its resources, expertise, as well as the broader ecosystem of the parent corporation’s networks and partners.
In order to explore how various deeptech CVC firms, each with unique investment strategies and operating within different technology domains, approach Parent-Portfolio relationships, and understand the best practices that can be adopted across CVCs, I recently had a series of discussions with four CVC practitioners, who incidentally, all happen to be women in deeptech. These discussions made it clear that there are multiple diverse strategies that lead to successful investments and facilitating strategic alignment with the parent company. I will be covering these insights in two articles: the first article will focus on topics such as the array of skills utilized by CVC practitioners to drive innovation and partnerships, investment strategies, and the framework for engaging with the mothership (parent company). It will also explore the internal and external partnerships CVCs rely on for startup discovery, vetting, connection, decision-making, and partnership activities. The second article will delve into different approaches CVCs adopt for fostering and deepening tangible engagements among portfolio companies and corporate parents.
SKILL AND BACKGROUND DIVERSITY
The women with whom I spoke did not start out in CVC, but rather gained valuable insights that contributed to their success through experience in other sectors. Patricia Kroondijk, Director of Strategy and Business Development in Hitachi’s Corporate Venturing Office, leveraged her background in business and financial strategy. Her first role at Hitachi was building the company’s innovation ecosystem. It was a natural segue to oversee Hitachi’s corporate incubator to nurture internal green-solutions startups, which led to her current role in Corporate Venturing.
Inga Grieger, Business Development Manager at BMW i Ventures, leveraged her Industrial Design expertise to understand the challenges involved in running innovative entrepreneurial organizations.
“I started as a designer, coming from the supplier perspective,” Grieger said. “I’ve been involved in the automotive industry for more than 19 years, figuring out what new technologies we can bring to the table.”
Like Kroondijk, she pivoted to her current role in multiple steps. On first joining the company, she oversaw innovation management in BMW’s design department. She moved on to internal customer and product development, and finally to digital services before assuming her current role.
Antonia Soler-Blasco of Hilti Venture also studied engineering — chemical and mining as an undergraduate and industrial in graduate school. Hired at Hilti following an internship, she began her career as Product Manager for a team, developing products for the U.S. market before moving to the Bay Area to lead sales efforts to key mechanical customers. That’s when the innovation spirit of Silicon Valley took hold.
“I had the opportunity to see how much innovation there was happening in the Bay Area and everything our customers were doing on the job site,” she said. “So, I was very excited in 2021 to join the venture team and work closer to innovation and startups.”
A lover of science, Bright Pixel Capital’s Cybersecurity Investment Manager Daniela Coutinho thought she was headed for a career in bioengineering. But after receiving her Ph.D. and beginning a post-doctoral assignment, she decided her skills would be better directed toward “advancing others’ scientific journey than doing the research myself.”
Her foray into consultancy brought her in contact with large corporations, entrepreneurs, research institutions, and government agencies — in other words, much of the startup ecosystem. Coutinho’s strategic design of public funding proposals led to an opportunity to move to Bright Pixel. The company hired her to support its majority investments’ innovation strategies and accessing public funding mechanisms. Her role expanded over her tenure to include risk management, as a member of the investment team.
INVESTMENT AND MOTHERSHIP SYNERGY STRATEGY
Investment strategy and approach to Portfolio synergy with the mothership varied across the CVCs I spoke with.
Dr. Coutinho says that because her team’s portfolio consists largely of global cybersecurity startups in the retail tech, infrastructure, and software sectors, “you really need to be aware of all the market trends and all the technology that is rapidly evolving these days worldwide. Our investment team is really focused on making sure that we are on top of what’s out there.”
Her investment committee consists of members of the Bright Pixel Capital team. Though the CVC arm accepts input from and is subject to approval from the parent Sonae Group on capital allocation matters, it has the autonomy to decide which investments to make. Most funding is €1 million to €10 million, in the Seed to Series B rounds.
Hilti Ventures targets similar Series rounds, with checks ranging from $100,000 to $5 million, Soler-Blasco said, and applies two overall strategies. Hilti wants to move fast on pre-seed and small-ticket investments to accelerate due diligence and decision making. The aim is to support very early-stage startups, but with no predefined expectations for a partnership, investment decisions can still be made case by case.
“All the deals still need to be strategically relevant,” Soler-Blasco explained. “We need to have some initial ideas on potential future collaborations, and we always need to have an executive VP business unit head sponsoring the deal.”
Larger tickets require a more defined collaboration to warrant investments.
“We have done many proof-of-concept projects with startups,” she said. “And we’ve done joint development agreements and even manufacturing for one startup we invested in.”
Hitachi balances its activities between its Corporate Venturing Office (CVO) and its CVC, Kroondijk explained. In this setup, CVO serves as a bridge between CVC and the parent company. Hitachi is Japanese conglomerate and spread across multiple industries, with largest business units in the energy space. The investment stages that the fund focuses on is from series A to C, with an average ticket size between 2 to 10 million. With headquarters in Munich, CVC also has offices in Boston and Silicon Valley
The main objective of the investments is to create strategic growth for both startups as well as Hitachi, and that can only be done by also connecting the startups with the internal business units and to see what kind of opportunities can be leveraged.
Specifically, Kroondijk and her business development team are charged with gaining complete understanding of Hitachi’s business units’ strategic priorities and matching them with the startups.
“Our key liaisons are the strategy people for longer-term perspective,” she explained. “But we’ve also found that product owners are very eager to either accelerate their product roadmap or reduce their time to market with a new feature or product.”
BMW i Ventures divides its CVC team between the innovation hotspot of Silicon Valley and the European automotive center and the mothership’s headquarters in Munich. Grieger is the only business development manager among her 16-member team and she assists the committee with due diligence. The CVC is “100 percent the daughter of the BMW Group,” Kroondijk noted. BMW i Ventures’ lean structure and small team gives it the agility to move quickly. She said the deal team usually consists of one Partner and a few BMW associates or principals who participate in the introductory and pitch processes. The team as a whole decides whether to move forward with due diligence. “We are independent in our decision making,” she said. “We don’t have to go to the board and ask for approval.”
With a really strong commitment to the portfolio companies, they try to stay with the company till exit, IPO or acquisition.
INVOLVING M&A
The discussions also highlighted the diverse strategies in CVC for approach to mergers and acquisitions (M&A). Some CVCs pursue strategic investments in startups or emerging technologies to gain competitive advantages, enhance product portfolios, or access new markets and view acquisitions as key to achieving that goal. Others, especially those that invest in early stage or cutting edge innovations do not look to acquire their portfolios, and have separate M&A groups in the parent that oversee that function. Both flavors were seen in the discussions.
Kroondijk said Hitachi gears its acquisition activities toward near-term strategic and competitive advantages. These tasks are managed at the parent business-group level such as Hitachi Energy and Hitachi Digital.
“It’s a separate function, and we don’t interact on a regular basis,” she said.
BMW i Ventures also segregates CVC from M&A, though they work as a team to identify and capitalize on opportunities, Grieger said. In a practice she deems “super-atypical” in the CVC world, her team prioritizes strategic active investments. But while BMW i Ventures’ strategy may resemble that of a financial CVC, opportunities from the corporate side arise periodically. “When there is something interesting, we would step in from the venture capital perspective to be fast and independently make the first investment before our M&A department takes over,” she said.
Conversely, Hilti Venture collaborates closely with the parent company’s M&A division. Though they remain separate entities, Soler-Blasco said the two teams share due-diligence resources and some of the investments may become potential acquisition targets for the M&A team.
“We invested in FieldWire in 2017 and Hilti acquired it in 2021,” she said. “So, being investors helped Hilti leadership and FieldWire founders learn about the other company’s culture and assess the fit.”
ONBOARDING CHANNEL PARTNERS
Channel partners of the parent corporation play a crucial role by serving as conduits for market access, distribution, and growth, as they often have established networks and customer bases with the parent. They can also provide CVCs and their portfolios with valuable insights into emerging market trends and customer needs. By leveraging the expertise and reach of channel partners, CVCs can accelerate market penetration for their portfolio companies, enhance product distribution, and drive revenue growth.
As channel partners become even more critical in the startup and investment landscape, CVCs are refining their tactics for partner selection, onboarding, and collaboration. Kroondijk noted that in the narrowly targeted environment in which she operates at Hitachi, channel partner engagement can get complicated.
“We identify potential channel partners that are working on a certain model that might be worthy of a collaboration,” she said. “They can be smaller companies like startups or larger companies. But when you have more than one party, there’s just different agendas and objectives sometimes that need to be matched.”
In the right situation, however, “I also have seen quite a fast engagement because there was this immediate need that we identified,” she said. “It really fit in nicely and it’s worked from the start.”
Coutinho said Bright Pixel formalizes the channel partner process by keeping a support team on hand, working in conjunction with the investment team. The support team comprises financial, human resources, taxation, and legal experts who aggregate the corporate and CVC activities.
“We also have an extended network of partners who aren’t related at all (to the mothership),” she elaborated. “We also establish contacts between the startups and this extended network. While it’s easier to reach out to (the people and resources the business units) in business units, the investment team is really intent on building the extended network. If a commercial contract happens to take place, that’s great. If it doesn’t, it’s still great.”
Grieger places great value on working with BMW’s channel partners.
“It’s very useful to look beside the mothership and even the mothership’s suppliers to who can help our startups,” she argued. “I evaluate the landscape from the startups’ potential customer perspective. I know what it’s like to be on the supplier side; it makes sense to see where we can link in the startups.”
The corporation also benefits, she said, by gaining insights into the products and technologies the whole industry — not just BMW — is interested in procuring.
Hilti Venture’s Soler-Blasco agreed that connecting them with the right channel partners provides a priceless service to portfolio companies.
“We have some examples where we have brought joint solutions with a startup to solve customer pain points, and we have made several introductions to our customers, connecting founders to some of our sales leaders who helped them understand how we have achieved certain goals right in the software space,” she said.
Stay tuned for Part Two where we delve into the different approaches these CVCs take to build and strengthen relationships between their portfolio companies and corporate parents to deliver the true value of corporate venturing.
