CVC Best Practices from the Field- Strategies for Equal-Win Parent Portfolio Engagement
By Geetha Dholakia — Portfolio Program Manager at TDK Ventures
Corporate venture capital arms employ a range of strategies to engage their portfolio companies with the corporate parents, and channel partners to foster relationships between them.
Building upon the insights in the first article — “CVC Best Practices from the Field — Diverse Strategies for CVC Success” — which delved into CVC best practices, including the diverse skills of CVC practitioners and the partnerships crucial for startup discovery and decision-making, this second article continues the discussion with four CVC practitioners. Here, we explore the equal-win strategies CVCs employ to foster mutually beneficial engagements between portfolio companies and corporate parents.
EXPLORING SYNERGY WITH THE MOTHERSHIP AND SHARING LEARNINGS
All four leaders highlighted that their CVC units, rather than their parent organizations, are usually the first point of contact when exploring potential relationships with startups. Most, however, make it a point to involve the corporation early in the discussion.
For instance, Daniela Coutinho, Bright Pixel Capital’s cybersecurity investment manager, said her team “makes sure business groups have information about what is top-of-mind” in terms of solutions that are available in the market from which they can benefit. She solicits input from mothership partners or business unit leaders to gain a sense of product/market fit and go-to-market strategy, often even before reaching out to the startup.
“While we have autonomy to decide the ticket size and the type of investment that we want to make, we do circle back with all this information that we gather from the market on the technologies,” Coutinho explained. “We do try to share with the business units that could benefit from that information (and how it applies) to what the mother sees strategically, not only financially, in what we do.”
Similarly, Hilti Venture Director Antonia Soler-Blasco said that with a mandate to profit both financially from investments and through the enablement of corporate collaborations with startups, her team works with business units from the outset to define the scope of any pending relationships. Narrowing the areas of interest crystallizes which contacts within business units would derive the most value and have the most to give in working closely with the venture team to identify all these potential collaborations and investment opportunities. The relationship continues through sourcing, selections, due diligence, and mobilization of unit resources that facilitate the investment and enable corporate collaboration with the startup.
Hitachi maintains both Hitachi Ventures, its corporate venture capital arm and a corporate venturing office, whose role, the Director of Strategy and Business Development Patricia Kroondijk, says “is to really understand the strategic priorities of the business units. Our key liaisons are the strategy people who help with road mapping and longer-term perspective.”
She said the company’s product owners’ eagerness to add features and accelerate time to market drives her team to match their needs to both existing and potential CVC portfolio companies.
“We meet regularly with Hitachi Ventures, so when a new portfolio is brought in, we get a full rundown of their value propositions and their interest (in working with corporate),” Kroondijk explained. “We showcase these in meetings with the business units to determine which companies we can support.”
Inga Grieger, business development manager for BMW i Ventures, notes that her fund is structured like financial venture capital firms, primarily seeking monetary returns while maintaining a strategic focus. Still, “sometimes we know from the corporate background that there might be of interest,” she said. “Then, we might step in to make a first investment.”
INTERACTING WITH THE MOTHERSHIP
Greiger said that an understanding of business unit needs and interests comes from strong communication — sometimes even before a startup comes up on the radar screen. Asking about the areas BMW corporate may be considering forges alliances and informs her overall investment alignment with the parent organization’s innovation approach.
“We can link into these processes and develop internal champions within BMW Group, strategically relevant people from the corporate community,” she said. “They are our first contacts. They are invested before we bring the startup onboard.”
Though Bright Pixel operates in three distinct verticals, each with its own dynamics and ecosystem, Coutinho’s team still strives to promote synergies between the business units and portfolio companies. It may occur prior to engagement “so the startup gets really fast feedback from a potential end-user, and corporate quickly accesses information on technology in an area we are involved in,” Coutinho said.
When these interactions don’t happen before the investment, Bright Pixel Capital still bridges the portfolio startups with business units, presenting their capabilities in corporate forums and specially making them aware of any specific challenges in the mothership that a portfolio company can solve.
Hilti’s Soler-Blanco also initiates corporate collaboration early in the process.
“We work with the business unit at the beginning to define the areas of interest and identify all potential collaborations and investment opportunities,” she explained. “Then we work together with our contact person on sourcing and selecting. As we come closer to the investment due diligence and decision making, we again work closely with the leaders of the business unit to confirm the startup is the one we want to work with and that we have the corporate resources to support the collaboration and execute the investment.”
Startup founders can facilitate this task, she said by refining their unique selling proposition. Not only will this make it easier for investors and channel partners to want to work with them, but it is also “key to the continued development of their product,” Soler-Blanco believes. “They need to make sure to have a group of customers with whom they engage and find ways to make them part of their product development process.”
Another important aspect that many of the CVC professionals stress is that despite the diverse structures and working relationships represented in the discussions, the corporate entity may build relationships with startups regardless of whether their CVCs decide to invest. Kroondijk stressed that this situation is common at Hitachi. Coutino agreed, noting that commercial contracts between Bright Pixel’s core business and startups may or may not lead to future CVC investments.
TANGIBLE ENGAGEMENTS POST INVESTMENT
When an investment is already in place at Hitachi, the process also starts with the corporate venturing team introducing business unit leaders to portfolio founders. After several workshops to explore the possible working relationships, the engagement may develop into a pilot project, vendor/customer agreement, proof-of-concept arrangement, or some other partnership.
Hilti has also worked on proof of concepts, paid pilot programs, and other collaborations with the different business units. These arrangements are discussed case-by-case, depending on the portfolio company’s needs, the investment stage, and the strategic fit to the parent company, Soler-Blasco explained.
Grieger’s CVC leverages the power of the BMW Startup Garage to further its venture clienting model, she said. The Garage accepts applications from startups seeking relationships on the company’s corporate side, often for pilot projects and project management support.
“Because the Startup Garage is an implemented process in the corporate, we are tightly aligned,” Grieger explained. “When we do investments, we try to find the right person with BMW to fast track procurement and supplier startups.”
BMW i Ventures makes it a point to steer portfolios to the Garage, but it also leads to lucrative investment opportunities.
“We got introduced (to a portfolio company) after a pilot project. So, we see this also as a funnel,” she said.
Hitachi Corporate Ventures’ mandate to drive mutual growth bears heavily not only on its initial investment decisions but also its ongoing business unit/portfolio company connectivity, Kroondijk said. Of course, she invests where the mothership is interested in collaborating but more importantly where a larger marketplace has been established.
“We don’t look at the startup (in a vacuum),” she said. “Many of the current business that Hitachi operates come from an ecosystem perspective or approach. We look at the full value chain, so when there are startups that could fit onto that plate, we can make connections either with our partners or potential customers to really test that full value chain capability that we’re interested in building.”
Coutinho contended that maintaining ongoing traction with the parent corporation may be easier when CVCs invest in startups whose products have already been validated, as is her situation. Bright Pixel normally does not work as a design partner for portfolio company products. Instead, it invests in companies whose solutions have been tested and the application can be readily adopted by the parent organization and its partners. When there is something to be gained by the corporation, Coutinho’s team stays involved even if the target company’s technology is too new to warrant an investment.
“A company can have a good product and provide a good deployment, but in terms of the market dynamics, it may not be a good investment,” she explained. “If the solution is still assessed to be one to possibly be acquired, we make a bridge and stay involved in those conversations.”
Despite its large portfolio, Bright Pixel Capital keeps close tabs on its investments’ performance through teams assigned to each swim lane. The process enables smooth reporting of startup interactions by the team member, who generally sits on the startup’s board, to the CVC, Coutinho said.
“We have checkpoints,” she said. “We assess with the group how the interactions are progressing, but this is an informal way of doing things.”
It’s a similar strategy at BMW i Ventures. Because no two startups are the same, Grieger explained, it is difficult to track their maturation through a single process.
“It’s more about (learning through) experiences,” she said. “You cannot really cut and paste.”
She said her team uses tracking software “to help us to keep all these initiatives clear and manage contacts, for an overarching overview. We are tracking through this system after the initial investment. This lends some structure in the outreach to each portfolio company and the engagements not only from the BMW perspective but externally as well. It’s not only the internal champions’ engagements but also (the activities) along and in conjunction with them. I wish I could clone myself or have some a huge team to track everything because I’m always so curious to see how the engagements come to life and the projects develop.”
In conclusion, the insights gleaned from discussions with leading CVC practitioners illuminate the multifaceted strategies employed by corporate venture capital arms to nurture relationships among portfolio companies, corporate parents, and channel partners. By exploring best practices and equal-win strategies, it is evident that successful CVC engagement with the parent hinges on a combination of innovative thinking, proactive and early communication, sometimes even prior to the investment, strategic partnerships with emphasis on ongoing traction with the parent corporation, and a commitment from both portfolios and parent to nurturing mutually beneficial relationships, commitment to mutual growth, learning and the creation of value across the ecosystem.
As the landscape of corporate venture capital continues to evolve, the insights shared in these discussions serve as valuable guideposts for practitioners seeking to navigate and thrive in this dynamic ecosystem.
