Corporate Venture 101

Considerations for starting corporate VC programs

Rich Grant
Aug 6, 2019 · 9 min read
Image: Shutterstock

Co-authored by Ian Goldstein (Fenwick & West), Rich Grant (Touchdown Ventures) and Gus Warren (Samsung NEXT)

Earlier this year, we organized and led a workshop at the Global Corporate Venturing & Innovation Summit in Monterey, California to discuss best practices for starting and running a corporate venture capital (“CVC”) program. This workshop was based on our extensive collective experience organizing, operating, and advising a significant number of CVC programs across industries and stages of development. We focused on surfacing the various alternatives for structuring a corporate venture practice as well as steps and considerations for implementation and execution of an effective CVC investment program.

The goal for the presentation was not only to provide a general framework and guidance for companies considering launching an internal corporate venture program (or expanding an existing program), but also how to articulate to senior members of an organization the strategic benefits of corporate venture investments.

A brief summary of the presentation and a few of the key takeaways follow. As we noted in our presentation, this is a generalized summary and analysis — creating, structuring and implementing a CVC investment program is much more complex due to the need to develop and align the particular strategic elements of a CVC program with the needs of a complex parent organization.

Selling CVC Internally

As the need for rapid innovation has increased, corporate venture capital has emerged as a leading tool because it allows companies to explore external opportunities and partner with external innovators, while still preserving the flexibility to bring such innovations in-house at the appropriate time via R&D, business development and acquisitions. Companies across diverse industries have increasingly embraced active corporate venture capital investment programs, resulting in corporate participation in $66B of venture investments across nearly 1,500 deals in 2018 (based on data provided by NVCA and Pitchbook).

Corporate venture capital is primarily about innovation, competitive advantage and survival. The 10+ year growth trend in CVC deals and investment dollars shown above is not a reason to build or expand a CVC program, but such growth suggests that corporations increasingly look to CVC to participate in the innovation and disruption facing their respective industries.

For those seeking to obtain internal alignment and support for a new or expanded CVC program, “following the herd” is of course not an adequate business rationale. But understanding the underlying reasoning for the growth in CVC, the strategic benefits corporations seek and obtain by operating dedicated CVC programs, and the different ways in which a CVC program could be structured to provide strategic benefits to an organization, are entry points for beginning to gather support for launching or expanding a CVC program.

Building it Strategically

Operations and Decision Making

Size and Funding Commitment

Compensation and Performance Metrics

Legal Structure

1. Single Limited Partner: the graphic below reflects a traditional venture capital structure, with the parent entity as a single limited partner with limited governance rights and obligations. This fund can be structured to require investments within defined parameters that align with the parent entity’s corporate strategy, but typically operates with greater independence than other structures.

2. LLC Subsidiary: the graphic below reflects a structure whereby the corporate venture fund acts as a wholly-owned subsidiary of the parent entity. In this scenario, typically the investment team has some level of autonomy related to investing sourcing, evaluation and execution, but will typically report to and seek approval from a separate investment committee or executive team for certain investment matters.

3. Fully Integrated: the graphic below reflects a structure whereby the corporate venture team consists of investment professionals working directory for the parent entity, with each investment requiring specific support from a specific parent business unit.

Running it Effectively

1. Setting up a CVC program with a clear investment thesis that aligns with the strategic objectives of the parent company;

2. Building the investment infrastructure of team members and internal/external support structures; and

3. Developing a robust deal pipeline and process to evaluate, close and manage investments.

We also discussed the importance of effective internal and external communication.

Internal communication, regardless of fund structure, incorporates day-to-day messaging with the investment team as well as periodic but consistent communication with the parent entity, both through an investment or advisory committee and the executive team. Successful funds develop a cadence of weekly internal meetings to discuss management of the deal pipeline, execution and portfolio management, as well as monthly or quarterly meetings with the investment committee to and/or the executive team to discuss investment strategies and goals for transferring key learnings and insights to the parent’s core business.

External communication includes external promotion of the fund’s practices as well as ongoing active involvement with portfolio companies. Successful funds develop a comprehensive external messaging plan, including an investment mission and outreach plan to connect with startups and other members of the related ecosystem. Creating and delivering a comprehensive outreach plan will add credibility to the fund, reinforce support from the parent entity as well as drive deal flow and key relationships. Successful funds also strive to be a valuable investor to their portfolio companies, including Board meeting attendance and ongoing advisory roles as well as help with internal and external business development.

Of course, running an effective CVC investment program requires discipline in developing and managing a quality deal pipeline. We discussed how different CVC programs network in a particular industry ecosystem, develop a qualified deal pipeline, complete the vetting process to qualify companies as potential investments ,and then compete to win deals. We also discussed the importance of CVC programs positioning themselves for success by ensuring that their organizations can move through the deal process at customary “venture speed.”

A Final Thought

Rich Grant is a co-Founder of Touchdown Ventures, a Registered Investment Adviser, that manages venture capital funds for corporations. The authors would also like to thank Mike Devlin, Ryan McRobert, Selina Troesch, and Scott Lenet for their contributions to this article.

Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by Touchdown or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.

Risky Business

Thoughts on corporate VC from the team at Touchdown…

Rich Grant

Written by

Founder/VC @ Touchdown Ventures; proud alumnus of Wharton, UCSB, Comcast, Sony Pics & Lehman Bros. Huge Angels, Eagles & Lakers fan.

Risky Business

Thoughts on corporate VC from the team at Touchdown Ventures, the leading provider of managed venture capital for corporations.

Rich Grant

Written by

Founder/VC @ Touchdown Ventures; proud alumnus of Wharton, UCSB, Comcast, Sony Pics & Lehman Bros. Huge Angels, Eagles & Lakers fan.

Risky Business

Thoughts on corporate VC from the team at Touchdown Ventures, the leading provider of managed venture capital for corporations.

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