Measuring Success in Corporate Venture Capital

How to identify KPIs for strategic investment programs

David Horowitz
May 29, 2018 · 6 min read
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Corporate venture capital and institutional venture capital (also known as “financial VC”) are sometimes similar and sometimes very different. Financial VCs largely have one goal: to generate superior financial returns for the fund’s limited partner investors. Corporate venture may have multiple goals: in addition to generating financial returns, “strategic” goals may include helping the corporation learn new industries and market trends, seeking start-ups to fill a product roadmap, or even sourcing commercial partnerships. Of these goals, the simplest to measure is financial return.

Measuring financial return is easy once a fund is complete. One tabulates the capital deployed in an investment or portfolio of investments, and compares it to the money returned on realizing an exit. The raw comparison provides a cash-on-cash multiple on invested capital (referred to as “MOIC”), and when the dates of these cash flows are included, an internal rate of return (“IRR”) calculation is generated.

On the other hand, measuring strategic return is challenging — there are very few frameworks to help corporate venture capitalists articulate strategic goals and measure them. So at the recent Global Corporate Venturing & Innovation Summit in Monterey, California, I led a session exploring best practices for identifying and measuring the strategic goals of corporate venture capital. The session leveraged my two decades of personal experience in corporate venture, as well as the expertise of our firm Touchdown Ventures. We also benefited from the insights of our audience, which included experienced and new corporate venture capitalists.

First, we brainstormed a list of possible strategic benefits that could be delivered by corporate investing. Here is the “crowdsourced” list we generated, in no particular order:

  • Access to new technology

Second, we voted on the top five most popular goals. The five objectives prioritized as most important were:

1. Access to new technology

2. Trend spotting and market intelligence

3. Commercial relationships

4. M&A pipeline

5. Launching businesses in new markets

Each corporation is unique, and while these were the five most popular objectives according to the people surveyed during our session in Monterey, other objectives may be more important to any one particular organization. It is important for each company to generate a comprehensive list of objectives and then prioritize the ones that are most important to its own circumstances.

Next, we discussed how to measure those goals by developing qualitative descriptions and quantitative key performance indicators (“KPIs”) for the five most popular goals. For each goal, we described the benefit to the company, but also translated that goal into quantifiable, measurable KPIs.

1. Access to new technology

  • Qualitative: accelerate product roadmap, IP licensing, joint development

2. Trend spotting and market intelligence

  • Qualitative: insights on specific industry sub sectors, “road shows” to tech centers like Silicon Valley

3. Commercial relationships

  • Qualitative: strategic benefit from deals executed with external partners

4. M&A pipeline

  • Qualitative: de-risking of the M&A process through prior diligence (evaluating M&A targets at an earlier stage of development)

5. Launching businesses in new markets

  • Qualitative: new business lines created leveraging start-up relationships

Launching a corporate venture program from scratch can be daunting and setting up KPIs for the program’s performance is even harder. Note that it takes thought and analysis to translate goals into quantifiable objectives. It often takes more than one brainstorming session to arrive at key measures.

To summarize, the process consists of:

  1. Brainstorm a list of possible business goals for your corporation that could be delivered by the venture capital program

Here are some additional key takeaways we discussed in the session that may help guide your corporate venture program:

  • Before focusing on deal sourcing and deal evaluation, set-up specific goals and KPIs for success of the overall corporate VC program or fund

Remember each corporation is unique and the goals and associated KPIs must reflect what is most important and “moves the needle” for your company.

We hope this framework helps with either the launch or construction of your corporate venture capital firm!

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David Horowitz is a Co-Founder and CEO at Touchdown Ventures, a Registered Investment Adviser that manages venture capital funds for large corporations.

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…

David Horowitz

Written by

Founder & CEO at Touchdown Ventures (manager of corporate venture capital funds)

Risky Business

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

David Horowitz

Written by

Founder & CEO at Touchdown Ventures (manager of corporate venture capital funds)

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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