Shifting Gears
How corporate venture teams can deliver value with commercial transactions
“Shifting gears” in a corporate venture (“CVC”) program may be relevant to anyone who is slowing down the pace of new investments during the current economic downturn and Covid-19 pandemic.
As with a gear shift, there are five different multi-party options for partnering where you as an innovation professional can expand your influence and impact to your parent company and your portfolio.
Wendell Brooks of Intel Capital always mentions how good VCs should focus on the portfolio at all times, and this is especially true during a recession. The good news is that there are plenty of ways to add value in the current environment, even if you aren’t writing as many checks into new deals at the moment.
While there is additional pressure in this economic environment, it is important to keep in mind that corporate VCs are in a unique position:
CVCs can measure a program’s success in multiple ways. Financial KPIs are the same as traditional investors, but CVCs also have strategic KPIs. How can you use this time to create new or deeper commercial partnerships that will have a meaningful impact on those strategic goals — generate new revenue streams, enable cost savings, evolve your organization’s culture, share innovative learnings?
Even if your investment activity has slowed due to current market conditions, you can continue to engage with and add value to the startup community through wholly new or expanded commercial agreements with relevant companies.
We also know that it takes a long time to return capital with venture capital investments. Commercial deals can provide visible impact on a faster time frame, which can really help if your boss wants to see results faster than half a decade from now.
So let’s hit the road — yes, I’m really embracing this metaphor — with five different multi-party deal types where innovation professionals can potentially add value today…to your corporation, your portfolio companies, and your overall investment ecosystem. See, it looks like a gear shift.
1st gear: your portfolio + your parent company
First up…commercial deals between your parent corporation and your portfolio companies. This one seems pretty obvious, right? CVCs are strategic investors, bringing scale, industry expertise, and additional resources to the table. This is what you do! But you’d be surprised how many CVCs don’t consistently activate this opportunity as a part of their investment strategy. Or maybe they have existing partnerships with narrow scopes, which don’t have a meaningful impact on the KPIs that are most important to the organization.
If you don’t have a commercial agreement in place with each of your portfolio companies, go do it! For each one, think creatively about the specific type of deal that has the potential for a short term win for you and that helps to build value for your portfolio company. There’s no one size fits all in how to structure these deals, but there are some basic choices for deal structures.
And if you already have a successful deal in place, think about opportunities to expand the scope of the work, including servicing other business units or teams. The more internal advocates you have for the company and the CVC program, the better.
Sue Siegel, who was GE’s Chief Innovation Officer and ran GE Ventures, is a real advocate of focusing on this kind of partnering, and even maintained an internal target for GE Ventures to build relationships between the portfolio and the parent corporation. Sue notes:
“Corporate venturing professionals should focus on mutually beneficial partnering relationships with their portfolio companies. We had an internal target to create deals with about half our portfolio companies at GE, which often included enhancing the portfolio company’s product, helping with distribution, embedding their product into one of GE’s products, and so on.”
Arguably, if your group isn’t doing as many new deals right now, you probably have time to focus on other ways to add value, and if you haven’t already done so, the first step could be to set an internal target and start working on it.
2nd gear: your portfolio + other companies in your portfolio
Next, let’s talk about deals between your portfolio companies. As a venture investor, portfolio management is a critical component of your job, even more so during this period of economic volatility. Assuming you haven’t only invested in companies that compete directly with each other, your companies should have a high likelihood of being complementary in some way, shape or form. Identify where there is overlap and facilitate partnerships that enable both companies to create additional scale, expand market reach, accelerate innovation, or access new customers.
3rd gear: your parent company + someone else’s portfolio
First and second gear are the simplest to envision as CVCs. Now we move into third gear to explore opportunities between your parent company and other portfolio companies. Stay with us here…I know it may not seem like these should be a priority. But I would argue they are incredibly important and make you unique as a CVC.
This is assuming the pace of your investing may have slowed to some degree due to the economy. And we’re also assuming you are still meeting with startups and other VCs. If that’s the case, these types of deals create an excellent opportunity to keep your program relevant and ready to ramp up again when the time is right.
A few short term benefits to consider:
- Building relationships with companies in which you may want to invest in the future. Test drive the startup and be in pole position to invest at a later date (wow, this metaphor just keeps going!).
- Providing innovation and added value to your parent company. Facilitating valuable commercial deals to shows the program has near term impact. Results speak far louder than PowerPoint presentations.
- Maintaining your reputation and position within the venture community. VCs and startups expect meetings are actionable in some way. Commercial deals can be valuable currency.
4th gear: your portfolio + other corporations
Shifting into fourth gear, let’s think about how you can make connections between your portfolio companies and other corporations. This again ties to the fundamental responsibility of investors post-transaction…portfolio management. Your external network can be leveraged to benefit your portfolio companies.
Potential benefits to consider:
- More revenue is always a good thing for your companies. Try to help your startups generate cash flow and add other top-tier corporations to their list of customers.
- Other corporations could be future investors and paths to exit (if your own corporation doesn’t want to acquire the company, of course).
- Proven portfolio management support via business development makes you a more attractive investor to future entrepreneurs.
5th gear: your portfolio + someone else’s portfolio
Lastly, fifth gear…this one may feel more peripheral but it’s always important to “check your side mirrors” and be on the lookout for any opportunities to facilitate partnerships between your portfolio companies and other portfolio companies. These types of deals will be fewer and farther between but there are still benefits. As in third gear, making these connections enables you to build relationships with companies you may want to invest in the future and helps to maintain your reputation and position within the venture community. And more importantly, it may create entirely new opportunities for your portfolio companies to create additional scale, expand market reach, accelerate innovation, or access new customers.
Keep in mind that helping craft deals between your portfolio and other startups could also be giving you the inside track to invest in good companies when you do resume writing checks.
As the five different gears illustrate, your corporate venture team is uniquely positioned to add value for your internal constituents as well as across the venture ecosystem during an incredibly tumultuous time. Stay focused, get creative, and rev up those commercial transactions.
Just don’t go in reverse!
Thanks to Scott Lenet for his contributions to this article.
Beth Kearns is a Venture Partner with Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.
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