Should You Keep Your Corporate VC Fund in Stealth Mode?
“Stealth mode” is the practice of starting an effort, usually a new company or technology project, and keeping it secret. Stealth mode can be justified as a way to avoid alerting potential competitors to your plans.
The hallmark of stealth mode is shunning publicity. This requires avoiding a formal launch, press releases, a web site, and public speaking opportunities. Secrecy may include asking for non-disclosure agreements and generally means being very careful about disclosing what you are doing.
While keeping secrets isn’t easy, especially in venture capital, some corporations prefer to begin their venture capital practices in stealth mode. In my role helping corporations run their innovation programs, I am often asked whether this is a good idea.
In my experience, corporations benefit from announcing their venture capital programs as early as possible and not trying to use stealth mode.
This opinion applies specifically to corporate venture capital (“CVC”), and not M&A or business development efforts. This is because the venture capital industry has different norms than M&A and business development. In general, public announcements and web sites are ordinary practice in venture capital, while it is more common to keep secrets when making smaller acquisitions or signing commercial deals with startups. Journalists who follow the venture industry often research publicly available documents that require disclosing the identity of investors, and this makes it more difficult to keep financings a secret. In addition, VCs tend to review deals in larger volume than other corporate development professionals, and this results in a greater need to message to the entrepreneurial ecosystem to be effective. For the most part, venture capitalists won’t sign non-disclosure agreements.
Still, many organizations choose to start in stealth mode and can do so successfully. Here are pros and cons of the stealth mode approach, along with best practices for developing a communications strategy if you do choose to keep your CVC a secret:
What’s Gained With Stealth Mode
Secrecy provides the flexibility to cancel the program while minimizing embarrassment. If a corporation touts its new program, generates significant press, and then fails to follow through, there can be negative consequences to the reputations of all involved.
Stealth mode can also offer the ability to change your strategy without having to retract previous public statements about what the CVC will do.
This is not to say that all headaches can be eliminated. Even without a publicity campaign, your CVC may be one of the worst kept secrets you can imagine. Internally, many of your employees will know about the program. The CEOs and many team members of your portfolio companies will know, and so will your co-investors. As previously mentioned, journalists may be aware of your program even if they don’t choose to write about your CVC.
What’s Gained By Announcing
A clear announcement signals commitment to the rest of the ecosystem, especially to entrepreneurs and co-investors. Many traditional VCs feel they have been burned by corporate investors that didn’t consistently support their portfolio companies, so the confidence to step out of stealth mode may be viewed as a reduction in “bad actor” risk by CVCs.
This makes sense since the main benefit of stealth mode is ambivalence, and no one wants to be left in the lurch. Announcing allows the rest of the industry to believe you are serious about the program.
Public communications about your CVC can also make it easier to attract the types of deals you seek, and to advance the right opportunities to the next stage. External communication tools like press releases, web sites, blogs and public speaking help provide clarity and focus for your venture team.
But sometimes, you really aren’t sure or are just not ready to announce. Even then, you should devote substantial effort to crafting a communications strategy and key messages.
Either Way, You Need a Communication Strategy
As previously mentioned, multiple groups of key stakeholders will know about your corporate venture program and they want to know what you do. You need to be able to answer basic questions, including:
- What do you fund, by sector, stage, and geography?
- What is your approach to governance — will you serve on the board?
- Who is on your team?
- If you have already made investments, what companies are in your existing portfolio?
- Will you make follow-on investments and support your companies?
Another benefit of developing these key messages is consistency. Every time you or someone from your corporation interacts with someone outside the firm, it is helpful to be able to say the same thing about your CVC. When someone from your firm misrepresents the corporate venture program, the damage can be real. So the ability to follow-through and do what you say is essential. To know what you should say, write it down.
Therefore, you should develop a communications strategy, with key messages just like you would for any other product, service, or corporate initiative. Take the information you might ordinarily put on a web site, and create a one-page summary or a short deck that summarizes key information as described above, and distribute it to everyone on your team who will be speaking with entrepreneurs, investors, and any other external stakeholders.
Overall, my opinion is that being cagey or secretive isn’t usually an advantage in venture capital. The best relationships develop when everyone is clear about their motivations and roles. So even if you aren’t planning to announce your corporate venture capital program, an articulated communication strategy can be a valuable tool in achieving your goals.
This article originally appeared on Forbes.
Liked what you read? Click 👏 to help others find 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.