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10 Best Ways to Work with a Corporate VC

by Amit Garglast major update Jun 3, 2015

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Why do I care?

• Are you an entrepreneur trying to understand what is corporate venture?

• Or an employee trying to understand what exactly the venture arm of your company does?

• Or just simply curious what corporate VC is all about? Certainly an increasingly important source of capital -- in 2014 corporate venture capital made up of 25% of all venture capital and its participation is increasing.

• This presentation is from someone who has operated in different contexts (product + analytics at large tech company, startup cofounder, venture capitalist in both financial and corporate setting) to help illuminate a few truths.

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1) Why Corporate VC

• Brings in a lot more than capital.

• For one, resources for the startup including R&D, partnerships, and distribution, which can give you a huge boost and dramatically change your company’s odds.

• In return the corporate can be closer to the startup’s innovation, often times leveraging novel collaborations.

• Consider what a Google, Apple or Samsung can do for your startup, from distribution to manufacturing to R&D.

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3) Balance Sheet vs Dedicated Fund

• When a corporate VC is investing out of balance sheet, they are typically subject to the ups and downs of the parent company. If the parent does well then they have more to invest, if they don’t they have less.

• A dedicated fund on the other hand is more insulated from market pressures and will typically be more forward-looking.

• Neither model is inherently better than the other but when you are working with a corporate VC, understanding what structure they are operating in can only help your own strategy.

• At Samsung for instance there are three different venture arms set up to manage different funds, which gives you the opportunity to optimize different needs.

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4) Fund Structure

• If your corporate VC is operating out of a fund then they might have a single source of funds (limited partner aka LP) or a mixture.

• A single source means they get all the money from the parent.

• A mixed base means they are raising funds from other entities.

• Neither model is inherently superior than the other, it just means how closely aligned the VC will be to their parent’s strategic interests.

• A corporate VC where most if not all the funds are coming from the parent is essentially an evergreen fund ie they do not have to go through the time and effort (hassle) of raising a fund.

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5) Your Investor as a Competitor

• Especially in larger corporates, there might be projects competitive with your startup.

• Some corporate VCs explicitly have mandates disallowing investment in those cases, others do not.

• Overwhelmingly the trend is to encourage this type of competition -- your corporate VC might actually invest in you even if it goes against some interests within their own company.

• In that case, for them to make an investment decision autonomously, without needing business unit approval, is paramount.

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6) Slow or Fast

• Corporate VCs will typically, but not always, be slower than a financial VC because they have to observe their parent’s processes.

• They will typically validate the technology and business more thoroughly, which does mean they make an investment more well informed.

• Some ways in which corporate VCs mitigate this is by making their decision making autonomous within different stages ie they can be completely autonomous for a certain amount but need more diligence for a larger amount.

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7) Lead or Follow

• Most corporate VCs prefer to follow and will lead depending on the deal.

• Part of this is because their goal is not to maximize ownership but strategic returns, and a stake in the company, as long as it carries influence, is enough.

• Another reason is when a corporate VC leads a deal it creates a perception they might want to acquire the company which may or may not be something the entrepreneur wants to signal in the market.

• Additionally if an entrepreneur has an urgent need of capital, then a financial lead will typically be able to move quicker than a corporate which has to respect its company’s processes.

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8) Coinvesting

• The fact that a corporate doesn’t typically have a quota on ownership or valuation, they can make for easier entities to loop into a syndicate.

• Whereas large financial VCs might battle amongst themselves for the largest ownership, a corporate VC could work effectively with any of them.

• The flipside is some coinvestors might not want a corporate involved if they think they will dictate the startup’s agenda -- which is why understanding your corporate VC’s motivation is critical.

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9) To NDA or not to NDA

• Corporate VCs are no different than any other VC in being hesitant to sign NDAs -- they are exposed to much confidential information and signing a NDA can become a liability.

• A corporate VC will typically sign a mutual NDA if you start exploring potential collaborations or actually executing those with the business units.

• If they are not then you as a startup should bring up this question for sure to protect both sides.

• Especially in my entrepreneur days, I have found ultimately trust trumps any NDA and execution is the only sustainable defensibility.

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10) Corporate VC Incentives

• A corporate VC typically has a salary and a bonus, some will also reward their employees based on the startup’s (financial) performance.

• They may message to the world their title as Associate, Principal or Partner but often times they will be coded internally per their company’s hierarchy.

• A due reminder -- title and age are correlated somewhat to ability or seniority but the most valuable indicator is how much autonomy and decision-making power your investor really has.

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Epilogue

Corporate VCs hold a great promise and can really mean the difference between your startup succeeding or not. Understanding them better is a first step in working most effectively with them.

About the author: Amit is currently a Principal in Samsung’s Investment Team at the Global Innovation Center (GIC) in Silicon Valley. He started his career in product at Google, was a VC at Norwest Ventures, and cofounder of a healthtech startup. He did his undergrad and masters from Stanford and an MBA from Harvard.

Special thanks to Rebecca Mandel, Christina Bechhold and Jen Canfield from Samsung GIC; Naomi Kokubo from Founders Space, and Wedge Martin from VivoInspire for their feedback!