Corporate venture capital is one of the fastest growing areas of venture capital investment. Too many of these efforts are going to suck and fail. As The Donald would tweet: Bad!
They really shouldn’t fail, though. Corporations have fantastic relationships, expert employees to leverage, and internal demand for start-up companies to exploit.
To personally have those advantages as an investor, I would quite possibly listen to an entire Justin Bieber album. Well, maybe most of one. Private VCs have to work hard to build relationships, understand sectors, and seek out customers for their startups. Private VCs are disadvantaged in this regard.
Corporations, though, fail at one big thing. They treat VC like a corporate activity. Corporate hierarchical decision-making is slow and doesn’t adapt to the pattern matching and imperfect data that is present in startup investment decisions. Corporate pay scales virtually prohibit hiring investors with 10 years experience, successful track records, and networks of relationships, all required in the fragmented venture business. Corporations get confused on their goals, leading to short term commitments to investments that are long term illiquid. I could go on.
Private VCs have just one thing in their favor. They are more egalitarian in their decision-making and they are singularly focused on making money. Yes, I’m aware that is two things, but that destroys the symmetry of the language. Stay focused, reader!
Corporate VC doesn’t have to fail, though. The very best corporate VC functions are incorporating private VC approaches into their efforts. It’s hard, but it’s worth it.
And it’s not just worth it for the economic returns of VC, or for being able to see the latest technologies before the competition. Those are great things, sure. Instead, corporate VC is worth it because once or twice every 5 or 10 years, the Corporate VCs and the companies they work with will have an insight that changes the direction of the mothership. Then, instead of that $100m fund returning $300m in profit, it will alter the course of billions of dollars of mainline business.
It’s happened to others, and if you are a corporate VC group or thinking of starting one, it could happen to you — if you build it the right way.