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A More Nuanced Look at Corporate VCs
Conventional wisdom says that corporate venture capitalists hate early-stage deals and active LP positions. But a new Silicon Valley Bank survey says otherwise.
Corporate venture capitalists are finding their own ways to thrive in the VC ecosystem, according to a Silicon Valley Bank survey of 106 CVC leaders across 10 countries.
Only 17 percent of CVC respondents are following the financially-minded strategies of traditional VCs, according to the SVB survey. The rest have adopted a more strategic-minded or hybrid approach that attempts to incorporate portfolio companies into their own business plans.
“Our survey data suggests that while more established CVCs continue their pursuit of parity with financial VC investors, a newer class of CVCs are positioning themselves as [hybrids],” the report said. These avant-garde CVCs can deliver “significant value-add” by taking advantage of their unique relationship with their corporate parents.
Moreover, the newer CVCs have little intention of changing their investment approach over the next 12 months. According to the survey, only 6 percent said they would adopt a more financially-focused approach. “The message for us is that the initial intention [behind a] CVC is the most relevant factor in determining the evolution of that CVC,” said Sophie McNaught, director of corporate ventures at Silicon Valley Bank.
Among the strategic-minded CVC leaders, only 12 percent are looking for merger and acquisition targets in their portfolio companies. More than 80 percent of the respondents said they are more interested in discovering emerging market trends or augmenting their existing business through the investment process.
“To understand the emerging future trend is a key motivator for the corporates that are investing in the innovation economy,” said Mark Gallagher, head of CVC at Silicon Valley Bank. “The invest-to-acquire mentality is pretty much gone.”
Corporate VCs are also more aggressive in early-stage deals than people might normally think. Seventy-four percent of the surveyed CVC leaders target companies in pre-seed, seed, or series A & B rounds, while only 7 percent are targeting late-stage companies.
Unlike private equity firms, hedge funds, and other nontraditional investors, which are particularly interested in late-stage financing rounds and mega-deals, CVC investments tend to “skew earlier,” Gallagher added. “CVCs are willing to take that level of technology risk at the early stages,” he explained. “As a partner, they have a better understanding of the technology risk, in many cases [even better] than the traditional VCs, given their core focus on a key area.”
CVCs are actively pursuing LP positions, too. Forty-nine percent of all CVC respondents and 66 percent of those with a strategic-minded approach said they had active LP positions, mostly to supplement their existing deal flow and expand geographic exposure.
“[CVCs] are engaging [with the] innovation community in a multifaceted approach, which makes them a really interesting partner to work with,” Gallagher said. “They are intelligent, thoughtful, and patient investors.”