Founders hunting down capital in the middle of this pandemic may feel like they’re on a fool’s errand, but some investors are still offering financing, even if the terms might not be as good as they once were. One avenue that appears to remain open: corporate venture capital.
The corporate route offers its own set of unique challenges, depending on the philosophy of the organization’s investment arm. Some are looking strictly for companies that fit neatly into their platform, while others believe a solid investment is more important than a perfect fit.
Regardless of style, these firms want their investment targets to succeed on their own merits, rather than as part of the organization the funding arm represents. To get the lay of the land, we spoke to a couple of firms that take very different approaches to their investments: Dell Technologies Capital and Salesforce Ventures.
Corporate venture is a different animal
Corporate venture funds aren’t typically as large as private ones, but they have a lot to offer, such as global sales and marketing support and a depth of knowledge that offers direct benefits to a young upstart. This can help founders avoid mistakes, but there is danger in becoming too dependent on the company.
The good news is that these companies are often not leading the round, but are instead providing some cash and guidance, which leaves entrepreneurs to develop and grow on their own. While the pandemic is forcing many changes in approaches to investment, the two corporate venture capital firms we spoke to said they will continue to invest, and their theses remains pretty much the same.
If you have an enterprise focus and you can convince these firms to take a chance, they offer some interesting perks a private firm might not be able to, or at the very least provide a piece of your funding puzzle in these difficult times.
Putting the parent company first
Salesforce Ventures is a 10-year-old venture capital firm that looks for enterprise software companies that align closely with its parent company, says Managing Partner Matthew Garratt.
“The mandate that we have is that we’re always out scouring looking for the most innovative companies in enterprise software, and we look to invest in those companies and partner with those companies and have them integrated with our technologies,” he told TechCrunch.
This means that new investments must be tied to Salesforce’s ecosystem in some way that improve the experiences for users, even if that means simply being part of the Salesforce AppExchange. Among the companies Salesforce has invested in over the years are NS1, Snowflake and former TechCrunch Disrupt NY Battlefield finalist DigitalGenius. (Snowflake was an exception to Salesforce’s typical approach, helping lead the company’s most recent round.)
This is in contrast to Dell Technologies Capital, which is less concerned about how well a startup ties in with Dell’s family of products, so much as the ability of the company to perform well will give the fund a good return on investment. While Salesforce Ventures certainly cares about return, platform lift is more important.
More traditional approach to VC
Scott Darling, president of Dell Technologies Capital, says his eight-year-old company is focused on financial discipline, so he runs his firm no differently from a private venture operation. First and foremost, Darling said his goal is to get a solid return.
“If you have any strategic goals, and you’re not operating at a high financial level, which is a proxy of course for the underlying success of your companies that you’ve invested in, and if they’re not achieving business success, then you’re not achieving your strategic goals,” Darling explained.
As a company venture arm, Darling says his firm obviously has something to offer startups beyond the pure capital. Even though his firm operates independently, it can still tap into Dell’s family of companies, along with its marketing and sales prowess.
And that is a big selling point for enterprise entrepreneurs seeking an investment partner. While Dell Technologies Capital has invested in a fair number of companies over the years, there is some overlap with Salesforce, including NS1 and DocuSign, along with many other companies like Nutanix, Mirantis and Datometry.
Working with the mother ship
Regardless of the approach, neither of these venture arms operates in a vacuum — they serve the companies that fund them.
Garratt says Salesforce Ventures has close ties to the companies it funds and usually assigns someone from Salesforce to lead the way for the startup inside the large organization. “For every investment we make we do have an executive sponsor. Generally, that is a GM from one of our products. […] Sometimes my team identifies opportunities and brings them in or sometimes it may come from one of our GMs, who thinks this is a really interesting area that they want us to investigate or very interesting company,” he said.
Darling says that work between the portfolio companies, DTC and the Dell family of companies requires a delicate balance to make it all work. “The simple answer is trust. And that’s a commodity that’s very hard to come by. It’s not easily manufactured. If you can have the magic elixir of trust you can do incredibly well, and I think we have it,” he said.
Each company has done well with different approaches, investing in many successful companies and seeing a tidy number of exits and nice returns along the way. While they might measure success differently, depending on their philosophy, if they meet their goals and they help founders succeed with the power of their organizations, then presumably everyone gets what they want out of the relationship.