With global corporate-venture-capital-backed (CVC) funding reaching $79 billion across 2,099 deals in the first half of 2021, according to CB Insights, the chances are high that startups will find great opportunities with this growing investor set.
Entrepreneurs, however, are likely to discover that the investment process can be different for CVCs compared to private venture capital firms. While both types of investment firms tend to make decisions via an investment committee (IC), private VCs (inclusive of VCs with corporate backers that have an independent LPA structure) make up their ICs with firm partners and/or other venture-minded people.
As CVCs become more active, entrepreneurs often don’t understand that the decision to invest, or not, doesn’t rest solely within a subgroup of the direct investment team or with venture-minded people.
But for CVCs investing off a corporate balance sheet, the IC can include corporate-minded people, such as the CEO or business unit leaders, who generally tend to be detached from the venture mindset and the requirements for operating in the VC world. As such, entrepreneurs will realize that a successful CVC investment decision tends to have different requirements compared to a private VC firm’s decision.
So what do entrepreneurs seeking investment need to know about this relatively new but powerful participant in the funding process? I’ll do my best to demystify the role of the CVC IC and shine a light on how entrepreneurs can navigate some of the hidden pitfalls while taking advantage of the opportunities.
The arbiters of investment
While private VCs immerse themselves into the venture ecosystem, CVCs live in the middle of two very different worlds and mindsets: corporate and venture. The CVC must engage the venture ecosystem to attract deal flow while also driving opportunities that can be of strategic interest to the corporation.
To do this well, a CVC ideally should have a well-defined mandate and IC purpose statement — to deem investment opportunities as strategic, for example. A business unit leader or CEO who spends about an hour on a monthly IC session is nearly completely immersed within the corporate mindset while making a decision related to the venture world.