Corporate venture investing has had its ups and downs over the last 50 years but there are some signals that may be experiencing a slight resurgence.
Total new capital invested in the United States tech industry rose from $1.9 billion in April to $3.8 billion in June, a 100 percent increase in two months, according to quarterly data from CrunchBase.
Also substantiating these statistics was a report from the Boston Consulting Group, a global management consultant, declaring that the trend is real and lasting. “Venture investing appears well on its way to establishing a firm foothold in the corporate world as companies look to nascent companies not just to generate financial returns but also to complement their R&D efforts, penetrate fast-growing emerging markets, and gain early access to potentially disruptive technologies and business models,” the report says.
Key Tactics To Mitigate Loss & Shore Up Success
Marketing & Sales
First, the corporate investor should be able to identify multiple areas within its organization where the startup’s product can make an important contribution to existing technological trends, as well as to existing and potential clientele. Marketing is a weak point for new start-ups, branding consuming most marketing efforts. Yet by survey, marketing is a sore spot for CEO’s. The contrarian view is to reign in the control of the marketing, whether in-house or through vetted outside marketing companies.
In today’s world, you need to be able to develop branded content, know how to build strategic partnerships, leverage social media and create an actual relationship between branding and sales. After all, marketing is all about increasing revenue.
Leadership & Team Building
Second, the corporate investor should focus on start-ups possessing both a strong leadership and a solid management team that are competent. Moreover, is the CEO and his management team clearly organized around exact management processes to carry of the important functions for survival and viability? The question of whether to invest or whether to acquire for the corporate investor depends on a variety of factors, including whether success can be achieved within the start-up’s model or as part of the corporate investors’ business. We must inquire and investigate thoroughly as to the full force of its research and development, sales and marketing assets and processes.
In a recent article in The Atlantic Cities, “Venture investment tracks the geography of talent, being correlated with the percentage of adults who are college grads (.55, .50) and the percentage of the labor force holding knowledge-work jobs in the creative class (.57, .50) — spanning science and technology, management, the professions, and arts, media and entertainment. It makes intuitive sense that venture capital is drawn to talent pools in great cities and also around great research universities and college towns.”
Third, the corporate investor should plan for the long-term funding needs of the start-up. The corporate investor should anticipate the start-up’s funding needs, taking into account a variety of milestones and exit scenarios. Another aspect to the funding is how the funds are allocated and if there are any discrepancies in the allocation of funds. To help address those questions, the investor needs to inspect the business plan and have this verified with a CPA or a business expert with an extensive background in that startup’s field. Corporate venture investing should only be awarded to those companies that clearly demonstrate an exact budget and means of regulating their expenditures.
Why A Strategist Greatly Reduces Risk For Any VC
Corporate venture investing experienced a fallout in 2007/08. While the economy was blamed, much to its own chagrin, the VC world acted like the loud drunk guy at a frat party. Obnoxious, unperceptive and feeling like nothing bad could happen in one’s moment of intoxication, VC’s became too dependent on cash flow as a means of solving the startup’s problems. Governments are addicted to this type of logic and behavior.
Today’s VC is going to have to conduct more due diligence before investing. Possessing the best product is no longer an assurance that one will create success or that one can continue to survive on additional capital indefinitely. Everyone knows that money is tighter, but this does not mean that highly profitable opportunities do not exist.
Because many startups have become leaner and meaner in these tough times, this lends to a VC potentially, a much better scenario than in previous years. But to take full advantage of those opportunities the VC must become much more involved in the management and organization of the startup.
While the experience in these three above fields may be lacking for the VC, he/she must reach out to strategists and experts in their respective fields to assist them in these new roles.