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Utpal Doshi
Partner - CVC, 100X.VC
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Aug 08, 2022
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Corporate Venture Capital and Early-stage Startups – striking a winning partnership

With the advent of startup ecosystem, large corporations realised the potential of investing in external startups. To be part of the ecosystem, these corporations created separate legal arms or inhouse divisions which are funded and ran autonomously. They are commonly referred to as “venture capital arms” or “corporate venture arms.”

Companies such as Google, Qualcomm, Microsoft, Intel, etc have professional active venture arms. This is an important development for entrepreneurs and startups, as these corporate venture arms can invest significant capital and provide substantial assistance to a startup.

In India, large companies across sectors and industries have established their corporate venture arms for making strategic investments. Companies who understood this changing trend and made strategic investments / acquisitions got first mover advantage which not just helped in enhancing their business profile but also gave high value exits.

Looking at their success, now many more corporates are seriously considering investing in startups with an objective such as earning return on investment, making the business future proof, access to new business models and disruptive technologies, new market and customer base, and getting insights on market trends.

As we see more traction between corporates and startups, it would be interesting to know how corporate venture arms are established and operated, what benefits they bring to startups, and what goals they look to accomplish.

The corporate venture arms are typically structured either as a standalone legal entity like LLPs or as a separate division within the corporate which are managed by a dedicated investment team. Investment decisions are typically made by investment managers of the venture arm. In some instances, approval by the Chief Financial Officer or other officer of the parent company may also be required.

There are different ways in which corporate venture arms can be funded. In case of a separate legal entity form, the capital can directly be invested by the corporate which in turn can be invested in startups. In case where a corporate venture arm is set up as a separate division within the corporate, the corporate can allocate certain amount for potential investments.

While the investment thesis / objective of a corporate venture arm would differ on a case-to-case basis, few considerations that they look for while investing in a startup are growth potential, addressable target markets, synergies with the existing business, potential return on investment, possible future acquisition.

Investments made by corporate venture arms vary from early-stage deals to advance stage. They may span over seed rounds, Series A rounds, and Series B rounds. While historically, corporate venture arms use to invest in startups where the deal is led by an institutional venture capital, the situation is changing now with corporate venture arms ready to take decisions on their own. What they are looking for is deal flow to analyse and take investment decisions. Correspondingly, it is important for startups to have investors who have the capital and ability to participate in follow-on rounds of financing. Fortunately, many corporate venture arms can and do make follow-on investments.

Apart from funding, Startups can expect valuable guidance and assistance from a corporate venture arm such as strategic and tactical advice, operational support, product and market validation, access to parent company’s resources, access to customers and marketing network, global reach, etc.

This is what Google Ventures, the venture capital arm of Alphabet, Inc., with investment in over 400 companies, shared about the support it provides: “We’ve built a team of world-class engineers, designers, physicians, scientists, marketers, and investors who work together to provide these startups exceptional support on the road to success. We help our companies interface with Google, providing unique access to the world’s best technology and talent.”

In the midst of present environment of “Funding Winter”, startups need to realise that there is no shortage of capital for startups with innovative ideas irrespective of the stage at which they are operating. An appropriate synergy will help startups to grow and create potential exit for corporates.

Strategic investors can provide more than just capital to a startup. They in turn get various benefits by making such investments. Corporate venture arms can be enormously helpful in the growth and success of a startup, and hence entrepreneurs should welcome their participation in their business to create a winning partnership.

We believe that corporate innovation can be easier with the help of 100X. Why? Because we partner closely with organizations that want to create a culture of innovation and address challenges that prevent them from growing and evolving. The Corporate Venture Capital team at 100X VC help corporates in achieving their corporate innovation goal by being part of the startup ecosystem. We help corporates to define a strategy that will help in finding the right startup which can help the corporate achieving its goals and objectives and take the business to new heights.

Are you interested in learning more about how 100X can help you accelerate innovation in your company, we at 100X.VC will be happy to help you on a no-obligation basis.

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