We sat down with Mark Kaiser, who has consulted on innovation and corporate venturing for companies like Coca-Cola, Nestle, and Cigna, to get his advice on starting a CVC.
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How to build a corporate venture program:
When an entrepreneur wants to build a business, she is faced with many unknowns. She doesn’t know if the technology is possible to build or if customers will want to buy it or if they’ll ever pay enough to make the economics worth the risk.
All she knows (or at least, believes with conviction) is that if she succeeds in building the right tech, and if customers buy it for the right price, she can build a massive business.
It can take years for that vision to come to fruition. That’s where venture capital comes in. Venture investors put money into startups at their riskiest stages in exchange for potential big rewards. And VCs do their best to help the startup however possible. They’ll make introductions to customers and help hire great talent and find more investors when cash is running low. They’ll invest in crazy ideas like search on the internet or bitcoin exchanges. Most will fail. A few will bring outsized, 100x returns. For many decades, that’s all there was to it.
In the 1980s, traditional corporates started to enter the venture capital game. Large technology companies like Intel wanted to get a stake in the many startups that were forming around the world and using Intel technology. They would put money into a high-risk venture, just like any VC. But, because of their capabilities as an operator and a chip supplier, they gave the startup a lot more value.
Many of the world's largest companies have thriving CVC programs
Today, venture investing has been disseminated from large technology companies through to every industry. Corporate investors help startups find pilot opportunities within their companies. They make connections with suppliers, assist with marketing, and become technical advisors.
While traditional VCs care about only one thing (financial returns), corporate investors see benefit in three unique ways.
Strategic value: For example, Unilever invested early in Instacart. This allowed Unilever to explore a new sales channel and influence Instacart to promote Unilever products.
Path to M&A: For example, Coca-Cola invested and received a minority stake in Honest Tea. It was a risk. No one knew that clean tea would take off. But when it did, Coke got to acquire the rest of Honest before the competition.
Financial returns: For example, Yahoo! Invested in Alibaba in the very early stages. The Chinese internet economy was just forming, and Yahoo! Could have lost it all. Instead, it earned over $6b in returns.
Over the past decade, the amount of money invested into startups by corporations has increased quickly. In 2021 alone, corporates invested about $170b into startups. Corporations in pretty much every industry are starting to invest in startups. Famous technology companies like Google, Facebook, and Amazon all invest in startups. Food brands like Constellation Brands, Coca-Cola, and General Mills have CVC divisions distinct from their M&A group. Automakers like Ford and General Motors, manufacturers like General Electric, and banks like Citi. All of these companies invest in startups.
Often companies spend millions of dollars on their CVC. They’ll hire teams of experienced venture capitalists and set aside a fund ranging from $5m in committed annual investments to billions of dollars. They’ll invest millions into every startup they work with and expect massive returns, financial or strategic, from every single one. For years, this has kept smaller corporates away from investing in startups.
There is a change happening in the CVC world. As more large companies see massive benefits from startup investing, smaller companies are starting to get into the game. These companies realize that they have a lot to offer a startup. A small business, even one with $5-10m in annual revenue, can help a startup in the following ways:
Invest $25k. A relatively small sum for an established business can give a startup months of runway.
Help the startup pilot within your business. Learn quickly how new technology will impact your business.
Introduce the startup to trade shows and networking groups you’re a part of. Be seen in the industry as an innovative, forward-looking company.
Help shape the startup’s product based on your needs. Get an external team to solve your most pressing problems.
A small or mid-market company clearly has a lot of value to give a startup. And in exchange, you would be able to access the financial, strategic, and commercial benefits that large companies have reaped from startups for decades.
We’ll explore more about how to run a CVC, and how smaller companies can start investing in startups quickly and cheaply, in the next posts in the series.
Are you ready to explore CVC? We can help you evaluate the market and determine the best next steps. If you are interested in learning more , Contact us today!
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