Venture Capital and Corporate VC Doesn’t Have to be an Either/Or Scenario
There was a time when eyebrows were raised if venture capital (VC) firms saw corporate venture capital (CVC) groups in a startup’s cap table. But the stigma of “corporate backing” equallying “corporate control” and blocking other opportunities has lessened. After several waves of CVC groups and many failures, CVC managers are also becoming more sophisticated and better able to work with startups and VCs. I’ve always believed the more help a company has, the better, but it’s important to understand the difference between VCs and CVCs.
A few weeks ago, I joined Eric Hsia of Translink Capital, Henry Chung of Corporate Venture Capital Technology Partnerships and Investment at LG, Raj Singh of Jet Blue Technology Ventures, Ryan Whittemore of Florida Funders and Mara Lewis of ID8 Innovation at the Consumer Technology Association Startup & VC Exchange to discuss this topic.
Both VCs and CVCs bring unique value and advantages to a founder. Corporate VCs provide startups with access to potential customers and in-depth industry expertise and resources, as well as a potential exit. Institutional VCs are experts in driving financial results and building companies. They can also bring forward a wide ecosystem of experts, advisors and potential partners. Both can provide funding, but – in my experience – corporate funding can take much longer to materialize and can have more strings attached.
As the sole P&G executive on the ground leading the collaboration between P&G Ventures and venture engine M13 to form and grow new DTC companies that P&G can then acquire back, I’m seated at a unique intersection of the two. The aim of M13’s Launchpad is to bring together the best of the CVC and VC worlds. We combine the power of 180 years of P&G’s innovation, brand building and scale advantages with M13’s operational expertise, agility and entrepreneurial ecosystem to help founders build high velocity companies. I believe that’s magical – and a win for P&G Ventures, M13 and founders alike.
However, our model is new and not the norm. Most founders will find themselves choosing between VCs, CVCs or a combination of the two. Whichever they chose, what’s most critical is for founders to ensure their interests are aligned with their investor’s interests. Founders need to ensure they are clear on what they are looking for from each investor and that the investor is willing and poised to deliver on that.
For example, at P&G Ventures, we recently closed a deal with a biotechnology startup after several years of working together to optimize their product’s performance and manufacturability. P&G Ventures believed in the promise of the technology and therefore was willing to embark on the journey to get the product ready to market, in close partnership with the inventors. The end result was a win-win for the CVC and the founders.
In the case of a CVC, it is also very important to align on timelines and engagement dynamics. It is often difficult for a CVC to be fast and agile. Their systems are designed to run large business and complicated operations. They drive efficiency and costs down through standardization. These dynamics are often in contrast for the timing and flexibility needs of a startup. P&G Ventures has proactively worked to reduce this complexity and has significantly streamlined processes when working with a startup but we know it is never ideal.
On the VC side, when starting down the path of growing a new business, founders benefit from a firm that can offer strategic guidance and steady support from people who have been in their shoes. Contrast this to situations where small brands get lost in the shadows of big companies and corporate priorities. M13’s partners have extensive experience building companies, in DTC, and ecommerce as well as a broad set of relationships to help companies scale. Importantly, M13 partners also have the empathy and hands-on approach necessary to understand entrepreneurs who are just starting out and to make a tangible difference.
Another consideration is what Neeraj Gupta from Cervin Ventures shared during a separate CTA panel session: the founder-investor dynamic is crucial. The physics, mathematics and chemistry have to work. Investors are not just writing a check; the personal chemistry has to come first.
M13’s vision is built on a founder-first philosophy. The team is intentionally designed to include operators and former founders who have traveled the start-up road before. They’ve encountered the same kinds of choices, and made and avoided some of the same mistakes. The M13 Propulsion team has productized that knowledge to help founders make better decisions, so they can scale better and faster.
For any founder considering which investors to take funding from, it’s important to ask:
- What resources do I need and what problems am I trying to solve? Can this investor support me in that, beyond giving me capital?
- Do we fit well culturally? Is there good chemistry between our teams?
- Do our timelines and milestone expectations match?
Regardless of going the VC, the CVC or a combined route, it’s important to be thoughtful. Speak to other portfolio companies. Clearly articulate your objectives and timelines. Take time to find the partners best suited to fuel your growth trajectory and to go on the journey with you.
Check back to see MC discuss this topic further with fellow panelists during the session: Venture Capital vs. Corporate VC: You Decide.