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At a time of increasing disruption, corporations must innovate to survive, and many are doing so by partnering with top startup entrepreneurs and founders. In this edition, we ask Tracy Isacke, Head of Corporate Relationship Management at Silicon Valley Bank, about the hottest trends and upcoming opportunities for corporate venture capital in the global innovation ecosystem.
Why is corporate venture valuable for promoting innovation?
The speed of innovation and disruption is accelerating. Large corporates and their industries are being challenged by incredibly nimble startups that often look to pick off pieces around the edges of a business before coming to dominate an entire industry. To compete, some corporations have created in-house “startups,” but many larger corporations now recognize that internal innovation alone is not enough. They view promising startups as potential partners in their bid to push the innovation envelope and, in turn, are creating corporate venture capital (CVC) arms.
A decade ago, it was very hard and expensive for startups to scale and compete with large multinational organizations. Since then, the barriers to entry and growth have fundamentally changed, as mobile and cloud technologies and the drop in computing costs are all creating incredible opportunities to scale businesses at a faster pace and at a fraction of the cost. The ability to scale also has accelerated with the ease of access to capital. Now, as many startups are scaling more efficiently, corporates have realized it’s in their strategic interests to foster value creation through partnerships, investments and acquisitions.
The takeaway is that new market and innovation models are keeping even the most established companies on their toes. This is very good news for entrepreneurs and the VC funding landscape overall: Venture dollars, corporate expertise and access to customers and distribution channels are flowing to almost every industry and fueling innovation.
In your experience, what strategies enable CVC arms to be successful?
CVC success requires a strong commitment from executives at the top of the organization. Trying to set up a CVC arm with half measures — minimal funding, slow decision-making, lack of C-suite champions — is typically a recipe for failure. A key question to resolve at the start: Are your KPIs strategic, financial or a blend of both? Often, it’s most sensible to pursue a smart balance. The term “strategic” is often mistranslated as a lack of concern for financial success when, in fact, it should signal a strong alignment with business initiatives, including profitability.
Beyond succinctly defining your goals, clarity about your approach is also paramount. It’s important to understand what areas you care to invest in, articulate the decision-making process and communicate how you plan to differentiate yourself as a source of value-added capital to the startups. Finally, it’s very important not to treat corporate venture investment as a P&L within the core business. Traditional VC investors take a long-term view of gaining returns from their portfolio investments, and corporate investors should adopt the same level of patience.
Many corporations have essentially joined the ranks of VC investors, adding investment teams and dedicated funds, but sometimes their goals veer from those of traditional VCs. Strategies and return profiles may differ. Is CVC growth ultimately good for the VC industry as a whole, and what effects have you seen?
It depends. When corporates get it right, and they understand the value they can bring to a startup partner or an entire industry, then I think they truly have the ability to change the trajectory of a company or a market for the better. Having a partner — for example, a corporate investor who works in a larger organization, has critical subject matter expertise and can ask second- and third-order questions — can be significant when setting up a startup for long-term success. Having a partner who truly understands your business can lead to great working dynamics and help build a strong board. That said, if corporates fail to set or articulate their expectations or execute on their promises, founders and traditional VC investors are frustrated. Again, that’s why mission, structure and approach are so important for corporates to carefully define upfront. Understanding how and when to come in as a strategic investor is another key decision: Will you add more value at the seed round or at Series A or B? Should you be leading the round? Have you set aside follow-on investment funding, even if the company veers away from your strategic direction?
Planned well and with the right team in place, I think CVC arms provide a fantastic source of support and scale for startups that traditional VCs may not be able to match. From sharing leads for channel partners and customers to promoting pilot opportunities, CVC arms bring a wealth of value beyond their capital.
How have executives’ perspectives changed in the past decade?
My belief is that all corporates, in every single industry, do not feel safe. Previously, a large company executive could afford to be a little dismissive of the founders walking in with big claims of how they were going to disrupt an industry. Now, we have so many examples of startups doing just that. Corporates have a very different perspective today: Innovation and partnership have become imperative, not optional.
Corporate venture initiatives are becoming more professional, including building blended teams of investors who understand both the corporate and the venture worlds and what it takes to create effective partnerships with their portfolio companies.
What role does SVB play in helping corporates connect with the innovation economy? How do you act as a strategic partner for corporations?
We sit at the heart of this incredible intersection of startups, VC investors and corporates, and this creates a true innovation network. We have deep knowledge and understanding of a variety of industries and share our contacts, analysis and observations through highly curated events, tailored introductions and meetings and unique market insights. We also act as a strategic partner and consultant, should corporates seek help designing their approach to innovation, such as how to identify the best working model, who to tap for support and how to create lasting impact. We work with a number of partners and can also help corporates navigate the “existential crises” that are bound to appear when thriving in disruption.
The views expressed in this article are solely those of the author and do not reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates.