How do corporate venture capital firms different from conventional venture capital firms?

They aren’t as dependable. This doesn’t mean they are “worse”. It does mean be careful how you use them.

This is issue #1. A few like Salesforce Ventures and GV are an exception, but let me explain:

  • Corporate VCs often do not write a “second check”. But most institutional VCs save reserves for another check, if you are doing OK but not great. Institutional / financial VCs have motivations to bridge you if you need it. Corporate VCs often do not.
  • Corporate VCs rarely lead rounds. What is most valuable is a lead. Someone to write the first, main check. Few corporate VCs do this. At least not for the earlier rounds.
  • Corporate VCs are Fair Weather Entities. They can come and go when corporate strategies change. Again, this is less likely with Salesforce Ventures and GV, etc. But be wary of newer, less proven entities IF you need something from them down the road.
  • The synergies are real, but limited. Yes, they can make intros and connections. But that only goes so far. A $100b company can only take so many intros from some start-up the company owns a tiny bit of. I mean, you can only be so high of a priority as an outside entity.

But does this mean corporate VC is bad? Not at all. It is a tool for a job. When corporate VC helps:

  • It can align you more closely with a core partner. If you have a critical partner, it can help bond you closer if they invest. Logical or not.
  • They can invest odd and smaller amounts, and sometimes, between rounds. Corporate VCs generally don’t have the same strict ownership requirements as Financial VCs. This means you can squeeze them into rounds, get them to pick up the stub piece, or something use them to raise smaller amounts between rounds.
  • They are usually less valuation sensitive. No one is stupid. Everyone wants a fair deal. But if the motivation to invest is in part or largely strategic, you won’t be pushed as hard on valuation.

So generally speaking, corporate VC is best at ownership stakes < 5%. That controls for the downsides and lets you maximize the benefits.

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Published on January 28, 2019

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