The decade of the twenty-teens is almost at an end. Over the past ten years, we’ve seen some big changes. The startup community has globalized. Silicon Valley is no longer the only place to launch a new company. The sharing economy went full-cycle, from idea to IPO. AI is no longer a research project—it is embedded in our daily lives. Incubators and universities became mainstream resources for startups. Funding is more than five times what it was at the beginning of the 2010s.
These milestones were incredible, but at the stroke of midnight on New Year’s Eve, we will enter a new decade. One that holds the promise of being the most technologically disruptive decade in history.
Over the past year, I’ve been talking about what to expect in the 2020’s. Mixed-Reality Glasses will go mainstream. The most massive startup growth in the U.S. will happen in the middle states—not on the two coasts. 5G will change everything.
These are all exciting, but the companies that will rise to the top in the next decade will operate a little differently than companies that flourished in the early 2000’s—especially when it comes to money. In the next ten years, Corporate VCs (CVCs) will become beacons of funding for startups large and small—and this will lead to some incredible innovation.
CVCs are not new, but they were relatively limited until about 2010. A 2019 report from Corporate Venturing Research Data notes that some 65 percent of active VCs today were launched after that year, but there wasn’t a sharp rise in the number of them until 2016. The same report shows between 2013 and 2018, corporate VCs increased capital expenditures by at least 400 percent and in 2018 alone spent over $50 billion in startups.
I recently spoke with longtime friend and founder of Touchdown Ventures, David Horowitz, about CVCs. He was an early team member of Comcast Ventures and, during his 14-year tenure there, he helped build it into one of the most successful CVC funds in existence. While Horowitz is no longer with Comcast Ventures, his current company has quite a unique business model. Touchdown Ventures partners with corporations to both build and manage their corporate venture capital funds. The firm partners with over a dozen mostly Fortune 500 companies and has offices in Philadelphia, San Francisco and Los Angeles.
We had a long conversation about why corporations are interested in investing in startups, and why they are more active now compared with five to ten years ago. It simply comes down to competitive position. Today’s corporations know that they cannot innovate fast enough to meet market demand. Therefore, they have to partner with startups to bring innovation into the company from the outside.
As to why startups want to work with CVCs, Horowitz believes there are two main benefits why startups are proactively seeking CVCs. First, they have a domain expertise where startups can validate their business plan and test assumptions. Second, there is a direct connection to the market and validation for a startup’s go-to-market strategy. Additional key benefits can be summarized as followed:
1) Resources. In addition to having an in-depth knowledge of their domain, CVCs have significant resources to help a startup.
2) Partnerships. CVCs can bridge partnerships for startups through their supply chain and operations organization.
3) Distribution channels. CVCs could even become the distribution channel for a startup—or connect that startup with one of their suppliers.
4) Capital. CVCs have the capital to participate in a startup’s financing requirements. They might even lead the round.
5) Acquisition. The CVC could ultimately buy a startup or endorse it to their suppliers.
If you do pursue a CVC for your company, there are two types to consider. The tier-one CVC has a dedicated organization and staff to work with startups and determine investments. Typically, one of the company’s senior-level executives or even the CEO is part of the investment committee. One of the oldest and most credible CVCs in this category is Comcast Ventures. I believe that company designed the blueprint for the CVC business model. Other active CVCs in this category include, GV (formerly Google Ventures), Salesforce Ventures, Intel Capital and the Chinese Baidu Ventures.
The other type of CVC is a corporation that doesn’t have a true CVC structure nor dedicated staff. This group still invests in startups, but the decisions about which companies to work with and how much to invest go through a business development organization.
Unfortunately, there is not a dedicated industry conference nor centralized organization to help connect startups with CVCs, so entrepreneurs currently need to do the legwork on their own—but it is worth it. Here are some tips for finding the right CVC for your company:
• Make a list of companies in your market segment that might have CVCs.
• Check that list against their websites. If they do have a venture organization, the approach is more straightforward and similar to contacting a standard VC.
• If the company doesn’t have an official VC group, you will need to go through the business development organization, which is a little more challenging.
• In either case, talk with your current investors to determine if they have a connection in your target companies.
• Get that warm introduction and wow the company with what your startup can do to strengthen their market position.
Startups looking for funding in the 2020’s have more options than ever before. From traditional VCs to CVCs, the money is flowing and there are more opportunities for partnerships around the globe. Now is the time to get your startup ready to hit the ground running in 2020.