To attract and retain a staff, you must get the compensation plan right. Forward thinking CVCs also have a dedicated HR exec, not for HR within the CVC, but as a resource to help the portfolio. A dedicated person from the functional unit to support the CVC creates the benefit of a future experience curve without the overhead of full-time resources. Making the CVC a portion of an executive’s role is a great way to organize functional support in areas like finance and legal. They had a broad bench of execs that supported the CVC, many on an as-needed basis tuned to their expertise. I like what GV, formerly Google Ventures, did in this regard. The team needs the capability to source externally and deliver internally, so select your people accordingly. Equally, a group of new hires will struggle to deliver on your value proposition as the new hires lack the internal knowledge and relationships to make the organization responsive to the portfolio. You should hire externally for the leaders and externally facing executives of the CVC effort. Sourcing, structuring and supporting a portfolio of start-ups is likely not an internal capability. When staffing the CVC unit, you need to blend external expertise and credibility with internal relationships and credibility. The other argument for a separate entity is that it provides some comfort to portfolio companies who can be fearful of sharing an ownership interest in their IP directly with a large, well-funded participant in their market. Set up a dedicated entity and get the board to approve a commitment amount that you can announce to the market. These investors will be most comfortable partnering with something they recognize – a dedicated legal entity with a defined capital commitment. Your CVC is most likely to be a syndicate partner, so your structure and messaging need to resonate with your fellow investors. The structure reference is primarily to legal structure, but also includes financial commitments and external messaging. Comcast Ventures is a great example, where company co-founder Julian Brodsky as a senior sponsor could cause the organization to support the portfolio. The leader pushes a large organization to deliver on its value prop to the portfolio. ![]() Successful CVC programs have an internally visible, very senior leader. By sponsorship, I mean an internal champion. If you are building a dedicated team, the next issues to consider are sponsorship, structure and staffing. The dedicated fund offers the most impact and control, but it is not the only option. If there isn’t one in your industry, consider starting one with institutional or corporate partners. There are also narrow funds close to your industry where you might become an LP. There are hybrid models like Touchdown Ventures with an outsourced team. Decide if a dedicated fund is the right answer for your company. Once purpose and value are established, think about scope. This is your value prop and your CVC effort should be organized around delivering it and targeting companies that value it. ![]() You will be selling a strategic value such as distribution, assistance in getting to international markets, expertise to scale manufacturing or build a supply chain. Next, be brutally honest in assessing what value you can, and are willing, to deliver to a portfolio company. Whatever the reason, be disciplined about the purpose and avoid building a CVC just because a competitor has one. In some cases, CVC is just a higher ROI use of cash than internal projects or dividends. A CVC team can also be built to seed and diligence a future M&A pipeline as Cisco has done successfully for decades. A CVC can focus on monetizing internal R&D via spin-outs, as practiced by many research hospitals. This strategy is very common in the life sciences industry. Units can be focused on “crowdsourcing” R&D with early stage investments in companies conducting core research to prove product viability. ![]() ![]() Some CVC units, like that at Salesforce, are built to create or support an ecosystem around a company platform. There are several valid reasons CVC units are formed, but you should be disciplined about the mission of your CVC unit. Below is a framework for building a successful team making strategic minority investments. I suspect a few Fortune 1000 Boards and CEOs are wondering if they should have a fund or if their existing fund is set up correctly. Companies are creating Corporate Venture Capital (“CVC) funds at a healthy pace as shown by CB Insights in the chart below.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |