Corporate Venture Capital

Cooper and & Co consult to CVCs on strategy and deal flow.

CVCs have grown dramatically in recent years as one response to capturing the value and mitigating the risk from technology disruption.

Here are the recent deal count numbers for the global leaders from GCV Analytics via FinTech SG –

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Global CVC activity 2014-2019 by CB Insights –

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Here are the mid year new participant figures for 2017 from CB Insights –

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The total domain is attracting significantly more capital and demand than there is talent to manage it and there is a limited number of ‘same vertical’ early stage companies to accept the new capital (even if the CVC had good global market visibility which most do not).

There are later stage companies prepared to accept CVC money but it is at materially higher valuations and lower stakes so ability to create CVC returns that are financial or strategic are limited.

Most CVCs are also experiencing the more traditional challenges identified by Professor Clayton Christensen who wrote the seminal work ‘The Innovators Dilemma’ and coined the term ‘Disruptive Innovation’ which we hare used so lightly so widely today.

The challenge of legacy disruption remains widespread where CVCs are not resourced to act or face boards reluctant to act. So many funds find themselves 12-24 months into a new CVC launch without having invested a) materially or b) sufficiently diversified or c) unsure of focus.

Fortunately there is a practical solution here. the use of external specialists, probably not as a monopoly supplier but as a small panel of 2-3 allows a CVC fund of say $50m to allocate 20-30% for internal direct management over the lifetime of the fund which still directing 30-40% to say 2 external managers.

Assuming one is a high conviction fund (like many tier one names), the result will be certainly invested but in a small number of companies.

Assuming the other is a diversified consultant (or potentially a fund) like Cooper & Co, the result will be a true spread across 100 to 150 mainly seed and Series A investments that are all scalable tech startups aiming for a global market.

This enables the CVC to report to their board on more dimensions – a) progress b) diversity c) depth in select industries d) wide ranging insight into other industries e) likely progressive liquidity and f) media coverage and hopefully share price uplift from a meaningful innovation investment approach.