In the midst of adventure Due to the slowdown in industry funding in 2022, non-traditional investors such as hedge funds and private equity firms have fled for the hills. Many assumed that corporate venture capital funds would do the same, but they didn't.
These strategic backers held steady in 2022 and, according to PitchBook data, actually increased their presence in venture deals. In 2022, CVCs were involved in 26,2% of venture deals, just up from 25,6% in 2021. While this is not a significant change by any means, it stands out because all other categories of cross investors participated less in 2022 than in 2021.
While regular fundraising from venture firms is not expected to be particularly strong this year, and overall funding has continued to fall so far, there are signs that corporate venture capital will continue to be a steady source of funds in 2023.
Scott Lenet, co-founder and president of Touchdown Ventures, which helps corporations set up their CVCs, said the firm is getting more input than ever from corporations looking to start their own fund.
The volatility of the past few years has led to more funds looking to deploy capital, which should be good news for startups. Also, getting endorsement from an investor who is not tied to a specific fund lifecycle in an uncertain exit environment definitely has its appeal.
CVCs are great motivators for their own portfolio companies, and startups could see more benefits in a shorter period of time than they would work with a traditional VC, according to Archana Sahay, platform director at Northwestern Mutual Venture Fund. "It's a dedicated support system with a CVC that will hopefully lead you to partner very quickly with a great client who is also your investor," Sahay said, adding that having one of his investors as a client can also make make it easier to reinforce a company's valuation when they raise future rounds.
Of course, there are also disadvantages to this type of capital. CVCs may not be able to help startups network with later-stage VCs who might lead the later rounds that CVCs often opt out of. Additionally, CVC investors wear numerous hats at the parent company and may be less able to help.
But startups looking for capital should still keep CVCs on their list, though there are a few things to keep in mind as you prepare to launch.
Sahay said companies should make sure they're researching the CVC's parent company before launching, because most, but not all, CVCs tend to invest strategically in areas that would affect the parent company or its customers.
“They [should] launch knowing who the company is, what their core product is, who their customers are, and what headwinds they're thinking about,” Sahay said. “We are an insurance company and we invest in insurtech, but we are a life insurance company, so PCP [primary care provider] startups won't work.”
Lenet said one thing founders need to keep in mind for the actual pitch is that while CVCs are both strategic and financial investors, they tend to be more conservative than a typical VC, and aren't as likely to make their decision based on in a quick history of the company. Andrew Ferguson, vice president of corporate development and ventures at Databricks, agreed.
“We think a lot about this more metrics-driven investment environment,” Ferguson said. "How do you feel about customer adoption, retention, and churn, and is valuation much more important today than it is in 2021?"
Ferguson said CVCs like Databricks Ventures are looking for companies that offer synergies both across the portfolio and with CVC's parent company and its clients.
“If there's no product integration angle, and we don't see or can't find evidence that a customer of ours or theirs wants to work together, it would be difficult for us to work together,” Ferguson said. "That's really important."
Lenet added that if a startup has that customer overlap or is used by the parent company in any way, they should find a way to involve someone from CVC's parent company in their pitch.
“Who do you know and what do you do with them? If you have a champion in a business unit or someone who is working with you, or wants to work with you, and can speak on your behalf about why this [potential deal] is strategic and not just financial, that's great," he said. lenet. .
If fundraising in 2023 shapes up to be the lackluster year forecast (the collapse of Silicon Valley Bank won't help here either), CVCs may offer a more stable and willing path for cash-seeking founders.
