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At the beginning of this issue, I invited my old friend Mike Edelhart to share some insights from the frontiers of venture capital. Mike leads his partnerships at Joins His Partners and Social Start venture capital, as well as managing his partner at Ataraxia, an early-stage fund focused on helping people live longer and better. Some of you may know him as the first editor-in-chief of PC Magazine, or CEO of several start-ups such as Olive Software, Inman News, and Zinio. Here is the mic:
“When I was still working in a large company, before I got into venture capital, the worlds of venture and corporate management were quite separate from each other. We invest in new ventures through our corporate venture capital (CVC) department.
If you’ve worked with CVC on the corporate side, as a partner, or as a venture receiving such funding, you already know that the record is mixed. There are many reasons for this. Early generations of his CVCs stuck to company headquarters and strategy, often missing market pivots and using outdated scripts to gauge a startup’s potential. Their metrics can be confounded by other priorities. Some treat CVCs as a back door to M&A. Others use it as a way to dabble in new fields or connect with cool kids starting companies. Unlike traditional venture capitalists, CVCs rarely put their money at risk. Some people can’t be pressured to make money. In other words, they are not true venture capitalists.
I would like to suggest an approach that I believe will yield better results for companies. It’s about working early and thinking more creatively about your role. Rather than full disclosure here, just a reminder: As an early-stage venture capitalist, this is what I do. So you can also see why the number of CVCs is increasing.
We recently closed two series A rounds with Pepsi Ventures and Bayer’s Leap, a US-based fund backed by its European parent company. In Pepsi’s case, the governing group (Gatorade) helped launch the startup, while his venture arm led the multi-investor round. Leaps, on the other hand, makes deals that his CVC division at Bayer would never consider. Because its mission is to invest in paradigm-shifting advances in the life sciences that could change the world.
It may sound like philanthropy, R&D, or unicorn discovery. it’s not. Bayer uses his VC model to invest significant and sustained capital in people and technologies that have the potential to change the world. Consider how the Medici family supported and sustained masters such as da Vinci, Michelangelo and Botticelli during the Italian Renaissance. Consider how filmmakers like Martin Scorsese and Greta Gerwig know how to harness the right talent to build collaborative teams and produce stunning results. Then there are the breakthroughs needed to tackle crop loss, inequality, pandemics, polarization and all the other challenges that are trapping us in this “poly crisis” as many now call it. Think about
A single company is unlikely and should not own the solution. We need to invest in building an ecosystem of risky but promising new technologies to bring about change and collectively benefit from the results.
From now on, my compatriots, I believe that we can continue to grow in this way. Professor Gary Dashnitsky of the London Business School, who is also an adviser to our fund, agrees. He argues that corporate venture funding could be a key driver in determining future pockets of growth.In fact, Dushnitsky believes CVCs have influenced his VC investment tendencies. I believe it is likely to give
Partly due to the speed of disruption. But other factors are also involved. Many of the “weaknesses” that slowed down CVCs are now being recognized as potential strengths such as scale, relationships, capital and expertise. Polarized politics has strengthened the conviction that innovation in areas like ESG needs the private sector to lead.
If you’re waiting for a later stage round where riskier bets are a safer bet and feel like potential M&A targets, you may find that opportunity never comes. It’s too late.
Success is always more than making money. Our Joyance Partners Fund is 100% owned by a Japanese company. In addition to the potential returns, our corporate advocates have the opportunity to gain insight and relationships in areas that could define the future of the company.
Think of it as an investment in curiosity. I have reviewed hundreds of business plans and created thousands of business plans over the years. He may only invest in 2% of what I see, but I always learn from the remaining 98%.
I enjoyed my days working in a large company – planning, team building, resources, infrastructure, not to mention the opportunity to work together across different functions and cultures to make an impact. I enjoy working with CVC for a reason. The opportunity to work together in areas of mutual interest and the willingness to partner in creative ways. I have successfully partnered with a number of traditional venture funds over the years, but I have found that they tend to partner more narrowly and want to be in a dominant position.
But my message to C-Suite readers is don’t look at me, look at yourself. If your company has a corporate venture arm, now is the time to open up and leverage those resources more broadly on behalf of your organization. Discover and build. Gain insight into innovative trends and technologies. Even better, you might help shape them. For example, if you’re deeply invested in renewable energy, find out who’s innovating in areas like consumer behavior.
If your organization does not have a CVC, now is a good time to consider one. With global venture funding dropping by more than a third over his last year, competition for major deals could plummet. Recession-warned governments are also increasingly aware of the need to provide seed capital to foster sustainable and inclusive growth. (New York Gov. Kathy Hochul announced a $30 million pre-seed and seed-matching fund program earlier this month.)
Personally, I’m excited to see the worlds of long-term corporate planning and early-stage venture capital begin to converge. Both reward a focus on building meaningful value rather than making quick money. Both require new tools, partners, and approaches to succeed. The stakes are too high and the speed of change too fast to go it alone. ”