Strategic Alignments with Corporate Investors

When I was the head of HP Venture over a decade ago, startups we worked with tend to have a lot of questions on how to best engage with corporate ventures and the pros and cons of leveraging corporate investments.

In addition to venture returns, corporations tend to have strategic interests that align with their corporate objectives. Regardless of whether I was in HP or Cisco corporate ventures, most of the investments are done around strategic intentions that range from ecosystem building to feature enhancements, or even a potential acquisition. Most of the times, unless a startup’s strategic angle is well aligned with a corporate investor, it is hard to get the deal done regardless of the valuation or potential financial outcome projection. Of course, that does not mean financial return does not matter. No investor wants to lose money from an investment and a corporate investment professional is measured by the return as well. But from a corporation’s perspective, unless the deal can create a synergy much bigger than the financial return, the outcome is limited. For example, let’s assume HP invests $10M into a deal and makes 5x return, which is $50M. But that is a drop of water in the big ocean of HP’s multi-billion business lines. Even though the deal has a reasonably successful outcome, this kind of financial number does not move the needle for senior executives.

Another point about the strategic alignment is that most times, a corporate CVC deal needs to have a business unit sponsorship. This sponsorship means a senior executive from a business unit has seen the potential of working with this startup and is willing to put his/her energy, time and name on the deal. Until this sponsor can be found, a deal is put on hold. Of course, some corporate ventures don’t follow this exact model. The most notable one is Intel Capital. Over the years, Intel Capital swings between a pure financial investor and a strategic aligned investor. Intel capital model is very unique in terms of capital funding to professional compensation. Even when its investment strategy becomes more strategically aligned, Intel Capital can still invest first and then find an internal sponsor later. In general, this flexible model is rare since majority of the corporate venture funding comes from the corporate balance sheet and it is not a separate fund structure.

In the next blog, I will cover how strategic alignments get measured and many additional differences between corporate investors and venture investors.

As a resource, here is Ventures Media list of most active corporate investors (CVCs).

Ray has 16+ years of diversified work experience in global management, venture investment, and business and product development. He is the global partner of SkyChee Ventures and managing partner of Boundary Free Ventures. Prior to this, Mr. Wu was managing director of HP Ventures and a senior executive in Cisco leading software related investments and M&A.

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