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.
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