CVCs’ resurgence in the 2020s is possible because corporates have learned their lessons from the dot-com bust, and startups are willing to trust them again. 
Global Corporate Venturing Editor on CVC’s Image Rehabilitation
May 10, 2024
Interviewed by Nicolas Sauvage on January 16, 2021
James Mawson, editor-in-chief of Global Corporate Venturing, pulled no punches during his appearance on Corporate Investing Insider. James, a veteran financial journalist with Dow Jones and Financial Times Business, discussed threats to CVC’s improving reputation and the challenges facing the industry.
CVCs’ Decade of Expansion
When James published the first issue of Global Corporate Venturing in June 2020, he set out to examine the industry strategically by asking two broad questions:
- Who does it?
- What do they do?
The answer to the first question was “only a few hundred corporates investing directly in startups or indirectly as limited partnerships or venture capital funds.” Over the next decade, nearly 5,000 corporates made venture capital investments, including over 2,000 in 2020 alone.
Mawson admitted a big part of CVC’s tarnished reputation during the 2010s was “broadly justified” because their overall behavior when the bubble burst left investors with a bad taste in their mouths and entrepreneurs feeling that corporate partners offered little value. Many corporations set up huge funds and invested in startups with unreasonable valuations. “The markets turned, the NASDAQ fell, and all those corporates disappeared,” James explained. “They were investing because they were in it for strictly financial reasons. They thought they could put ‘.com’ at the end of their name, and analysts would love them. The moment that changed, that financial reason went away. They left all their entrepreneurs in the lurch. They sold their stakes for cents on the dollars. It was just a crazy period of financial irresponsibility that didn’t help the entrepreneurs and the VCs, who were in it for their careers.”
It took 20 years and the influx of responsible companies funding corporate venture arms with more noble motives for those memories to fade.
“Over time, the better corporates who started to reemerge back in did so more for strategic and financial reasons. And they learn from those corporates that went through the dot-com crisis and survived and thrived,” James said.
An Era of Trust and Support
As a rule, today’s CVCs seek our better projects at realistic valuations and provide their portfolio companies with the five things entrepreneurs crave:
- Capital
- Customers
- Product Development
- Hiring
- Exit options
“If you can offer that, the entrepreneurs will love you. You’re adding value to the business,” James said.
Corporate arms that log successes year after year and elevate CVC’s image are those that understand the entire entrepreneurial journey. They are the ones who can answer the fundamental questions about how to help the startup survive the first few years, design a growth strategy for the next phase, and navigate executive and strategic upheaval.
Of the more than 4,000 active CVCs, only 2,000 closed a deal last year. While those are astounding numbers compared to just a few years ago, why didn’t the other half of the list get involved?
“Because it’s really hard to find good venture investors,” James said. “If it was easy, a lot more VCs would have a much higher IRR.”
Covid as Catalyst
James said that of the 2000-plus corporates that consummated at least one deal in 2020, more than one-third did so for the first time.
“People were using COVID to lean into innovation. They realized that the parent company needed to do it, usually because they were affected they had to start to do stuff differently. So. they had to start engaging. And a lot of corporates…had the cash coming in and they had to step in. They said, ‘Now is our time to find those entrepreneurs that we really want to work with.”
He applauded them for taking that leap of faith and acting with counterintuitive timing.
“If you do cheaper deals in less obvious areas, it gives you a better margin for error,” James noted. “Taking that first step is important. Being thoughtful about the timing, being thoughtful about where you go. If you go into a super-hot area, it’s going to be difficult for you to find good entrepreneurs and co-investors. You’re going to be learning and paying high multiples”.
Progress through Progressivism
James noted that CVC should be proud of its rapid move toward diversity. While independent venture capital firms have taken baby steps — women comprised 7 percent of the industry in the 1970s and just 8.8 percent today.
“We track the number of women within the industry and how many of them are CVC heads, who are the rising stars and emerging leaders, and what the team looks like now. It’s really interesting that the majority of CVC unit heads who are on the power list, who are recommended or doing the deals by their peer group, are non-white or people of different ethnicities than their parent companies.”
He said reducing information asymmetry and immediate communication gets some of the credit. Not long ago, anyone who lived more than 20 miles from a company’s place of business would not have merited a second look, let alone an interview. Beginning a few decades ago and accelerating exponentially over the last few years, entrepreneurs can network seamlessly with VCs’ other portfolio companies. They can perform frictionless due diligence and find more opportunities.
Diversity and inclusion continue to permeate the types of investments CVC seeks out.
“It’s remarkable how many of the corporate-backed deals (target sustainable development goals) or are impact-orientated,” James said. “It’s not rocket science to say, ‘if this is going to be targeting an underserved market — think illiteracy or poverty reduction, or it’s dealing with climate change — you are more likely to be dealing with an issue that’s hard, big market, and that people will want.’ ”
James hopes that never changes.
“On the whole, CVCs are nice people,” he said. “They’re doing it because they think they could do it well, and they understand that while it’s a perfectly lucrative career, there’s a lot to be gained from helping entrepreneurs and helping the parent companies. My concern would be is people coming in thinking it’s a get-rich-quick scheme. If you wanna do that…don’t become a CVC because we don’t want you.”
