A CVC Pioneer, Claudia Fan Munce Shares Her Story

A CVC Pioneer, Claudia Fan Munce Shares Her Story

May 15, 2024

Interviewed by Nicolas Sauvage on July 7, 2022

Claudia Fan Munce, a venture advisor to NEA, told Corporate Venturing Insider that she owes her success to “a very large corporation that gave a foreign student with a scholarship a little summer internship to pay the bills.”

Little did she know when she took that internship with IBM that it would develop into a 30-year career as a trailblazer in corporate venture capital.

Blooming at Big Blue

As she explained to podcast host and TDK Ventures President Nicolas Sauvage, her summer internship helped in her pursuit of a master’s degree in computer science and led to a position in IBM’s research and development division, where she worked on magnetic disc drives. During her three decades with the company, she rose through the leadership ranks, helping the business commercialize its products and innovations and license its research technology portfolio into a $1.2 billion annual revenue producer. It also enabled a fortuitous meeting with Big Blue’s new CEO Lou Gerstner.

In 2000, coincidentally the year venture capital investments first topped $100 billion, Claudia was still not convinced CVC was right for IBM. Gerstner came to her with the idea of exploring the startup ecosystem with an eye toward spotting and accessing the technologies that would be relevant to IBM then and in the future.

Claudia was not enamored of the idea at first. She thought her internal team could deliver all the innovation the company would need.

“I thought, I’ve got 3,000 of the best PhDs in the world in my lab, from MIT, Caltech, you name it,” she remembered. “These are the people we hire into our R&D. Just tell me what you want, and we’ll make it for you. Somebody had to remind me that he’s the CEO, so I don’t get to say no to him!”

So she founded the IBM Venture Capital Group, even though at the time, she had “no clue what that really meant or how relevant that would be to IBM. But the timing was very critical,” she said.

Even though the dot-com bubble had burst, Claudia came to see that CVCs would continue to support disruption through the development of wireless technologies, cloud infrastructure, and other innovations that play into IBM’s strategy. She worked “to fine-tune that strategy and make sure that we were in sync with what the investment community was doing.”

The insights were slow to come because IBM was not seeking investment opportunities.

“In 2000, we arrived on the scene and people were saying, “If you’re not investing, you don’t get to have a seat at the table.’ ” she remembered. “We’re not going show you where we’re investing or what our company is doing.”

The landscape, in short, demanded IBM put some skin in the game, assuming shared risks and a vested interest in startups’ success to earn a ticket to the inner workings of the ecosystem. Claudia had to navigate uncharted territory, and she didn’t go about it half-heartedly. IBM, with its substantial financial strength, became a fund of funds, currently investing in 87 venture funds worldwide.

Philosophical Foundation

Claudia said being ensconced in IBM’s R&D and corporate structure gives her a different approach to startup relationships and evaluations than the typical CVC investor possesses. Managing the company’s intellectual property portfolio gave her unique insights into IBM’s strategy and the technologies it could best put to its advantage. She noted that she spent her first 15 years in the company’s labs. She was put in charge of the venture team because she knew how to develop the products IBM could use to capture market share, not because she knew how to evaluate and build fledgling companies.

IBM stuck to what it does best, directing Claudia and her team to bring innovative components from the venture community and incorporate them into its mainstream product development cycle. With no interest in direct investment, the company trusted the lead investors with whom it partnered.

“So, we invested in funds run by professional financial investors,” she explained. “We never led rounds; we never sat on the boards (of portfolio companies), not even as observers. We let the people who know how to build companies build the companies. Our only jobs were to understand where the strategic alignment lay and to do our due diligence on the investors’ credibility.”

While she overcame her skepticism of CVC, others inside IBM — and especially R&D — required more convincing.

“Remember, IBM has seven or eight Nobel Prize physicists,” Claudia said. “We’re very proud of who we are as an R&D center. Our technology and our projects are going to change the world. The fact that you have to go outside to look for what might be so important to this large corporation that pays your bill was kind of offensive to the scientists because they’re paid to take care of the future technological needs of the company and its customers. But innovation comes from a whole spectrum of players — universities, customers, suppliers, and employees.”

Customer Validation

Claudia delved into the role of corporate venturing in customer-centric innovation. Leveraging IBM’s extensive reach and influence as a systems integrator, she explained how customer validation can lead to valuable relationships with startups.

She embraces the challenge of locating and collaborating with startup companies that may have developed components for the technology that IBM can integrate into its vast stack of products and solutions throughout its business units.

“You have to navigate and try every door until you knock on the right one, the one you can convince a customer that yes, that this is something that he or she needs for their business to see success,” Claudia explained.

Obtaining a paying customer’s endorsement creates a shortcut to internal conversations, even within a massive organization like IBM. When it began its foray into CVC, IBM had 440,000 employees in 173 countries. IBM only needed to determine the entrepreneurs’ needs.

A behemoth like that, Claudia said, “can either go into a black hole, or it can have a paying customer saying, ‘IBM, you’re my integrator. You’re running my data center. You’re providing all the business applications for my critical business processes, and I’m seeing this new thing that can help me accelerate cost reduction or have a bleeding edge into something that my competitors don’t have.’ Once the customer says that, it’s a shortcut to any conversation you need to have internally.”

NEA Role and Mission

Claudia conceded that every CVC bills itself as entrepreneur-friendly. But she said NEA strives to fulfill the founders’ mission to build a 100-year-old venture capital firm. That speaks volumes in an industry founded on the ability to bring investments to lucrative exits within five to 10 years. But NEA isn’t interested in the “cash out and leave” model, Claudia said. “It goes out of its way to ensure the entrepreneurs are successful, not just that NEA gets the right return.”

She said she was brought aboard because she has played the role of corporate partner and investor in striking strategic partnerships. She provides the knowledge and ability to leverage all the resources available to her to benefit the entrepreneurs NEA supports. Her ability to navigate the intricacies of M&A deals and strategic partnerships stems from her years spent on the other side of the fence. Claudia’s dual perspective positions her as a trusted advisor to CEOs navigating the complex landscape of corporate venture.

Claudia’s contributions to NEA extend beyond financial matters. While she acknowledges her role is not to build companies, she underscores the importance of collaboration between financial ventures and corporate ventures. The symbiotic relationship emerges as a key theme, with financial venture firms like NEA excelling in company-building activities, such as hiring CFOs and finding board members. In this dynamic, Claudia sees a complementary partnership between the financial venture’s strengths and the corporate venture’s strategic alignment.