Cracking the Code of Startup Success through Strategic Alignment

Cracking the Code of Startup Success through Strategic Alignment

May 15, 2024

Interviewed by Nicolas Sauvage on August 4, 2022

Tammy Mahn, managing director at Verizon Ventures, gave the Corporate Venturing Insider audience an inside look into the Israeli startup ecosystem, her career path, and how her unique background equipped her to become a great investor.

Her formative years began with a tenure in the Israeli military, where she served with distinction in an elite intelligence unit. During her service, Tammy grappled daily with intricate challenges, an experience that proved instrumental in honing her acumen for critical thinking and adept problem-solving. Upon completing her hitch, Tammy transitioned into the world of Israeli venture capital, harnessing her sharp skills to discern and invest in promising startups.

Israel Startup Ecosystem

Renowned for its innovation prowess, the Israeli ecosystem has become a crucible for burgeoning ideas, with a concentration on start-ups and venture capital enterprises. Tammy explained that the Israeli Defense Force plays an integral role in nurturing this environment, as many nascent enterprises spring from the minds of people who receive their inspirations during military tenure. Notably, the Israeli Intelligence Corps stands out for its rigorous training, cultivating agile and innovative thinkers who embrace novelty and unorthodox solutions.

“If you look at the mid-1990s in Israel, a lot of these startup companies were run by people who were discharged from the army and had taken some of the ideas that they encountered and developed them basically outside the army,” explained Tammy.

Israel’s mandatory service commitment serves as a wellspring of youthful talent exposed to a diverse array of disciplines and technologies. This confluence of experiences fosters a dynamic start-up community. Numerous Israeli start-ups are birthed by enterprising young minds who have accrued multifaceted expertise during their military stints.

Communicating Startups’ Value to the Mothership

CVCs face the imperative of effectively communicating the value a potential startup investment will bring to the mothership. Effective communication aligns the founders’ innovative aspirations with the corporate parent’s strategic objectives. Successful CVC ventures hinge on securing internal buy-in, recruiting advocates, and cultivating a shared vision across the corporate hierarchy.

“I spend a lot of time getting to know the people (in the corporation’s leadership) and the challenges and trying to understand what motivates founders and, at the same time, what they can get from this company,” Tammy said.

Transparent and compelling communication ensures that the potential value, disruptive solutions, and market opportunities presented by the startup are not only understood but embraced by key decision-makers. Time spent with McKinsey and Company gave Tammy a framework for effectively communicating this value.

Financial VCs and Corporate VCs

With Tammy’s previous experience as a financial VC, she provided a rich narrative of contrasts as well as synergies brimming with lessons that shaped her investment strategies. At the outset, financial VC stood as a realm where value-add was an inherent part of the playbook. However, a direct influence on the companies remained elusive. The corporate realm, with its relationship with a mothership, held a unique power: the ability to reshape the trajectory of startups by bringing the vast expanse of the market to their doorstep.

The fusion of financial acumen with corporate strategic prowess ignites a transformation — a catalyst for startups to scale the peaks of success with a strategic market ally.

Verizon Ventures is emblematic of the shift from a small VC to a corporate behemoth. As a testament to this transformative journey, Verizon Ventures embodies the synergy that lies in embracing startups as ultimate impact scalers. Innovators steer positive change and prosperity across society and the planet. The mothership effect materializes through three distinct pathways: as a customer, a channel, and a sell-with partner. It’s the interplay between these roles that amplifies a startup’s potential, leveraging corporate muscle to optimize growth, revenue, and opportunity.

“For Verizon Ventures, where we invest in things that are strategic to us, if we decide to invest, I think that company has a better chance to succeed than in other cases,” Tammy said. “Because if somebody that truly understands the market decides to invest, they know something that you as a financial fund do not or that an element is missing.”

Working with big corporates necessitates an understanding of value that goes beyond metrics. In the landscape of financial VC, apprehensions about strategic investors may linger. A tinge of caution arising from concerns about future fundraising remains. Yet, with time, it becomes apparent that a strategic investor, especially a corporate entity like Verizon Ventures, infuses a startup with a greater likelihood of success. This stems from a profound understanding of the market, a domain knowledge that underpins strategic decisions.

The Value of Strategy

As financial VCs know, a market slump can be a double-edged sword, slicing through the investment landscape and potentially affecting the larger corporate entity. Tammy explained that strategy is the best business shield. Investment strategy during downtimes should filter more finely, channeling opportunities that align seamlessly with the parent organization. The advice is clear: stick to your strategy, and it will offer guidance and direction to the company during these challenging times.

“Do what you always do,” recommended Tammy. “Work with the companies that you know need you and you can add value to.”

Tammy explained that her technique drives Verison Ventures’ investment decisions and ultimately shields it from the distractions that could veer them off course. By adhering to an established investment criteria and maintaining unwavering discipline, CVCs can navigate the turbulent water with greater confidence.

The Verizon Ventures Team

The close-knit team of 14 professionals is strategically positioned across three locations- Verizon’s headquarters in New York, Palo Alto, and Israel. This geographical diversity emerges as a powerful ally in its investment journey because it allows it to avoid blind spots through its global presence.

“That’s the nature of building a good partnership, where you can trust (teammates) to ask the hard questions,” Tammy said. “If I can’t defend the investment, then something is wrong. Asking the hard questions is our job.”

Side Letters

In the CVC world, side letters often emerge as a crucial element that requires careful navigation. Tammy said Verison values transparency. Being candid about the purpose and necessity of side letters is crucial when working with entrepreneurs. It’s about fostering open communication and creating a sense of alignment between the corporate venture capital entity and the startup. A framework emerges that can lay the foundation for a harmonious partnership.

Strategic alignment is a cornerstone of this approach. Startups should choose to partner with corporate entities that share their vision and goals. This strategic resonance paves the way for a meaningful dialogue about side letters. Startups that perceive the value of the partnership are more likely to engage in an open discussion about these documents.

It also helps recognize the flexibility that underpins the relationship. The dialogue sheds light on the fact that side letters are not set in stone. If the circumstances change, if the partnership evolves, there is room for negotiation and adjustment. This dynamic, ever-evolving approach underscores the collaborative nature of the relationship.