Founders need to be discerning about who they allow into their deals and both parties should share a deep passion and vision for the startup's potential. If not, there won't be any meaningful collaboration. 
Trailblazing Ventures: Scaling and Creating
May 15, 2024
Interviewed by Nicolas Sauvage on August 18th, 2022
Voyaging into the dynamic landscape of corporate innovation requires a strategic compass and a visionary mindset. In Joining Corporate Venturing Insider, Sherwin Prior, director of the Amazon Industrial Innovation Fund, shared his insights and strategies that have shaped the course of Amazon’s foray into the world of innovation.
The Buy Side and Being Selective
As the primary manufacturer of investment products, the buy side is distinguished by its intricate process of selecting and managing portfolios. Within this role, a multifaceted approach emerges, involving interactions with management teams and exposure to a range of companies. The dynamic exchange of ideas, experiences, and visions during meetings with management teams cultivates a unique perspective that is equally applicable beyond the buy side.
Valuation techniques like the discounted cash flow (DCF) model have long been staples in traditional finance, and their applicability experienced significant shifts in the dynamic realm of venture capital. As a corporate venture capitalist, the importance of adapting valuation techniques to the unique venture landscape becomes evident. Instead of rigidly relying on DCF, a pivot towards comparable analysis and networking emerges.
“I encourage founders to be selective about who they let into their deals,” says Sherwin. “It has to be the same value for you. You have to be equally passionate about what this thing could be. That’s when you should put your money into the company.”
To thrive in venture capital, an investor must not merely agree with an entrepreneur’s vision but also internalize it as their own. This depth of conviction transforms the investor into an advocate, championing the startup’s cause throughout. Sherwin describes this relationship as a marriage. Alignment from the outset determines the trajectory of success.
Creating a Sub-Brand
Sherwin’s journey into venture capital began with a road show, where he engaged with other corporate and financial investors. From this experience, he discovered that many financial VCs are unwilling to collaborate with other corporate entities. This led him to a pivotal decision: to lead his deals. At General Motors, Sherwin was challenged to build a CVC arm. Creating a distinctive brand for GM Ventures, he designed term sheets with the company logo offering competitive valuations that caught the attention of both startups and financial VCs. Sherwin’s ability to uncover deals overlooked by others in the space began to shape his reputation, drawing admiration from peers. He described his role as building a “sub-brand” of his company, distinguishing his CVC practice.
“When you have the CVC, if you’re going to be successful, you have to create a brand,” Sherwin explained.
By leveraging the parent company’s expertise, he could more effectively assess startups’ potential and reduce the failure rate. This mindset and practice produced a shining track record of 12 successful exits out of 40 investments. He approached recapitalizations by treating all stakeholders fairly and equitably, ensuring that each investor class experiences the same impact. This approach maintains alignment and trust among investors, ultimately contributing to successful outcomes.
“As we know, it’s so easy to say no in venture capital because there are just so many companies and not enough VCs,” he said. “So you quickly assess the deck, and then you move on. I also wanted that to permeate our brand because bad news travels faster than good news.”
Corporate investors seeking immediate benefits by offering unfair terms is never a sustainable strategy. By educating leadership teams about the realities of venture capital and encouraging a focus on mutual value creation, this gap can be bridged.
Strategic vs. Financial Investments
Sherwin challenged the notion that there exists a strict divide between strategic and financial investments, asserting instead that strategic value inherently translates into financial value. Drawing from his experience at GM, he emphasized that at large corporations, financial returns alone wouldn’t be substantial enough to support venture capital operations. His approach centered on technologies that could enhance customer experiences and investments customers genuinely care about, like vehicles. From there, he introduced an investment thesis aimed at reducing costs and boosting residual values.
“A lot of these corporate ventures that have been doing this for several years now due to the SPAC bubble have success and they all think they’re great investors,” Sherwin said. “But what happens is the markets turn, and if you’re (invested in) in the manufacturer and things get tight because of a recession, your organization is going to start looking where to cut; I just think it’s a disaster waiting to happen; if you live by the sword, you die by the sword.”
Sherwin expressed concern about the recent trend of showcasing financial returns. Having lived through market cycles, he cautioned against mistaking current success for long-term prowess. He discussed the challenges that newer money managers face during market downturns, often causing them to hesitate before deploying capital. Steadiness, seasoned experience, and genuine commitment to the entrepreneur’s journey are the keys to success.
Sherwin stressed the relevance of pay-to-play dynamics when backing startups he believes in. He shared that providing support even when things seemed unfavorable ultimately yielded a successful existence. His goal was to build lasting relationships with transparent communication. Fostering open dialogue with leadership teams, boards, and entrepreneurs when funding decisions weren’t favorable contributed to his and his CVC’s reputations.
Developing KPIs
Setting and evolving KPIs is a pivotal challenge that both individuals and teams within the CVC landscape face. Sherwin wants to measure tangible objectives that drive growth. For instance, in the short term, his fund aimed to close 25 deals in its first year, laying the foundation for market impact. This stark metric remained constant despite the team expansions, ensuring a rigorous approach.
“I want to believe all good ideas get funded, “ Sherwin said. “I’m sure entrepreneurs will disagree that the marketplace sources this out if you get a really good idea.”
However, KPIs are not simply for setting goals but for setting high standards. As Sherwin mentioned, an investment team leader can effectively oversee around eight to 10 portfolio companies and still contribute to deal generation; going beyond this threshold risks diluting the talent’s ability to bring about meaningful results.
By scrutinizing underachievement and identifying mechanisms that hinder success, organizations can refine strategies and optimize results.
Furthermore, Sherwin highlights the significance of understanding specific opportunities like series B and C funding rounds and contextualizing them within traditional categorizations. Using KPIs to strike a balance between aspirational targets and realistic assessments demonstrates that setting and maintaining the right metrics can be a driving force in steering startups and funds toward success.
