BACK TO THE FUTURE – A “NEW” PLACE FOR START-UPS TO FIND FUNDING
So I gave a speech recently in California to about 300 corporate venture capital guys and I came away with a much clearer idea of something that I had been talking about and suspecting for some time. There’s “gold” for start-ups in them thar corporate places. And here’s why:
(1) Of the roughly 300 people at the conference, about 70 represented newly-formed or newly-reinvigorated corporate venture investing departments at MAJOR companies from across the whole world.
(2) Their charters and their comments were remarkably similar – “we’re not generating enough good ideas inside our firms and we have to go outside” and “we’ve cut back on R&D and now that the economy is heating up (from their mouths to God’s ears), we are behind the innovation and new product curves and losing share to our competitors”.
(3) They want to make “right-sized” investments – say $250,000 to $2 million – in the right kinds of deals within their own areas of expertise, BUT they don’t have to own or control the deals and – in fact – they would much prefer to simply be minority and patient investors.
(4) They see a HUGE opportunity because all the traditional VC guys have grown their funds so large that they simply cannot afford (in terms of opportunity costs, limited people resources, and the need to move the needle on their huge funds to show returns) to make a series of modest sized investments in start-ups EVEN IF they (the VCs) realistically acknowledge (as they do) that the start-ups don’t now need anywhere near as much funding as they used to require because of lean start-up models, lower technology and cloud costs, more effective and direct personalized channels to reach huge groups, etc.
(5) They understand that they are now mainly competing with all kinds of angels, angel groups and super-angels who are much better funded than they used to be and who bring a lot more (in terms of advice, access and mentoring) to the table than just a corporate venture guy normally would, BUT they say that they have one great BIG advantage over angels and that is that, in most cases for start-ups within their realms, they can also be the first major customer.
(6) Finally, they acknowledge that their two main competitive disadvantages are their speed of decision-making and the fact that within their corporate cultures, there is still much less tolerance for failure than in the VC world. I agree with that as to VCs, but I would venture to say (no pun intended) that angels (unlike VCs) are a lot closer to and tighter with their money (since it’s actually their money) than VCs are and a lot closer to corporate investors in that respect.