Separating Fact From Fiction in Corporate Venture Capital
Many tech industry stakeholders in Asia believe the word “corporate” implies that a venture capital firm lacks independence and autonomy; that it is the mirror image of its corporate backer and therefore must carry out its agenda. But this is a myth, and couldn’t be further from the truth.
Recent data shows that 2018 saw a surge in corporate venture capital (CVC) activity worldwide. The second quarter alone clocked a record 757 CVC deals and US$14.1 billion in funding. For the entire year, there were 2,740 deals on record, while US$53 billion was disclosed in CVC funding for tech startups. This is an astonishing increase from US$36.1 billion the year before.
Asia attracted 38 per cent of all CVC deals in 2018, up from 31 per cent in 2017. In the third quarter, Asia overtook North American deal share for the first time and CVC accounted for 38 per cent of all disclosed funding for tech startups in Asia.
Yet, despite CVC playing an ever more important role in tech ecosystems around the globe, the industry is still permeated by many harmful myths about the venture model. There are a slew of public misconceptions about corporate venture capital that has for years been accepted as truth. Let’s separate fact from fiction.
Fiction: CVC Firms Are Slow and Can’t Make Moves Without Permission
A lot of startups and investors in Asia think that CVC firms are controlled by their corporate “parent” firms, and therefore must service the corporate agenda. But this is not true. Firms like ours are independent entities with fully autonomous teams and decision-making processes.
In many cases, CVC offers startups the best of both worlds. Founders get capital injected quickly after raising a funding round. There is no undefined waiting period when well-oiled corporate governance takes effect. Corporate venture initiatives have the cash on hand to make these moves quickly after term sheets are signed.
Founders also get a real bridge and network in the corporate world, a place they must go for clients and partnerships if they hope to achieve meaningful scale and success.
Both of these are things that most other non-corporate VCs in Southeast Asia simply cannot claim truthfully.
Fiction: CVC Funds are Off-limits to New Players
This is also untrue. In many cases, the corporate does not dictate who the firm hires or which startups it invests in. Often, the corporate backer is also not the only institution that can put its faith and capital into the fund.
Many CVC funds in Southeast Asia are actually open for other local and global investors to come in as limited partners. These are often institutions that seek to invest and participate in Southeast Asia’s tech boom and CVC firms are streamlined vehicles to help them capitalize without delay and with minimal red tape.
CVC firms like ours routinely co-invest with other non-corporate players and are often welcoming other strategic backers to their rosters of smart-money benefactors.
Fiction: They Only Recruit from the Corporate World
On the human resources front, CVC firms in emerging markets like Indonesia recruit team members on a “pro hire” basis. This means that they prefer to work with people who have real experience, culture fit, and a proven track record when it comes to startup investing in the region. CVC teams are not usually plucked from comfy corner offices. In reality, they rarely consist of people from unrelated sectors in the corporate world.
Fiction: CVC Funds Tend to Not Perform Well
This is just not the case. While many CVC funds in Southeast Asia have tried and failed to bridge the gap between corporates and startups, others are clearly starting to succeed.
The idea in the global market that corporate venture capital is a slow, bureaucratic, and an inefficient strategy is a stereotype that we need to dispel today, if only for the sake of savvy founders and funders alike.