Separating Fact From Fiction in Corporate Venture Capital
Aldi Adrian Hartanto, Head of Investments, MDI Ventures, a slew of public misconceptions about corporate venture capital that has for years been accepted as truth.
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 start-ups. 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 start-ups in Asia.
Yet, 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
A lot of start-ups and investors in Asia think that CVC firms are controlled by their corporate "parent' firms, and therefore must service the corporate agenda. This is not true. Firms like ours are independent entities with autonomous teams.
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.
Fiction: CVC Funds are Off-limits to New Players
In many cases, the corporate does not dictate who the firm hires or which startups it invests in. Many CVC funds in Southeast Asia are open for other local and global investors to come in as limited partners. 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 Ony Recruit from the Corporate World
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 start-up investing in the region. CVC teams are not usually plucked from comfortable corner offices. In reality, they rarely consist of people from unrelated sectors.
Fiction: CVC Funds Don't Tend to Perform Well
This is just not the case. While many CVC funds in Southeast Asia have failed to bridge the gap between corporates and start-ups, others are starting to succeed.
The idea that corporate venture capital is a slow, bureaucratic and an inefficient strategy is a stereotype that we need to dispel, if only for the sake of savvy founders and funders alike.
(This article was first published in the July 2019 issue of Entrepreneur Magazine. To subscribe, click here)