The Big Guns Getting corporate investors on your side can certainly boost your business. Learn how corporate VCs think-and how to set your sights on landing one.

It's a classic dilemma: How can you develop a great companyif you spend all your time raising money? For a lucky few, likeJohn Glossner and David Routenburg, there's one way to do both:Raise money from a VC who is also an important business partner andpotential customer.

Co-founders of Sandbridge Technologies Inc.in White Plains, New York, Glossner, 39, and Routenburg, 57, neededboth money and industry contacts to develop and launch their newwireless handset technology. The perfect fit? Siemens AG, an $80billion multinational corporation and a leading manufacturer oftelephone handsets.

Siemens was potentially both a large customer and a strong-armedpartner. Glossner and Routenburg knew Siemens was also a greatsource of corporate venture capital. Through the SiemensVenture Capital fund, Sandbridge got not only amultimillion-dollar check, but also something even more valuable:industry credibility.

Around the world, several hundred companies deploy corporateventure capital. From Intel to DuPont to Wachovia, corporations areinvesting billions in emerging companies through these"captive" or "strategic" venture funds.

Make the Call
While there are certainly similarities between a traditional VC andits corporate cousin, there are important differences. TraditionalVCs are in the game for financial returns; corporate VCs often putgreater emphasis on a strategic mission. To catch a corporate VC,you've got to think like a corporate VC.

One thing on the mind of a corporate VC is helping business unitmanagers forge the kinds of relationships they need for currentprojects, according to Julien Nguyen, managing partner at venturecapital firm Applied Materials Ventures in Menlo Park, California."The other is discovering the next revolutionary technologyand filling in the white spaces [of future productdevelopment]," says Nguyen.

One way to hook a corporate investor is to find thecorporation's vulnerabilities, suggests Anthony Warren, Ph.D.,director of the Farrell Center for Corporate Innovation andEntrepreneurship, which oversees the Garber Venture CapitalFund, at The Pennsylvania State University, University Park."That's the key thing. Say 'Look, this division hasbeen floundering; its competitors are right behind you. This is howI can help your division beat the competition.'"

And beating the competition is what corporate VCs love to do."If we get in on more good deals at an earlier stage than ourcompetitors, we'll end up getting ahead," says LouisRajczi, managing partner at Siemens Venture Capital, the fund thatinvested in Sandbridge.

Even among themselves, however, corporate VCs disagree about thebest way to make first contact. Some prefer to meet entrepreneursthrough business unit managers at the parent company. Others preferto work directly with the entrepreneur, perhaps makingdepartment-level introductions later. Either way, it'simportant to find the right person in the organization. Warren hasclear advice: "Search the Net and find someone [who] has beenvocal in the area," he says. "Someone who has madestatements to the press about the company doing something in yourfield. Then make a personal appeal."

Get Connected
By thinking strategically, Routenburg and Glossner foundinvestments from two corporate VCs: Siemens and the semiconductorfirm Infineon Technologies AG. Routenburg, now vice president ofbusiness development at Sandbridge, couldn't be happier."It has a magnetic effect, drawing people who see that wereceived an investment from these corporations," he says. Thatmagnetism attracts customers, partners and investors, who see thecorporate investments as a stamp of approval by industry giants."It's a real differentiator over others that don'thave this connection," he adds.

That kind of credibility-or "market validation," asit's often called-is just one of the extras that corporate VCsbring along with their money. A strong strategic investor will alsogive you access to the corporation's customers, vendors andR&D teams, plus global market intelligence.

"Our corporate investors bring an interesting mix ofcontacts and business relationships," says Glossner, now CTOat Sandbridge. "They understand that our product may be tooforward-looking for their current product lines but still bring ourstory back to the product groups and open doors."

Routenburg agrees: "In many ways, corporate investment ismore useful than many private investments if we effectively exploitthe things that the corporate investor can do for us."

Wrong Number
Despite the obvious synergies, Warren is quick to point out thatcorporate venture money is not right for everyone. "One dangerin dealing with corporate VCs is that their objectives are notaligned [with the entrepreneur's]. If it's really astrategic investment, they may simply grab the technology, and youreconomic value becomes irrelevant to them."

Knowing how the corporate VC is structured can help you avoidsuch hang-ups. At Applied Materials Ventures, for example, the VCsoperate independently of the parent corporation and are verycareful to protect their portfolio companies. But watch out forfunds that can't operate at arm's length from the parentcorporation. Nguyen warns, "When you're an internal VC andyou answer to the CFO or CEO, it's harder to build a Chinesewall."

Still, most sophisticated investors agree that taking advantageof a portfolio company is bad business. As a result, corporate VCsoften keep their investment small and invest only alongside otherinvestors, like traditional VCs. Such was the case at Sandbridge,where the corporate investors were just part of a second round thattotaled $22.5 million.

Stay DialedIn
Are Routenburg and Glossner concerned about their corporateinvestors ripping off the technology? Not even a little."Ultimately, we want them as a customer, so it's verypositive to say 'What would we have to build to be yoursupplier?' It's a very cooperative relationship," saysGlossner.

Across the table, Rajczi at Siemens Venture Capital feels thesame. He places an emphasis on building links between Sandbridgeand Siemens, and focusing on what will make Sandbridge moresuccessful. "That will increase the value of the company andincrease our returns," says Rajczi. "We don'tactually measure any of the strategic benefits; we simply leveragethe strategic side into financial returns."

Even as it continues work on its first product, Sandbridge isalready generating millions in revenues-thanks in large part to itscorporate connections. And Routenburg is justifiably proud. SaysRoutenburg: "If you can get a global player in your chosenmarket to take an interest-one that has an established record forboth innovation and staying power-that is a true homerun."

David Worrell is author of the e-book Finding Funding.He can be contacted at david@dworrell.com.