Corporate Venture Capital: New Tools For Investment Success
For Corporate Innovation and Venture teams, jumping into the investment game will yield greater rewards when everyone understands the rules and the field of play.
Up-and-coming startups are an important and coveted source of innovation for mid-sized and large corporations. Many of the larger companies have established their Corporate Venture Capital (CVC) activity. Still, the opportunity for new, smaller in-house teams is out there and ready to be discovered.
In 2020, “European startups raised a record $21.4 billion through rounds with CVC or corporate investment participation, a nearly 35% increase over the year before,” according to PitchBook data. “About 34% of 2020’s investment was directed to IT and software startups, with healthcare companies accounting for 23% of the capital raised.”
With the forced digitalization inside Europe, sometimes with a major boost from the pandemic, many corporates and CVCs are keen to increase their investments in digital ventures software early-stage tech. While startup darlings like Tink and Klarna are getting the spotlight, there are many other founders who used the lockdowns to develop new solutions and new opportunities for corporate-startup investment.
The problem for many in-house teams? Where to find these gold nuggets and what to do when opportunity knocks.
According to Atomico’s “The State of European Tech 2020,” there are more than 140,000 startups in Europe, of which more than 43,000 have raised at least one recorded round of funding.”
As an innovation broker in the European startup epicenter, TechQuartier offers guidance and learning opportunities for corporates looking to break into case-by-case startup investing or the CVC game, but don’t have the insights or capacity needed to find the right opportunities that fit with goals and deal with startup investing and management. Often even understanding the VC language, terms sheets and investor rights are slowing down required quick reaction time or deterring opportunities.
“A lot of corporates have built innovation teams. They scout the market. They are basically the intersection between the startup and the internal departments, but very often they have a business development background,” explained Dr. Sebastian Schäfer, Managing Director of TechQuartier. “They are often not aware of the kind of mechanisms or forces and rulesbehind the successful venture capital.”
From this realization and a request from Aareal Bank AG, TechQuartier reached out to Vectorpilot, a well-established venture and portfolio management company with more than 20 years of experience, to partner on building an education program to help corporates think and act more like venture capitalists.
“Many internal teams are used to handling Mergers and Acquisitions (M&A), which is a completely different animal. The ‘good’ investment opportunities are rare and competitive and therefore are quickly lost to other investors that can scout, evaluate and close deals quicker. Sometimes the cultural shift is that people take the rules of M&A and use them for early-stage venture investing that won’t be a fit. Another issue is ‘value creation.’ Many corporates have invested a lot of time collaborating with startups, but how to derive value of outside project is the key question,” warns Ingo Franz, Vectorpilot advisor & mentor, co-founder & VC-investor with more than 20 years in Digital Business, Smart Industry and High-Tech.
This blooming interest in establishing internal departments focusing on innovation has led companies like Aareal, DZ Bank and SAP to engage with TQ Venture Capital Training program. The goal is to enlarge their background or understanding of the playing field to successfully support the scouting and evaluation processes necessary to find, partner or invest in the most promising startups.
On the other side of the shared table, many startups are looking for corporate partnerships that allow for growth, based on a founder’s goals and business model. Financial investment is always welcome, but startups are in particularly keen to gain quicker access to technological know-how, distribution channels and networks with CVC backing.
The key to creating a successful and fruitful agreement is to be able speak “entrepreneur,” to understand the venture game rules, to be open to acting quickly, to developing trust in the founder world and to find potential external startups that fit into the larger picture success.
The Venture Capital foundation course offered from TQ and Vectorpilot teaches in-house CVC teams about the basics and the advanced nuances of VC business models, company valuations, key milestones, deal terms and deal flow. Using case studies and evaluation exercises, participants learn how to estimate the value and potential of startups.
In the future, in-house teams can build on these foundational courses with further deep dives into growth knowledge and possibilities. These trainings are also part of the TechInfusion series. Through deep dives into customized topics like business modeling and financial planning, Due Diligence or portfolio management, collaborating VC experts give corporate teams the confidence and knowledge to identify and avoid being left out as the next big trends start to surface.
A look inside
TQ’s TechInfusions have a well-designed series of training and foundation courses and can prepare either an in-person or virtual curriculum that is customized for the needs of an in-house team. Each stage of developing a successful CVC team can be addressed with a deep dive.
Participants can also have the rare opportunity to meet founders from TechQuartier’s vast startup community and who can give honest insights into how to develop relationships that lead to golden handshakes.
TechInfusion trainings are the beginning of the corporate venture journey. For companies that want to dive deeper into the subject and want expert guidance, TechQuartier can help build the right solutions.
“We help dedicated teams to understand the entire process from proprietary deal flow generation to deal and investment management and later the portfolio management process,” said Mr. Franz and Dr. Schäfer.
Interested in learning more about this program?
Contact Dr. Schäfer for more information.