Among the different ways a corporate, tech or non-tech, can catch up with the crazy pace of innovation startups is through corporate venture
funding.
Can any company turn into an investor? What should the size of investments from corporates to startups be? How long should the duration be? And finally, how should the different temporalities of the corporate world and the startup investment world be bridged?
To these questions, Summeet Jain from Intel Capital brought some answers and guidelines during the Break conference in Bali.
Corporate venture funding vs R&D: perception and reality
As an introduction, Summeet shared an interesting statistic and showed that the companies, which were perceived to be the most innovative by their peers, were not the ones investing more in R&D.
Take a look at Google, Apple and the like; most of their innovation comes from acquisitions and not lengthy R&D.
In Summeet’s view, companies must launch a venture funding program, and also set their foot in the Silicon Valley to get access to talent and projects.
Corporate venture funding needs to balance strategic and financial interests
Intel Capital started operating about 10 years ago, and they too had to find a good balance, especially since they are a tech company, between strategic investments, bringing new technologies and keeping the edge on the competition.
In any of these cases, the capacity to monitor the thousands of new startups is key, and takes time. Once done, there is still the challenge of what to do when the company you want to work with has been found.
Overall, the consensus is that investing from a corporate perspective should turn around the 5 year term, as it’s the “view” investors take on a startup:
If a corporate really wants a company below the 5 year timeframe, it should acquire it directly.
In all other cases, be it a view on long-term goals or investment, there should be a timeframe of beyond the 5 first years.
For Intel Capital, the level of investment typically ranges from $250k to $250m, with US$11.4bn invested in 1400 companies and 57 countries currently.
Their next move, which just launched this month, is their “Diversity Fund”, targeting startups founded by women or minorities.
What roadmap should corporations who are willing to invest in innovation follow?
Sumeet shared a few tips on what corporates should do when it comes to innovation:
- Do not invest or bet only through R&D,
- Install your base where it happens: Silicon Valley or any other hub relevant to your industry
- Work with the most forward thinking innovators,
- Investing achieves results in about 5+ years in the future, not the 1-2 years corporates usually have in mind
The main issue is that the time frame as the average tenure of a CEO at Fortune 500 is 4.6 years, but VC funds last on average 13-14 years!
It is impossibly hard for a corporate to invest in the early stages, because it takes 10-15 years, and the staff will not last as long, you have no realised benefits but you will still take all the risks.
Comparing corporate VCs, partnership and pure VCs
The formats are multiple; from R&D Centers to Accelerators/Incubator, VC funds or M&As. In all cases, corporates should take the time to identify relevant partners and work with them.
Find out more about venture funding here:
A guided tour of Microsoft Ventures with Zack Weisfeld