Neal Hansch Crunch Network Contributor
Neal Hansch is CEO and managing partner at Sherpa Foundry .
How to join the network When NBCUniversal needed to get young viewers to tune into the 2016 Olympics in Rio this summer, it turned to BuzzFeed , the social media-driven media company in which it had invested $200 million a year earlier.
NBCUniversal knew the millennial audience — and the lucrative advertising dollars that follow them — would be key to achieving their aggressive advertising goals.
The challenge? NBCUniversal’s most popular shows draw viewers in their 30s, 40s and beyond. Conversely, more than half of BuzzFeed’s audience is 18-34 years old, according to industry tracking firm Comscore.
NBCUniversal knew they needed to connect with the most coveted audience where they were already consuming content on a daily basis — Snapchat. But instead of handling this content itself, NBC enlisted a team of producers from BuzzFeed to focus on the creation of videos covering this Olympics. Across both NBCUniversal and BuzzFeed channels on Snapchat, the content received 2.2 billion views and 230 million minutes of consumption in two weeks.
At the time of the investment, Buzzfeed founder Jonah Peretti was quoted as saying that the funding would allow the company “to grow and invest without pressure to chase short-term revenue or rush an IPO.” NBCUniversal has proven able to leverage BuzzFeed’s attractiveness to advertisers and valuable audience data, while the startup gets financial security and connectivity to resources, scale and new business opportunities that spawn across NBCUniversal’s portfolio of brands.
This is just one example of the power of corporate venture capital and the mutual benefit it can generate for corporations and startups alike. The convergence and disruption that is driving these corporate venture capital (CVC) deals is not limited to the entertainment industry. As more corporate leaders realize the benefits of leveraging balance-sheet dollars to engage with emerging companies in their industries, there has been an explosion in the number of active corporate venture arms.
Large corporate incumbents recognize that engaging with the startup community is necessary to stay on top of the disruptive innovation around their core business and stay ahead of the curve with emerging technologies and new business models. This movement is taking place across all sectors and is driving competition to invest in the most sought-after startups more fiercely than ever.
VCs are uniquely positioned to provide compelling advantages that entrepreneurs don’t find with other investment options.
To gain access to the most prized deals, VCs universally pitch startups on the “value add” they can bring to bear, beyond simply the cold, hard cash on the table. The value highlighted typically is tied to an investor’s past entrepreneurial success, operating experience, industry Rolodex and co-investor relationships, as well as a range of other resources that may help drive the startup’s success.
At the same time, entrepreneurs are waking up to the many distinct strategic advantages that CVC investors are increasingly bringing to the deal table, including significant funding at all stages of the life cycle, strategic advisory and operating support, as well as scale and growth drivers; in other words — access to target customers, distribution channels and paths to exit for their startups.
The venture industry as a whole has continued to evolve in recent years, due in part to the advent of AngelList and myriad other crowdfunding and emerging alternative funding options for entrepreneurs. At the same time, CVCs have also matured, expanded and increased their share of total investment dollars deployed each year.
“Corporates are realizing that innovation and disruption is coming from outside of them,” says Mark Sherman, managing director at Telstra Ventures , the investment arm of Australia’s leading telco and diversified media company with a $50 billion market cap.
“The world is moving too fast to depend on organic innovation alone. Investing in and partnering with startups is one way to keep pace with change,” says Amy Banse, managing director and head of funds at Comcast Ventures , the venture capital affiliate for Comcast NBCUniversal.
As a result, more and more corporations are launching accelerators, incubators or venture arms, hiring “Chief Innovation Officers” and spinning up in internal labs — all in an effort to connect with startups and embed themselves more deeply in the global tech ecosystems. Because of the unique benefits they offer, CVCs have emerged as a powerful class of investors and competitors to traditional venture capital.
Funding across the life cycle
Historically, most CVCs have been followers and “deal takers not makers,” while also largely only active in later-staged fundings. More than ever, CVCs are increasingly getting involved in deals that span all different stages — from seed to growth and even post-IPO — as well as leading those rounds. According to the National Venture Capital Association, corporate venture groups have invested more than $1.2 billion in nearly 200 deals in the second quarter of 2016 alone, the vast majority of which were to seed-stage and early-stage companies.
Activity levels have skyrocketed by most measures, and over the last five years, the number of corporations making venture investments has risen to more than 800, as tracked by Global Corporate Venturing . CVCs deployed nearly $30 billion in funding across 1,300+ deals in 2015, according to CB Insights , topping 2014’s previous records of $16.7 billion in 1,245 deals. In fact, last year CVCs participated in 1 out of every 5 venture deals, and companies as diverse as JetBlue Airways and The Campbell Soup Company have launched new venture arms.
Strategic advisory and practical support
VCs are uniquely positioned to provide compelling advantages that entrepreneurs don’t find with other investment options. These advantages typically stem from their ability to drive growth and revenue for their portfolio companies by leveraging their parent companies’ scale, specific domain expertise, talent and customers.
“Our Members are some of the leading corporations in the world and we have seen firsthand how they unlock strategic value by leveraging their unique resources across portfolio networks,” says Tina Sharkey, senior partner of Sherpa Foundry.
Corporate VCs often work closely with the senior leadership of their parent companies’ core business units to stay on top of their expertise and interests and to share information on potential deals. At Salesforce, which is a founding member of Sherpa Foundry and one of the top five most active CVCs on the globe, each investment requires a business unit sponsor that commits to working with the startup. This ensures the startup receives specialized attention from company leadership and maintains a tight alignment with Salesforce goals.
The role of CVCs in the venture ecosystem has never been more visible or impactful than it is right now.
Condé Nast, another member of Sherpa Foundry, exercises a similar approach via Advance Vixeid Partners (AVP), a venture capital firm affiliated with Condé Nast’s parent company, Advance Publications.
“Through our strategic partnership with Advance Publications and its operating businesses, AVP has the unique the ability to tap into a broad range of operators with domain and/or functional expertise that can be deployed in our portfolio companies as consultants, advisors and members of boards of directors,” says David Ibnale , founding partner at AVP .
More and more entrepreneurs are opting to take strategic CVC investment because of the practical support they are able to provide.
“Entrepreneurs value the tactical assistance CVCs offer that most other institutional investors cannot — day to day operating insights, active industry connections and real-time deep domain guidance,” says Sharkey.
According to Matt Garratt, VP of Salesforce Ventures & Corporate Development, Salesforce Ventures leverages the company’s sheer scale and scope of its network of topical experts to provide applied support for immediate issues and day-to-day challenges that its portfolio companies face. “If a founder says, ‘I need help with pricing for my field service application,’ I can bring in someone who runs pricing for all our field services business lines. This is not a general high-level discussion,” says Garratt.
Ibnale agrees. “For each investment we make and for each issue — strategic or tactical — that we aim to address with a portfolio company, we have the ability to look within Advance business units to find the specific talent and capabilities that we need,” he says.
CVCs have the clear ability to connect their portfolio companies with relevant champions or partners from across their corporations. “Not all of our investments are strategic but often our best returns result from the promise of a strategic relationship,” says Banse of Comcast Ventures, which has been active since the late 1990s. For example, Comcast Ventures invested in EdgeConneX , an edge data center company, in 2010. Two years later, when Comcast was looking for an edge data center solution, Comcast Ventures introduced them to EdgeConneX and together they architected a solution. Today, EdgeConneX is one of the largest edge data center operators in the world and Comcast was their first major customer.
Scaling power locally and globally
CVCs can provide startups direct access to their own sizable customer bases. They’re able to do this because they know the specific problems their customers face and can assess fit with the solutions offered by companies in their portfolios. For example, Salesforce Ventures introduced their portfolio company ThousandEyes , a virtual network monitoring startup that solves performance management issues, to Salesforce’s customer base to improve user connectivity to their services.
Another examples is Vidyard , a video marketing platform, which was made available to any Salesforce customer that used video content in their products. “They’re a fantastic partner,” Garratt says. “We don’t have video capability ourselves, so we’ve integrated Vidyard across virtually all our products.”
Tapping into the global depth and reach of in-house experts is another area where corporate VCs are often uniquely positioned to assist startups.
Telstra Ventures invests in companies that are strategically important to their parent company, and the investment team looks for startups whose products can work for their end customers and/or where Telstra itself may be a user — or both, as is the case with DocuSign .
“Entrepreneurs love that because it generates revenue,” Sherman says. “We’re very focused on driving revenues for our portfolio companies.” The group has invested in nearly 30 companies since starting four years ago, including Instant Logic , MATRIXX Software , Qiniu and Whispir .
Tapping into the global depth and reach of in-house experts is another area where corporate VCs are often uniquely positioned to assist startups, particularly those seeking to expand internationally. Qualcomm Ventures , for example, has nine offices globally, which allows them to help startups with everything from market intelligence to moving their headquarters. This happens frequently with European startups looking to move to the U.S., says Patrick Eggen, senior director at Qualcomm Ventures.
For example, Qualcomm initially discovered and bet on Waze when the founders were still solely based in Israel. When the company moved its headquarters to the United States, Qualcomm continued to work with the remaining team in Israel, while also supporting the new operations in the states. “Waze maintained the majority of their engineering and operations team in Israel so QCV provided support in both geographies seamlessly,” said Eggen.
The role of CVCs in the venture ecosystem has never been more visible or impactful than it is right now. Corporate venture leaders know they must leverage their native and distinct advantages to provide measurable value for startups in order to distinguish themselves from the proliferation of institutional and other capital options. For entrepreneurs, this evolution and increased competition in the venture funding landscape means more potential sources for backing and greater emphasis on what assistance each can bring to the table to help get their company to the next level.