Corporate Venture Capital (CVCs) are an integral part of VC ecosystems, especially for India. And if you peel a few layers, we'll see the value they bring to the table. Have tried to describe this in this week's @Rainmatterin newsletter. zerodha.com/z-connect/rain…
-CORPORATE VENTURE CAPITAL- CVC is not synonymous with Venture Capital Has different Thoughts Process, Goals/intent/objectives, metrics,outcome expectations -Corporate Rigidity+Startup Culture=Hybrid nature can have pros n cons, Strength n weakness In general More Strategic+Structural Collaborations to drive mutual growth In overlapping mkt/area of expertise -Complementary motivations-Latent Synergies/Benefits To gain competitive advantage from innovative startups -their Value Add of Stable Capital Infusion, Refinancing,Professional Managers ,Distribution,Industry specific networks,tech,brand Leverage Operational abilities, resources, ecosystem Marketing+Development Expertise Mentorship+Tactical Support =Financially Driven-to invest excess cashflows/dry powder to gain higher ROCE. Pros of Patient Capital+Niche networks.Know-how (vs Pure-play VC) Many Corporates co-invest with VCs The Economic Climate,markets, (Startup Valuation/portfolio EV compression) Balance sheets, corporate strategy Drive investment decisions (strategic vs financial) varies region/mkt wise Corporates invest outside-apart from RnD, investing in independent verticals within org(corporate venturing) ,JVs,in-house accelerators Future possibilities of M&A, control -they focus on tangible results-due diligence,product development,revenue milestones -Diversification+entering into Adjacency mkts also can drive invsts. -EnterInto new Whitespace/Greenfields Broad framework CVC invst type- =Driving invsts-advances Stratergy of current business =Emergent invsts-allows exploration of potential new business =Enabling invsts-complements Stratergy of current Business =Passive invsts-provides financial returns only =Sometimes startups can be potentially cannibalistic to investors own product =Growing Current Business by Promoting a Standard, Stimulating Demand,Leveraging Underutilized Tech =Growing Future Business by Experimenting new Capabilities,Developing a Backup Technology,Exploring Strategic Whitespace Helps in Signalling-Brand Talent sees Investment as Sign of Seriousness.Adds to Reputation Marketing+Trust by Association =Future fund raises(speed,Dealflow heat, cadence)+goals +Recruitment need to be Aligned to reduce flashpoints Industry+Market Disruption+need decides the stage at which Corporates invest into startups (Ex climatetech get early stage,Fintech at all stages,biotech post breakthrough-in general post PMF) Prefer Growth Stage CVC value proposition for startups get amplified during Downturns and recession Stable Partnership benefits increase in Turbulent times VCs also gauge n give more imp to Disciplined Growth,Path to Profitability,Stability,Moats,Operating Fundamentals Stable,Disciplined-Gaurdrail approach may be beneficial in such times (=Also due to Boardroom Constraints CVC also look for exits from previous invsts during Downturns) (Cost of Capital higher, deals relatively more expensive in Downturns) 'every dollar spent on innovation during recession counts double,in case of CVC it triples' CVC has come a long way from 1914 when Pierre S Du Pont invested in General Motors =Coherent Values+Aligned Investment thesis+Milestone gauging+ Governance,Operating model,team,resources(as a patient game of 5yrs-to decades) Dealing with Corporate parent relationship,capital flows(balance longterm vision with short term imperative) Using shareholders fund prudently as risk capital makes it difficult for a Corporation to be a Money Manager Doubling Down on Winners,cutting losses,exits will decide success -the largest returns/home run bets Where never completely IRR-TVPI-DPI/financial driven The Power Law is present everywhere @Nithin0dha @nikhilkamathcio @dineshpaii @Rainmatterin @sbikh @vkhosla @BKartRed @natashamalpani @kitty_agar