Corporate Venture Capital with Arun Parmar
This week I got to speak with Arun Parmar, an investor at Capital One Ventures. In this talk, we got to better understand how Corporate Venture Capital is different and similar to traditional VCs. Here are a few insights from our talk - full video at the end of the post
What is a Corporate VC (CVC)?
A simple way to think about a Corporate VC is as an investment fund with a singular corporate entity serving as its primary Limited Partner (LP), as opposed to the multiple financially motivated LPs typical of traditional VCs. However, Corporate VCs vary along a spectrum, depending on the extent of the corporate entity's involvement in shaping the fund's strategic direction. At one end, there are those with a more flexible strategy focus, where investments align loosely with an overarching idea, with success primarily gauged by returns. At the opposite end, are funds with stronger strategy mandates, characterized by a clearly defined focus and objectives not only to generate returns but also to forge robust partnership opportunities with the corporate entity.
How can founders understand a CVC’s mandate?
Understanding a CVC's mandate isn't always straightforward. Typically, you won't find all the answers neatly laid out on their website. Instead, it often requires some detective work through conversations. Looking at their portfolio companies can provide hints, but the most reliable method is to ask them directly. Additionally, tapping into the experiences of founders who've interacted with the CVC in the past can offer valuable insights into their investment approach and philosophy.
What are some of the advantages and disadvantages of taking an investment from a CVC?
It depends on what the founder’s motives are. If you just want capital, then it is probably better to raise from a traditional VC or a financially motivated CVC. They can get you a term sheet quicker if they have conviction. However, if you're seeking not just funds but also a strategic partnership or distribution channels, a strategically aligned CVC could be a better fit. While this route may involve a lengthier process, the payoff can be significant. By tapping into their distribution networks, you could ultimately reduce your customer acquisition costs as you scale up.
Is the investment process different for a CVC?
During the sourcing stage, it might seem quite standard. However, when it comes to diligence, things can get more involved. Besides the typical due diligence, you’re likely talking to their lines of business, such as product managers and technical leads that you might work with. You'll also navigate through the corporate's risk protocols, a step not typically encountered with traditional VC investors. Similarly, the legal scrutiny might be more rigorous, especially if there's a bank partner involved.
How do the VC groups within a corporation differ from corporate strategy/development teams?
It depends on how strict their strategy mandate is. If they have a very strict mandate with future M&A in mind, you’re basically interacting with a corporate development team. For founders, it's crucial to consider what negotiations the corporation might prioritize in the deal, considering their potential role as a future acquirer.
More insights from Arun in the full video below