When considering which investors to invite onto their cap tables, today's founders are looking for more than just money. The fact is, there's more than double the dry powder that was available to startups between 2016 and 2020. As a result, what founders are really looking for is strategic value.
Enter the CVC, a corporate-backed fund that can bring needed value to virtually any cap table. In recent years, large corporations have sensed the importance of early-stage technology startups, and they've expressed an increased desire to augment the landscape by helping new companies grow.
What was once merely a source of capital, the CVC has transformed into a legitimate ally that can open the gate to success. CVCs have emerged as key strategic partners, assisting in sourcing customer bases, executive candidates, and corporate partnerships.
Furthermore, many CVCs have hired knowledgeable, experienced staff who have a good understanding of the market and how to more effectively deploy capital. For example, I have worked at and invested in start-ups for more than two decades. I've navigated IPO exits and corporate sales.
It's no surprise, then, that CVCs are gaining significant traction. According to CB Insights, CVCs inked nearly 5,000 deals worth almost $175 billion in 2021. And this year, even in the midst of a market downturn, CVCs have invested 65.8 billion —60% of which are early-stage deals. An EY Foundry analysis found companies that have the most active CVC investors have outperformed their peers — and the overall market — in both the long and short term.
Clearly, having a CVC on your cap table isn't what it used to be. Here are three reasons why you should consider it:
Access to Real Experts
CVCs like Thomson Reuters Ventures have vast networks, and they can help you get in front of the right people. Most traditional venture firms have 25-50 employees, so they don't have an R&D department or a CTO you can actually bounce ideas off of. Most venture funds are populated by entrepreneurs and residents, and perhaps they can introduce you to other founders. But the likelihood of them introducing you to a CISO or Head of HR managing 25,000+ employees is not likely.
Good CVCs — especially those who come out of the tech world — have a vast set of resources operating within their own company. Want to talk to the head of strategy? Payroll? At a firm like Thomson Reuters they're just a phone call away. When we begin a relationship with a founder, we'll often connect them with multiple people within the company that can provide immediate feedback on their product.
Built-In Customer Base
Any fund with which you choose to partner should help you achieve growth. While traditional VCs will help you hone your strategy and prep for you to go to market, most CVCs improve on that model in one of two ways: providing access to their existing sales channels or becoming a customer itself.
Because most CVCs' parent companies are ALSO providing products or services to a customer base, CVCs have a vast reach —especially if they're going after a market similar to yours. They give you feedback on your product right away, which can help you to hone your product.
When we invest, we want to make sure that the companies we invest in have access to the broader Thomson Reuters network. That way, they're quickly set up for success.
Likewise, since we're a B2B SaaS company, we're constantly on the hunt for new tech solutions. When we find a startup whose product or service can fill a need within our own company, it makes the partnership much more symbiotic. You get the benefit of real-time feedback with the resources necessary to make it happen. In most situations, we put the founders we work with in touch with our product and internal engineering teams immediately to see if it's tech we can use ourselves.
Same Speed as Traditional VCs
When exploring a relationship with a CVC, many people believe it's going to be more time consuming than working with a traditional VC. Historically, that was certainly the case; CVCs had more people to answer to, and as such, it took longer to obtain strategy alignment within the corporation.
With Thomson Reuters Ventures and many other CVCs, we've now structured our processes so they're just as fast as a traditional VC. The time we take to make a decision is very much in line with industry pace. And if we're not interested, we try to pass fast so we don't string founders along. But if we like the solution and we think there's a fit, we do what's called “double tracking”: on one track, we're checking to make sure we can go to market with you and come up with a value-add that will make you want to work with us.
The second track is like that of a traditional VC: as long as you give us access to the data room and provide customer references, we will do our diligence just as fast as the next VC. As long as founders give us the data and access, we can make the decision quickly.
Corporate venture capital firms have come a long way in the last 10 years. We've become far more agile, and great to have on your cap table in addition to traditional VC investors. But at the end of the day, they still have to be the right fit for your company. They still must bring you the support you need to succeed.
How do you know if they're a good fit? If they're aligning with you in advance of giving you money. The right CVC should come to the table with a plan that answers important questions. How are they going to help you grow? The right investor will be able to tell you.