The Signal #10: corporate venture, stand strong (日本語版あり)

Corporate venture, stand your ground (日本語版あり)  – The Signal #10

We were kidding when we said the rain had ebbed in the Bay Area. Really kidding.  (In sum: reservoirs are filling, groundwater far from being refilled.)

We were struck by the news that Intel Capital might sell off its portfolio, or at least $1B of it. First, Intel Capital is likely the most active corporate venture firm in history, or at least is over its 25-year life.  Should this be treated as a bellwether for the CVC sector? Or a move driven by Intel-specific strategy? In the latter category, GE’s exit from its positions as GE Capital comes to mind as a comparable.  That’s apples-to-oranges in that Intel Capital isn’t financing Intel customers, but rather putting Intel’s cash flow of today into the innovative businesses of tomorrow.   But to the extent this move is driven by internal strategy, not external climate, we can point to GE’s exit of its Capital portfolio as a comparable.

Our own personal experience with Intel Capital puts them as somewhat unique within CVC. Most CVCs follow a lead. Intel Capital will set the terms of an investment. They know that Intel’s imprimatur can “make” a startup, and act accordingly. They also invest with the goal of financial return, not just strategic.

By the way, this news comes right as we posit that now is the time for corporate venture. Either we are contrarian or just plain wrong. Still, if you believe the goal of corporate venture is to invest today’s cash flow into nurturing tomorrow’s innovative technology, then it makes sense to do so when traditional VC money is getting a little harder to find, as shown in the chart below.


Total VC deals and dollars: 2015. Source: NVCA

When the flow of VC money is slowing, startups may be more willing to accommodate CVC-specific requests.  Speaking as an alum of a startup (Rosum) funded by Motorola Ventures, Steamboat Ventures (Disney), and In-Q-Tel (US intelligence community), the challenge for startups with CVC money is always determining whether the corporate investor request is an “n of 1” or an “n of many”.  (N=1 means non-scalable product, customized to one buyer. This is not a startup business model.)  Still, at a time when traditional VC is more scarce, now is the time that entrepreneurs may heed CVC requests more closely.  We say this as CVC deal participation is at 1999 and 2008 levels, but could also potentially be at the peak of its sawtooth pattern as shown in the chart below – the light blue line shows CVC deal participation rate.
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VC investment, CVC investment, and CVC deal participation rate: 1995-2015. NVCA data

We have seen CVCs retract from Silicon Valley and then come back again, and can only say that persistence is its own reward.  – Jon









– Michi

Onward! – Team Blue Field