This article is an extension of my five part series on how to structure a CVC and corporate innovation group to function as effectively as, and even better than, a traditional VC fund and how to ensure that the corporate parent is able to absorb the innovation.
A corporate venture capital fund (CVC) is similar, but different than, a traditional venture capital fund. As such, the skill set a managing partner needs to run it effectively is akin but not identical.
Let’s break down the critical and the optional skills that a successful candidate will display.
Critical skills of a CVC managing principal:
- Marketing – As we discussed in parts three and four of the series, “pilot first with a hard-commit follow-on if it works” is essentially a “pull strategy”. Instead of a “push strategy” of beating the bushes hunting for startups, here you need to climb a hill, unfurl a large flag, and yell at the top of your lungs while waiting for startups to come to corporate. Since this relies on getting the word out far and wide, the marketing moxie to pull this off is essential.
- Political savvy – Ensuring that line management ultimately does engage with startups requires a mix of politics and process so that the managing partner must create informal relationships to smooth the path to pilot. Not all managers are equally excited about innovation, so finding someone to gently cajole and smooth ruffled feathers is key.
- Process passion – The managing partner also has to work out a series of touch points and events with corporate. Also, since you get what you measure, he or she will have to help modify the evaluation processes and compensation structures to make sure that working with innovative startups is something that gets his or her partners in management their bonuses and promoted. So, you need someone with some serious operational expertise to sweat these details.
Less critical:
- Domain expertise – Ideally, you want both venture and industry experience, but that’s a pretty hard combo to find. Fortunately, believe it or not, domain expertise may not actually be all that important. A good generalist investor can get up to speed on a new industry quickly, especially given the deep bench strength of industry knowledge the corporate sponsor brings to the table. So, in a pinch, finding someone for the CVC with experience in the field is less critical than it would be for a standalone fund.
- Industry relationships – By the same token, the CVC can lean on the cumulative relationship base of the corporate parent. Furthermore, since the primary set of relationships that the CVC needs to forge are internal, between startups and the business lines, not external, extensive industry relationships are also “nice to have” only.
- Sourcing – With this pilot-to-invest strategy that attracts the startups to the CVC, traditional VC sourcing techniques are less important.
- Valuation – The lead investor in the startup’s round sets the valuation. Since the CVC is following, the managing partner just needs to accept the valuation set by the lead investor or simply pass on the round. Also, since strategic imperatives often outweigh pure ROI for the corporate parents, it is not the end of the world if a CVC occasionally overpays a little.
- Deal structuring – Deal structuring also is determined by the lead investor. As long as the CVC gets the same protections as the lead, there is not much to do here.
- Due diligence – The CVC can free ride on the lead investor’s diligence if it wants, especially since it has already piloted with the startup and has had an extended inside look under the hood.
Where to find this kind of investor? Large corporations interested in starting a CVC are 99.99% likely to use a recruiter to fill this role. But for hyper-specialized roles where clients themselves don’t know what they actually need, a recruiter is only as good as the guidance they get.
For a traditional VC, a good recruiter might look for someone on the rise at another venture fund who also has startup experience in the industry. For a CVC role, finding a VC rising star still makes sense, but rather than looking for additional experience at a very small company, operational experience at a large company and/or top consulting firm is more likely to check the critical skills boxes above.
Got questions? Come to my session on Launching Innovation at HIVE for Housing in Austin on December 3-5.
Acknowledgments: I’d like to thank David Coats (Correlation Ventures), David Gerster (JLL Spark), Blake Luse (Ferguson Ventures), David Teten (ask him about his new fund), Linda Isaacson (FPL Global), Jill Ford (Toyota AI Ventures), Stacey Wallin (Numinus, formerly at BD Tech), Ameet Amin (Proto Homes, formerly at Colliers) and everyone else who contributed their thoughts to this article.