By: John Hession
Corporate Venture Capital (CVC) in the technology sector has experienced some seismic shifts in perspective over the last decade. This perspective was offered by panelists Frank Andrasco, Director at next47, Adam Jackson, Venture Investor, Bose Ventures, and Charles Svirk, Senior Associate at MassMutual Ventures, who presented at a panel seminar hosted by MBBP and moderated by partner Scott Bleier, on May 4 at CIC in Cambridge. In addition to a frothy investment environment where new players in disparate industries are entering into the CVC game with abandon – but without prior experience – the panelists noted that deal terms and the investment landscape are also changing rapidly. In the past, CVC firms in the technology sector sought commercial arrangements with the CVC’s Mother Ship, perhaps more favorable to the parent corporation, and rights of first refusal or similar blocking provisions on the sale of the portfolio company. In the current environment, however, with CVCs being formed at a record pace and with plenty of prospects at healthy valuations, CVCs are looking for financial returns for the CVC arm, commercial arrangements with the CVC’s Mother Ship that benefit the portfolio company, and no longer bargain steadfastly for the veto right on the sale of the portfolio company or commercial arrangements that might be biased on preferential pricing for the CVC’s parent.
Perhaps the recent alterations in deal structures are also a byproduct of the changing method of compensating CVC principals for their investment selections and returns, a remuneration structure which now more closely mirror the salary, bonus and carried interest returns of comparable partners residing in conventional venture funds. While the current deal environment may augur some changes, some principles do appear immutable for the portfolio company seeking CVC: validation of the business model; brand affiliation and credibility offered by the Mother Ship and its CVC arm; introductions to commercial relationships which may presage a sensible and promising commercial arrangement; the attraction of additional capital from seasoned venture capital investors; and the added R&D expertise, distribution channels, and sales and marketing horsepower offered by the CVC’s Mother Ship. The panelists were quick to also note that equity investment structures and rational pre-money valuations were preferred over convertible debt, that the team rather than traction continues to be an abiding investment thesis, and that early revenues for an investment prospect were a compelling element of the investment proposition. The panel presentation both confirmed prior themes in CVCs’ investment theses, but also offered novel and refreshing trends and insights into a changing landscape for corporate venture capital.