2017 saw another year in the increase of corporate investing in startups across the globe. $31.2B was invested across 1791 deals in 2017. The secular trend is an increasing appetite for risk among corporates as they make bets across a large number of strategic areas -- e-commerce for retail, autonomous navigation for car manufacturers, fintech for the traditional financial services companies or artificial intelligence and machine learning for the overall tech sector.The decision to take money from CVCs or institutional VCs needs careful consideration from an entrepreneur.
As much as CVCs tout their ability to company building, they would rather hire the top talent themselves than let their portfolio companies. Also, most CVCs just don’t have the same panoply of professionals that help their portfolio companies in recruiting top talent.
CVCs can open doors to their internal business groups which can be helpful for startups to secure OEM or revenue sharing contracts. Nothing like having a channel sales deal that leverages a large existing sales force to sell products.
a CVC can bring major resources from its parent company to perform technology due diligence which a normal VC cannot. A validation of such sort can be very comforting to other investors which may lead to securing capital in fund raising, especially when the startup does not have a large revenue base.
CVCs are notorious in taking their sweet time to get approvals from their countless committees and checks and balances from their organizational labyrinth.
Thus, unless it is the last resort, as in the case of most hardware startups, it is easier for startups to raise money faster from traditional VCs. 5. T’s & C’s: if the strategic fit with the startup is right, then the T’s and C’s are very important when it comes to ROFR (right of first refusal), ROFO (right of first offer), ROFI (right of first information), not to mention the veto rights, and dragging rights, depending on how much capital CVCs invest.
Most corporates want explicit or implicit exclusivity and it is the entrepreneur’s responsibility to stay clear of all tie ups that limit their upside.
EUGENE KLEINER’S LAWS OF ENTREPRENEURSHIP
1. Risk Up Front, Out Early or in other words fail fast. Build one business at a time. Concentrate on being successful in one endeavor first before taking on another one. The problem with most companies is they don't know what business they're in.
2. There is a Time When Panic is the Appropriate response.
3. The Time to Grab Hors D’Oeuvre is when they are being passed. When the money is available, take it.
4. Abhor market risk. Make sure the dogs want to eat the dog food. No matter how ground-breaking a new technology, how large a potential market, make certain customers actually want it. It's easier to get a piece of an existing market than to create a new one.
5. Everyone in new venture is selling. Corollary to this law is that products bought are better than products sold.
6. It's difficult to see the picture when you're inside the frame.
7. The more difficult the decision, the less it matters what you choose.
8. Startup fratricide is the biggest risk outside market risk. Venture capitalists will stop at nothing to copy success.