By Mike Brown Jr., contributor
These past two years I've been part of AOL Ventures, a group that has tried to think long and hard about re-envisioning the corporate venture capital model and how corporations should interact with startups.
Who knows if we have the right recipe (talk to our entrepreneurs) but I've had the benefit of synthesizing a ton of information from some of the best minds in the space and developed a pretty distinct viewpoint. The interest in corporate venture activity is at fever pitch, and with more and more corporations looking for perspective, I thought it might be thoughtful to put pen to paper.
What follows is how corporations might want to think about CVC, largely based upon our successes and failures. I'd note in advance that none of this is terribly novel, it focuses on Internet/media investors and there obviously is a lot more here that isn't written.
1. What Is Your Distinct Product? At the end of the day you are attempting to enter a largely insular, highly competitive market with not a lot of differentiation. Most people offer the same product. Try hard to map the customer (entrepreneur) experience and think about ways that you can differentiate. That could be a re-invention of certain pain points that the customer has or it could be a better platform that drives more value or it could be something totally amazing that no one has thought about. The most important thing that drove us from the outset when starting AOLV was 'what is the distinct product we are offering in the corporate venture market and why should an entrepreneur take our money?' You will need to think about this or join the sea of sameness.
2. Staff Sergeants vs Generals. The military is run day-to-day by staff sergeants, not generals. It is of paramount importance to know mid-level staff sergeants (top 100 right-under execs) in your company as they are the ones who really drive decisions and can be your best friend or worst enemy. A start-up is obviously working with you partly because of your relationship with these folks. End of the day start-ups will happily take advice from your CEO, but they probably like a BD deal (por ejemplo) better that happens quickly because you know the right mid-level people and can drive the discussion, the deal, and help when it gets mucked up in legal (yes you even should know all the lawyers).
3.You Don't Have to Lead/ I've never been a big fan of corporations leading rounds of financing, especially at the early stages. Just doesn't make any sense on a risk/reward basis to take a corporate as a lead and I don't believe corporates can even really compete to lead rounds over Tier-1 investors. If your fund proves you can add measurable value you should be an active participant in a cap table and adding distinct value where you can like any other early stage non-lead investor (again it goes back to the product you offer). You do not have to have a ton of Board seats to be close to your entrepreneurs and can still own sizable pieces of good companies to earn a return for your parent by being a good life cycle investor that supports a company through it's growth.
4. Bear Hug Your CFO. If you think you can play the totally autonomous game that gives no benefit back to your parent company, history will prove you wrong as far as I've seen and been told. Think about what you can do for your parent company beyond the obvious treasury play and make sure you have great inroads to the CFO function of your company, keep them updated like a normal LP (sometimes more) because at the end of the day they are the folks who meet your capital calls and determine your fate.
Mike Brown Jr. is a venture capitalist with AOL Ventures in New York City. This post first appeared on his blog.
By Jeff Bussgang, contributor
At the onset of 2012, many start-up executives are sticking their copy of Lean Start-Up on the shelf, leaning back and bemoaning the fact that they have a new set of challenges ahead of them. Although there is a plethora of advice now being given about how to find product-market fit for your fledging start-up, there's a dirty little secret out there: Once you've achieved product-market fit, the hard MORE
Jan 11, 2012 3:05 PM ET
By Antonio Rodriguez, contributor
I used to think that, as with Linux and web services in the early part of last decade, Android was going to be the mortar for the Internet of post-PC devices— an essential ingredient to put stuff together. And unlike Linux which puttered away quietly in the background doing the heavy lifting for services like Amazon and Google, Android was largely user-facing and would therefore benefit from massive platform MORE
Jan 11, 2012 2:55 PM ET
By Byron Wien, contributor
Byron Wien, vice chairman of Blackstone Advisory Partners, today published his list of surprises for 2012 -- following a 25-year tradition he began while still chief U.S. investment strategist at Morgan Stanley.
Byron defines a "Surprise" as an event which the average investor would only assign a one out of three chance of taking place but which Byron believes is "probable," having a better than 50% likelihood of MORE
Jan 4, 2012 1:52 PM ET
By Larry Doyle, contributor
Will we learn in 2012 if SEC chair Mary Schapiro and former senior executives at FINRA engaged in a fraud?
The case addressing this question, Standard Chartered v FINRA, has been appealed to the highest court in our land. As such, one might think that most Americans would care to learn if our nation's top financial regulator did, in fact, engage in a fraud which had a monetary MORE
Jan 3, 2012 11:12 AM ET
By Mark Suster, contributor
I find it amusing when a journalist writes about a prominent startup and decries that, "They're not even profitable!"
I mention journalists because they perpetuate the myth that focusing on profits is always appropriate, and then I hear many entrepreneurs (and certainly many "normals") repeating the same mantra.
There is a healthy tension between profits and growth. To grow faster, businesses need resources in today's financial period MORE
Dec 27, 2011 9:08 AM ET
By Martin Zwilling, contributor
Most entrepreneurs have learned that it's almost always quicker and easier to get cash from someone you know, rather than angel investors or professional venture capitalists. In fact, most investors "require" that you already have some investment from friends and family before they will even step up to the plate.
You see, investors invest in people, before they invest in ideas or products. Since they don't know you MORE
Dec 22, 2011 1:07 PM ET
By Martin Zwilling, contributor
Your startup needs a name, and it may be the most important decision you make. The name of your business has a tremendous impact on how customers and investors view you, and in today's small world, it's a world-wide decision.
Please don't send me any more business plans with TBD or NewCo in the title position. Right or wrong, the name you choose, or don't choose, speaks volumes MORE
Dec 15, 2011 9:28 AM ET
By Brad Feld, contributor
Jack Welch taught us the power of being #1 or #2 in your market many years ago and the VC business reinforces that over and over and over again with relative exit values. The VC cliche is that the market leader gets 50% of the value, #2 gets 25% of the value, #3 gets 10% of the value, and #4 through #263 get the remaining 15%. While MORE
Dec 15, 2011 9:27 AM ET
Is mobile the future of healthcare, or more hype than substance?
By Lisa Suennen, contributor
Given the incredible energy and thousands of attendees at last week's mHealth Summit, it would be easy to get caught up in the hype that surrounds mobile health and it's many potential uses. There were an enormous number of companies present and news of many new financings (e.g., HealthTap receiving $11.5 million from Mayfield, Mohr Davidow and MORE
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| Company | Price | Change | % Change |
|---|---|---|---|
| Bank of America Corp... | 6.61 | -0.18 | -2.65% |
| Citigroup Inc | 30.77 | -0.83 | -2.63% |
| JPMorgan Chase and C... | 35.58 | -1.27 | -3.45% |
| Intel Corp | 25.26 | -0.48 | -1.88% |
| Microsoft Corp | 27.98 | -0.02 | -0.05% |
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