Why you should consider a Corporate Investor in your company
Corporates are investing more in innovative startup companies, that's one of the trends that is clear when you look at the 2014 investment data. According to Pitchbook , Corporate VCs invested $15Bn in companies in 2015, a $3Bn increase from the previous year. CB Insights shows a similar trend with the added insight that Corporate VCs are increasingly investing early doing more seed and early stage investment with 53 different Corporate VCs participating in at least one US seed round. The primary motivation is access to disruptive technologies and innovations which large corporations can struggle to develop internally.
Here at Atlantic Bridge we see Corporate VCs as a valuable partner in the innovation ecosystem as demonstrated by co-investments with many of the leading corporate VCs including Intel , Samsung, Alibaba, EMC, T-Ventures and Bosch. It's worth taking a step back and looking at what exactly a corporate investor can bring to the table and why it can give a competitive advantage to companies. We strongly believe in smart capital, the ability to add value above writing a check and having the right Corporate as an investor can achieve that in a number of areas:
Give Validation and early customer engagement
As a small agile new company it can be difficult to get in the door with large corporate customers and even if you do get in, the organisation is so big that you are probably not speaking to the right person. Having a Corporate as an investor will open doors for you and give more weight to early customer engagement. Early engagement with strategic customers is critical to creating a product from the start that can scale for large strategic customers. This is something that Quixey was able to do with Alibaba who after investing in the Company worked closely with the engineering team to develop a strategic platform for the Chinese market.
Industry Expertise and Market Knowledge
Corporates can be slow moving and may not be as knowledgeable as you on the latest disruptive technologies but they can often see at a high level what the strategic trends are, information on internal product roadmaps, potential roadblocks for you and other technology trends either in your field or adjacent ones that can impact either positively or negatively on your business. We have seen this with many of our portfolio companies including Movidius where Bosch as an investor offers valuable market knowledge at board meetings and on a daily basis. Another important contributor in our portfolio companies is Intel Capital who have vast market knowledge across many verticals that has been leveraged many times.
A Shop Window for M&A
The most likely outcome for a technology start-up is acquisition by a Corporate. Having a Corporate that is familiar with your company and that you have developed and nurtured a relationship as an investor in your company is an invaluable advantage when it comes to selling your company. Many Corporates make investments as a way of getting optionality on acquiring companies after a period of diligence as investors. Atlantic Bridge Companies have been acquired by coporate investors on many occasions with the most recent being EMCs acquisition of Maginatics three years after they invested alongside Atlantic Bridge.
Many entrepreneurs are wary of Corporate investors, in particular not being seen to be closely aligned with one particular player in the market. This is something to be assessed on a case by case basis. For example if the corporate investor holds a very large market share in your market than being closer aligned may be advantageous but it is important to keep the relationship at arm's length when need be. One example of how this is achieved in practice is any directors of your company from Corporate Investors having limitations on information rights especially in relation to customers who are competitors. Corporate Investors may also look for special rights on exit such as the right to counter any M&A offer made. The less rights in this regard that you can give the better but it all comes down to what you can negotiate at the time and what is the best offer you can achieve at that point in time for your company.
Despite the caveats, having Corporate VCs invest in your company presents a great opportunity to accelerate the growth of your company through early engagement with leading strategic customers and gives you a head start on the M&A process. With the trend for more corporate investment, it's an option more entrepreneurs need to consider.
Pitch Book Blog on Corporate VC
CB Insights Corporate VC Report 2014