As a tech startup looking for funding, corporate venture capital (CVC) directly provides your startup with new clients, added sales revenue, and investment funding. Corporate VCs provide startups with in-depth industry knowledge and access to potential clients as well as investment money. They want you to succeed because they see your business serving their customers.
Your startup succeeds with the support, advice, and technology the CVC provides. At the same time, they expand their business by providing technology and service from your startup. This provides many benefits to their internal operations or their customers.
Corporate VCs invest in companies that create value for their shareholders. In the short term, they invest in partners that are close to the company's goal and drive tighter relationships; in the long term, they invest strategically for their business growth.
According to CrunchBase, as of September 2022, the trend in Corporate Venture Capital in Europe is on a steady rise up with 6,775 investments distributed among 299 organizations.
Your startup gains the capital investment, knowledge, and technology-sharing the corporation brings to your organization. And your business benefits the corporation with innovation. The startup partnership with CVC benefits both sides.
MIT Sloan stated in a recent article on corporate venture capital:
CVC units aim to combine the best of two worlds - the strengths of traditional VC firms and the support of corporate knowledge and resources.
This investment partnership brings strategic solutions that will boost your startup growth over the next few years.
A great narrative will generate interest, but you need real numbers to back up your startup story.
In the growing CVC world among founders of the global tech startup scene, numbers have become more important than narratives. The days when startup founders could raise millions of dollars on unicorn valuations based on a good story and some wild predictions about "the future of X" are long gone.
To attract funding, you also need to know how to win the market in a maximum period of five years. The market, investors, and everyone around you must believe you are the future, not just a present grounded in the now.
Projecting solid numbers backed by current data gives you a strong and convincing story to tell investors.
Each corporate investor will have specific requirements for your approach. For the best approach, you need to line up your narrative and supporting evidence to gain interest.
A good idea isn't enough. You have to do your homework. You'll have a better chance of success with CVC when you prepare. You and all your competitors are doing the basics, so you have to stand out:
Investors aren't interested in gut feelings and subjective measures or emotional projections. They want to crunch the numbers. So give them your supporting data. Have details and references available for anyone who wants them, while keeping your pitch deck clean and focused.
Investors want a detailed business plan that describes the next six months, one year, and even five years. In addition, analyze the market, sales channel, marketing goals, competitive analysis, and cost analysis that include detailed insights into the market. And emphasize how your business fits into that market.
Why do you stand apart from the dozens of competitors competing directly with you for your target customers? A compelling unique selling proposition USP (USP) will make an investor believe in you. Does your USP give an emotional impact? Final decisions include both a rational and an emotional component.
Asking for money from an investor is not enough. The corporate investor wants to know how much money you need, where that money will go, why it should go there, how much value it will yield, and when it will return. Show how you will be strategic in your execution and responsible with your burn rate.
Preparing the basics just puts you in the running with your competitors. If you want to stand out, take your preparation further. You are asking for money. Be specific about what you need, why, and how the investment capital will be used.
1. Your Unique Product. Differentiate your product in detail. Your clarity will pay off later in branding, messaging, and sales. Create a clear and succinct vision statement about your product.
Entrepreneur suggests a simple formula to put it together.
We help [target audience/niche] achieve [specific, quantifiable benefit] using [unique mechanism] so that they don't have to [pain you help them avoid].
That statement is easy to understand and easy to remember as you expand it with supporting details.
2. Verify Your Numbers. Do your due diligence to show your numbers are verifiable.
The best way to validate your numbers is to have your financials audited by an outside CPA or accounting firm. You'll appear more professional. And, if you have strong numbers, you'll have more leverage.
3. Minimize Costs. Before you ask for funds, make sure you can demonstrate how well you currently manage the money you have now. You'll reassure the investor that you can, in fact, manage money.
As you minimize expenses, you'll improve your profit margin. And, in the investor's eyes, you demonstrate your ability to manage funds and control your burn rate.
4. Clear, Documented Goals. Your goals must be specific, measurable, and in line with your unique product (USP). Vague goals like "increase revenue" or "launch a new product," don't clearly call for investment funds. You'll go even farther with your pitch if you show your investor how you'll use the money to accomplish the goals.
Historically, you always needed numbers to back your story. But you also need the story to convince your investor that those numbers are sustainable.
The current market cycle requires startups to present themselves as less of a risk than in the past. The value of sustainable growth and good unit economics is part of that, but so is having a compelling argument as to why you will stay relevant and win in your market over the long run.
As you must meet the immediate market demand, you must also anticipate the market's demand for the future. You must educate the market and make it buy into your vision to win in the medium and long term.
Your sales arm probably tells you they need to convince to convert. Asking for investment in your startup is a big sales presentation. You need to convince the corporate investor that your business will be needed, viable, and making sales in the future.
Invest in thought leadership first. You must show the market that you are knowledgeable and you can predict how things are going to progress. Investors and customers should feel that you are the future—that you can adapt to future trends.
In addition, you need to invest in long-term product development. It's tempting to develop features based on the current demand and whatever makes you meet the targets for next month. Yet as well, you want your business to stay afloat and thrive in the long-term.
Think how your product will meet demand in the future. Now you have a button nobody uses anymore, and you spent developer resources that could have been invested on something innovative that could guarantee your growth six months from now. Focus on those future needs.
Stay with your vision. Show how your thought leadership and product development embody your vision and point toward the future.
Corporate venture capital provides unique benefits to startups that no other funding source can match.
Venture capital firms (VC) are typically formed so that investors can generate strong returns on their investment. As a parent company, the corporate VC (CVC) fund is looking for a positive return, but there are also significant strategic considerations when considering potential investments.
Companies investing in startups give them greater flexibility to pursue growth opportunities without building new teams or divisions. Your startup may be just the team they need.
The CVC can invest in startups to test new segments or technologies before investing in larger ones.
A CVC fund investment for a startup provides four key benefits:
In addition to looking at potential returns, CVC funds select companies that are strategic to the investing company's existing business, or provide them with a presence in a segment or industry where they don't currently operate.
When your startup goals match the CVC, or you can demonstrate how your business can expand the investor's business, you'll have a match. You'll benefit not just from the funds but from the corporate know-how and advice that comes with years of experience.
To maximize its investment in startups, a CVC fund provides access to the parent company's assets, staff, and connections to help the startup grow. Your startup's added benefit is that it opens doors to partnerships that otherwise would not be available to you.
A startup can gain substantial advantages from the operational capabilities of a larger company. Startups must evaluate the potential benefits of partnering with a more established company.
Consider what value synergies and connections will bring to your startup when negotiating deals with VC funds. Just as the CVC will examine your business, you'll benefit best from CVC investment that furthers your vision.
CVC investment also provides the added validation of other investors and industry partners. When a large, established company in a particular industry invests in entrepreneurship, other investors will be more inclined and interested.
Investors who aren't as familiar with a startup's journey and industry specifics are particularly likely to appreciate this because it validates that an in-industry firm vetted it. Additionally, it helps promote how a startup is perceived in the industry and with third-party partners, especially those who work with the company's parent company.
CVC investment provides potential exit opportunities as the final benefit.
You should always be aware of what exit opportunities are available to your startup. Bringing on a CVC investor could be an excellent way to set up an acquisition by the parent company.
CVC is usually a way to identify, establish relationships, and invest in acquisition targets. Additionally, this can strengthen the startup value due to the potential exit opportunity when there is a CVC fund invested.
Your startup can benefit from the many ways CVC will help you grow.
CVC has such unique advantages that it is increasingly popular with startups, who are seeking to raise capital and gain strategic benefits from their investors.
In an uncertain capital landscape, startups must navigate funding sources. Many traditional investors are more cautious during fluctuating markets.
But more startups are coming to corporate venture capital because of the long-term stability they offer. In fact, CVCs now represent more than a fifth of global venture investments.
An early-stage company benefits from enterprise knowledge, R&D resources, and business development networks. Especially during times of dwindling capital flows and cautious investors, CVC delivers stable returns.
Wayra's parent company, Telefónica, has also created the €250 Million Euro Leadwind fund, in cooperation with K Fund.
"Leadwind was created with the intention of incorporating both public and private investors and investing in startups located in Southern Europe, prioritising Spain and Latin America to promote companies with a disruptive and transformative technology base, the so-called deep tech scaleups."
Corporations have realized the potential of innovation when they invest in external startup ideas rather than only experimenting internally. This shift is why many corporates have investment funds specifically dedicated to startups.
Few corporations used to offer investment in startup niches like 5g, IoT, artificial intelligence (AI), and edge computing. At Wayra, we cover all of those. The CVC environment gives you more money and ways to explore. And you will find other unique benefits from Wayra, like our tech lab.
These corporate investment tools not only provide funding and tools to your startup's growth, but also provide decades of investment experience.
CVCs are also agile despite their size. They are enjoying many positive reactions and mirrored changes in the startup space over the past decade, helping raise the standard for CVC investment.
Corporate venture capital and expertise make it easier to execute strong startups and deliver value. Plus, you can rely on the longevity of corporate investing where capital is not tied to market fluctuations.
With the combination of capital and expertise, corporates can execute strong startup deals and deliver value to them faster.
Wayra holds a forward-looking approach to investing during uncertain financial times. We believe in securing the future by investing now.
We're looking to invest in your startup to get us there. Take your future-looking action and tell us about your business.