As part of our recent research initiative on “Driving Growth Through New Ventures and Corporate VC“, we put five key questions to Andrew Matuszak, KPMG Managing Director and one of the founders of KPMG Ventures.
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Q. What should companies consider before launching a corporate venture capital initiative?
Perhaps the most important question is “why.” There needs to be a clear understanding of why the company would want to establish a CVC and what it seeks to gain. What are the benefits the parent company is seeking, and how would the program complement existing build/buy/ally initiatives? Second, I think the question of program sponsorship is vital. Where the group reports into is critical to its long- term viability — as well as securing the resources necessary to drive post-investment activity and realize strategic objectives. I also think it warrants a careful review of whether the program should be run in-house, or in collaboration with an outside agency. It comes down to skills and scale — as well as organizational nuances and preferences.
But it all revolves around the strategic benefit you hope to get. An important adjacent question is, do you have the mentality and fortitude to establish a durable program that’s going to be deploying capital and making investments in both up cycles and down cycles? Realistically, you should be thinking about a 10-year time horizon for your investments. You’re going to be making initial deployments of capital, follow-on investments, as well as committing internal resources over the course of the next 10 years. It’s going to be during good times and bad times. Will you have the executive visibility, as well as the support and advocacy, to invest in those downtimes? That’s when it is most needed, and when you can develop the strongest relationships with the startups.
Q. How do you see corporate venture capital being connected to new venture creation internally? What do you expect from CVC, and what do you expect from incubation or internal venture creation?
I think they’re highly complementary. But I do think there’s an important distinction — oftentimes, they require different skill sets, as well as different risk profiles, and probably a different answer to the question “why?”
Whether you’re calling it a venture studio or business accelerator or incubator, it’s an important opportunity for an organization to identify, test, and experiment with new ideas and approaches.
Internally, whether you’re calling it a venture studio or business accelerator or incubator, it’s an important opportunity for an organization to identify, test, and experiment with new ideas and approaches. I see it as somewhat of an extension to the research and development group. I think there can be a strong collaborative effort across that kind of venture studio, and more traditional corporate venturing, but I do think there’s a slightly different skill set. I think there’s a slightly different reason for why you would want to have them.
As those internal ideas are incubated, and begin to mature, and maybe there’s some good commercial traction, there’s an opportunity for the venturing program to help prepare those internal ideas for launch externally. Traditionally, you might say that a CVC team is more aligned with startups than the legacy, parent company culture. But in this instance, the venturing team brings a certain degree of process-driven maturity that maybe the incubation team purposely avoids. One of the things that the corporate venturing team could bring to the table is, “Here are ways to prepare yourself for a launch.” Or they can help apply some outside perspective, a bit of process, more maturity of organizational structure, fundraising capabilities, realistic expectations — all those kinds of things.
Q. Can we talk about the Cranium case study? That is an AI security startup that came out of the KPMG Studio, and was supported by KPMG Ventures. In October 2023, it raised $25 million.
I think that’s a great prototype, where our Studio took an internal idea — one of many they worked on. There was good commercial traction. There was a clear line-of-sight to how this could be useful to the kinds of enterprises that large firms like us are interested in serving. It went through the Studio program to button up internal processes, and take something that’s an internal idea and create a company out of it. Both corporate development and KPMG Ventures began to think through and help the company get prepared for an external capital raise.
A lot of it is setting realistic expectations. They had a founder who had been through the process before, so they were prepared for this. But I think we often see entrepreneurs being overly optimistic about everything from early pilots converting to paid customers, the amounts that will be raised, the terms they will be raised on. That’s where the corporate venturing program can be helpful. In the case of Cranium, we participated in the seed round, which was the spin-out from KPMG. Then an outside investor came in and helped shore up their finances. And then we participated in their Series A funding as well in October 2023, which is going to be used to accelerate their go-to-market activities.
The venture program shouldn’t be discouraged from making investments that may be seen as being potentially competitive to something that’s being incubated.
Q. How else can these two activities — corporate venture capital and internal incubation — support each other?
The CVC may already be engaged with startups that can help create a more comprehensive offering that spans more than just an interesting technology — adding to what the incubation team is focused on. I think it’s important to avoid the trap of not exploring alternatives to things that are being internally developed. The idea would be that the venturing program as well as the incubator should be making multiple bets, and not becoming biased towards one potential solution — especially when there’s an internal slant to it. The venture program shouldn’t be discouraged from making investments that may be seen as being potentially competitive to something that’s being incubated. That’s part of why CVC exists in the first place — to overcome the internal bias of thinking that you can either create everything yourself, or can just simply partner with one single partner.
The venture program often works with startups that provide services that can help with our projects. These startups might offer special technology or vendor services. This means our incubated projects don’t have to build everything from scratch. They can use technology from these startups. This allows our incubator to focus more on developing the unique aspect of our project, the part that makes it stand out.
It’s all about building a reputation for meeting strategic goals while managing funds wisely.
Q. These are not quick solutions we’re talking about, where you can expect instant results this calendar year. Could you talk a little bit about the patience and persistence required for both of these strategies?
Absolutely, persistence is key. A big part of that is getting strong support from top-level management. This is crucial for the program to withstand tough economic times and any setbacks. One strategy to gain this support is to score some early wins, like creating successful partnerships even before investing, during the early stages of the CVC program. It’s all about building a reputation for meeting strategic goals while managing funds wisely.
It’s also important to have a solid reporting system, one that’s regular and transparent. Share both the successes and the lessons learned. Honesty is vital here. You want to be known for spotting and addressing issues early on, which are common in new CVC programs.
Ultimately, the patience and persistence from executives come from developing a program that stays true to its original purpose. Why did you start this program? Stick to that vision, execute well, keep reporting and adapting, and learn from every step. Doing this can greatly increase the chances of your program being long-lasting and successful.
Andrew Matuszak is a KPMG LLP Managing Director and Head of KPMG Ventures.
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