Corporate venture capital has been on an upswing. In recent research conducted by InnoLead, 56 percent of respondents indicated they have a functioning corporate venture capital (CVC) group at their company. But with some companies, CVC activity comes and goes. A 2013 piece by Harvard Business School professor Josh Lerner estimated the average lifespan of a CVC initiative at about one year.
JetBlue Ventures has already beat that stat, having cleared its venture captital group for take-off in 2016. (We most recently covered them in 2018.) Steve Taub, Managing Director of Investments for JetBlue Ventures, has spent a large portion of his career in CVC. He worked at In-Q-Tel and GE Ventures prior to joining JetBlue Ventures, which is headquartered in Long Island City, New York, and has team members co-located there and in Silicon Valley. (GE Ventures began working to sell off its startup portfolio when the parent company came under financial pressure, in 2019.)
As part of our recent report, Successful Startup Engagement and Corporate Venture Capital, Taub discussed the importance of understanding CVC; trends in talent acquisition and retention; and how emerging — and existing — CVC groups can set themselves up for success.
Understanding venture capital. Corporate venture has been around for a long time, and it’s growing. I think people have learned from the past about what works and what doesn’t. If you went back 10 or 15 years ago, a lot of corporate venture groups would ask for a lot of special terms around [things] like commercial deals, or rights to acquire the company they’re investing in.
I think people have learned that… it’s more important for the corporate venture team to understand venture [capital practices] than it is to understand the corporation… I think making those kinds of non-market asks was reflecting that people didn’t really understand venture. But I think it seems like companies have realized that they need people who have an understanding of how venture capital works, who have deal flow that they can bring to the table, and who have relationships with other investors. That’s crucial to success.
Why go the CVC route? In terms of why companies do [CVC], I think it’s generally market intelligence. It’s getting an early look at trends and technologies that are potentially going to disrupt or affect your business and your industry. That window on the future is a huge value proposition. I think it also gets you the opportunity to do business with the disruptors, which can be hugely valuable.
But if it’s just about market intelligence, you could [hire] consultants and [commission] research studies with the kind of money you’re going to spend on a corporate venture operation.
How CVC stacks up with traditional VC. It’s hard to get access to [a corporation’s] resources — candidly, [everyone] has a day job… I think what [CVCs] can really offer is access to technical and market expertise. That’s hard to buy. We can offer the prospect of revenue, of commercial relationships. [A traditional VC’s] platform team, they can make connections, but they can’t actually sign a contract. I think those are things that we can lean into.
It’s hard to get access to [a corporation’s] resources — candidly, [everyone] has a day job.
Equity upside matters. I think talent is crucial, and this is one of the reasons that you’re seeing a little bit of a trend of corporate venture arms that are being structured as single LP funds, rather than as subsidiaries of the parent. It’s because that structure gives the team some equity upside, and it gives them more autonomy. And ultimately, a lot of the people that you really want running your corporate venture group, don’t want to be your employee [in a traditional sense].
The people that you really want to hire — the people who have deal flow; the people who’ve got that network — they have alternatives. In order for the job to be attractive to them, they want to see that there’s an opportunity for them to get some upside from their investing.
One of the problems with corporate venture has been that a lot of corporate venture groups tend to have a short lifecycle — they get in at the top of the market, they lose their money, and then they’re out.
Autonomy in CVC. People don’t want to just want to be executing deals that somebody else told them to go do. I think they want to have some level of autonomy. Most of the corporate people that I’ve worked with, they’re super-smart people, but… they really don’t have a feel for, ‘Okay, which are those companies that are going to be successful?’ I think the corporate venture teams really bring a useful lens on how to identify successful companies. It’s more than just, ‘Do they have the best patents in the space?’
Avoiding a ‘short lifecycle.’ One of the problems with corporate venture has been that a lot of corporate venture groups tend to have a short lifecycle — they get in at the top of the market, they lose their money, and then they’re out. That makes companies and other investors kind of hesitant to work with them, which means that you don’t see the best opportunities; you don’t get the best market intelligence out of it. It’s just a vicious cycle.
Personnel is policy — who you actually have running it sends a message. If you’ve got people running it who have an independent track record reputation, serious people who know what they’re doing, I think that sends a really positive message. Ideally, the higher up [the support comes from], the better. You want this to be the CEO, the CFO, and people like that who are the most supportive of the [CVC group], because that’s what’s going to make it durable.
The best way to ensure that the platform has longevity is to be making money, because, ultimately, corporations are about making money. The things that kill corporate venture groups are turnover in senior management and financial troubles at the parent [corporation]. So if a new senior management group comes in and they [see], “We’ve got this corporate venture group, and look, they’re actually doing really well and making us money,” then that’s going to be helpful.
Featured image by Sachin Amjhad on Unsplash.