I was chatting recently with Venture Capital Journal’s Mark Boslet about a story concerning corporate venture capital investing and realized that Claremont Creek Ventures is among those VC firms witnessing first-hand heightened interest among corporations investing in venture-backed startups. We’re seeing activity, in particular, in healthcare and in clean technology, and it’s a good thing. It increases startup access to capital. And it may help startups leverage corporate brands and distribution networks to accelerate growth.
Corporate investors are taking a hard look at investing in Claremont Creek’s healthcare companies and a clean tech company, and have already produced some term sheets. Overall, some new players have entered the market. One reason: corporate investors have a record amount of cash sitting in their coffers. Another reason: corporations have been cutting back on internal R&D investing and now are looking to startups to help fill in some of the gaps– a smart move on their part.
Even long-time corporate VC stalwarts and committed R&D investors, such as Intel Capital, are changing their stripes. Intel, which has 250 active investments, some early-stage, some late-stage, is now taking lead investment positions and board seats in companies, something it did not do in the past.
This heightened activity is a good thing. But here is a word to the wise for startups: If a corporation wants to join the VC syndicate investing in your company, make sure you’re comfortable with the company. It could be a partner for a long time and might at some point preclude an investment by a competitor and a more attractive corporate partner. But don’t be too optimistic. An investment in the future by another company is no sure thing, and corporations are less valuation-sensitive than traditional venture capitalists. Sometimes corporations help push up the valuation of companies in which they invest. So make sure you evaluate their interest with eyes wide-open.
In the past, corporate VC investors too often failed to stay the course and invest in future financing rounds. This lack of “stick-to-it-ness” is sometimes troublesome. Just remember to stay focused on who you want to partner with and ensure it meets your strategic objectives.
This uptick in corporate venture financing that the National Venture Capital Association reported is an interesting trend to watch. For our companies it means a new capital channel but it’s not right for all of our companies. Partnering with corporates is important to consider as part of the financing package, but it may not be right for everyone.