Corporate Innovation: Lessons from Thailand PART 2 - How Corporate VCs Approach Startup Investing

Corporate Innovation - How Corporate VCs Approach Startup Investing

With accelerators, incubators, and VCs helping out startups, the increasing number of corporates participating in the startup industry provides a completely different benefit to startups. Take some of the matured startup ecosystems for example such as Singapore or Silicon Valley -- government sectors, educational institutions, and corporations are all proactively participating in the startup ecosystem to balance and provide resources needed for startups to grow and prosper into unicorns.

Corporates indeed have deep pockets, but their objectives in investing in startups usually varies from that of institutional VCs. Understanding the way they function is necessary when it comes to startups approaching them. No doubt good VCs are experts in building companies and driving financial results, but not so for Corporate VCs. So just one thing for startups to keep in mind: investments coming from CVCs or VCs vary drastically. Be sure to understand the differences and your team’s needs before approaching them.

  *Information taken from our panel discussion: Differences between CVCs and VCs and CBInsights

*Information taken from our panel discussion: Differences between CVCs and VCs and CBInsights

As much as VCs require startups to give reports and demand high financial returns, VCs also receive pressure from their own investors, which they call LPs (Limited Partners), for much the same reason. This is why VCs have a funding objective driven mostly by financial returns. As for corporations, since they already have capital, they usually search for technologies that can be leveraged to provide a better customer experience, or help the company grow strategically.

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From the panel “How CVCs, VCs, and Startups Work Together” during It’s a Deal! Term Sheets Nailed., a 3-day bootcamp on understanding term sheets and international startup fundraising, Dr. John Millar, Chief Strategic Officer at Ananda Development, describes the nature of CVCs as being different from that of VCs. CVCs will “never shit to your face.” They usually have a concrete strategic plan, so if a startup does not fit their objectives, CVCs will tell the startup straightaway.
 

I’m giving you value, I’m giving you my customer base, I’m giving you access to my database—which means your valuation in the market as to what VCs will give you wouldn’t matter to me here.
— John Millar, Chief Strategic Officer, Ananda Development

The valuation that VCs care so much about isn’t the primary concern for corporations. What corporations care about is whether a startup’s technology fits into the corporation’s strategic plans. Echoing that, Thanachat Tangsriwong, Chief Representative of Bangkok Office at CyberAgent Ventures, commented that while corporations often look for startups that can benefit from what the corporates can offer, more importantly startups need to prove that they “can sustain the level of success that the company should have.”

Thus, before approaching either corporate venture capitals or VCs, startups need to make sure to understand their needs!

In our next article, we will be focusing on how corporations operate in the Thailand startup scene by analyzing different approaches corporations have taken and how startups should approach corporations. Sign up for our newsletter to make sure you don’t miss it when it comes out!

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