Tips for Landing Corporate Venture Capital

When entrepreneurs go looking for investors, most call on independent venture capital firms. But there’s another place companies can seek investment capital: major corporations.

Many big companies have venture arms that invest in growing small companies. Corporate members of the National Venture Capital Association include such well-known names as General Motors, Kaiser Permanente, Citigroup, Dow Chemical, Johnson & Johnson, Nike, Microsoft, Google, Intel, and Adobe.

In recent years, the proportion of corporate venture capital has shrunk slightly, relative to all venture investments. A PricewaterhouseCoopers/National Venture Capital Association/MoneyTree report on Corporate Venture Capital from 1995 to 2009 showed corporate VC peaked at 16 percent of all venture capital investment in 2000 but shrank to 7.4 percent in 2009. In these uncertain economic times, companies have grown more cautious about investing in startups.

Still, corporate venture capital represents a substantial funding pool. Corporate VC investments totaled $459 million in 2009. Many large corporations realize that innovative products and services created by startups can often complement their own in-house research-and-development efforts. Their investment has two goals: financial returns and possible innovation for their business.

How can you tap into corporate venture money? Here are a few tips:

• Find corporations in your industry: Know that a pharmaceutical corporation is unlikely to make a venture investment in a software firm, for instance. But if you run a small Internet-based company, Google or AOL might take an interest.
• Find a fit: To some extent, big companies do VC investing as a fishing expedition to find companies they might acquire later on. The company’s research and development division often has input into venture investments. As a VC investor, the company can guide a startup’s direction to address market needs it might have and can help develop the company into a likely acquisition candidate. Companies with a product or a service that fills an open niche for the corporation are typically the focus of corporate VC investment.
• Do your research: Before you pitch, learn as much as you can about a potential corporate investor. It’s not hard to do; most major corporate VC funds have detailed websites where you can learn about their investment philosophy. You can see recent funding announcements and view the fund’s portfolio to check if your company is a type the fund invests in. An example of a good corporate VC website is Intel Capital.
• Nail your fundamentals: Pitching corporate venture capital funds is highly similar to the process of pitching any VC firm. You should have a launched or ready-to-launch product or service and an experienced team, ideally one where managers have previous startup success. Your presentation should be supported by hard financial data and realistic projections of future revenue. Ideally you should have customers that the corporate VC managers could contact and an established revenue stream.
• Think later-stage: In recent years, as with the entire venture capital sector, corporate VCs have increasingly invested more conservatively, usually waiting until after the seed capital stage. It’s unlikely a corporate venture firm will be your first major investor. But if you have other investors lined up or have done a seed round already, a corporate fund is a more likely prospective funder.
• Network: Getting a “warm introduction” to a corporate VC through a mutual contact is always the best way to get an opportunity to present your company to a potential funder.

Business reporter Carol Tice contributes to several national and regional business publications.