Corporate Venture Capital is back in the spotlight, and for good reason. Uncover the dual-track approach of CVCs that balances both strategic imperatives and financial gains with this in-depth episode of Street Tweets with Deutsche Bank’s Joerg Landsch and Milos Spiridnovic.
Corporate venture capital (CVC) has been a part of the investment tapestry for decades, but its recent resurgence has captured the attention of industry insiders and observers alike—and this renewed interest is not without reason.
While traditional venture capital has its eyes set squarely on financial returns, CVCs operate on a dual-track, balancing both strategic imperatives and financial gains.
At its core, CVCs are an extension of their parent corporations, seeking to invest in start-ups that align with their strategic objectives. This could mean anything from gaining a competitive edge in the market, accessing innovative technologies, or tapping into new customer segments.
However, the capital they provide to start-ups is just a small fraction of the potential they provide emerging startups with.
Beneath the surface lies an abundance of resources—be it technological infrastructure, seasoned expertise, or expansive market networks. For a fledgling start-up, this can be the difference between languishing in obscurity and catapulting to industry prominence.
In a recent episode of Street Tweets, the spotlight was on this burgeoning sector of the investment world. The episode featured two prominent figures in the industry: Joerg Landsch, who delves deep into the world of CVC, and Milos Spiridnovic, who offers insights from the corporate banking perspective.
Throughout this episode, Joerg shares his insights, emphasizing the symbiotic relationship between CVCs and start-ups—where it’s not just about pouring money into promising ventures, but also about fostering partnerships, nurturing growth, and co-creating value.
Complementing Joerg's perspective was Milos Spiridnovic, who brought to the table a corporate banking lens. The insights he shared in our in-depth discussion underscored the financial robustness and strategic foresight that CVCs bring, making them invaluable allies for start-ups navigating the choppy waters of entrepreneurship.
Here are some of our favorite takeaways from this in-depth episode of Street Tweets:
Key Takeaway #1: When it comes to goals, corporate venture capital greatly differs from traditional venture capital because it doesn't solely focus on financial goals—it gives importance to strategic goals as a means to maximize investments and heighten a business’s long-term development.
Joerg outlined this difference in our sit-down discussion, saying:
“The first [difference between Corporate Venture Capital and traditional venture capital is that] the goal of investing is very often not purely financial, but you have a financial and a strategic goal. So you will see this one very often that there's a huge interest in the product in terms of often the company uses the product or distributes the product. So that kind of mindset you will see as well in the engagement. So there's a very long term thinking around what is the product, how can we strengthen the product? And what I'm seeing pretty often is it's a pretty strong signal as well to other clients, since when you see that a big organization is using that product, it's usually pretty strong signal in terms of into client acquisition for the startup.”
Knowing the difference between CVC and traditional venture capital makes it much easier to determine what your startup should go for, or how you should approach investing in emerging industries.
Key Takeaway #2: Beyond mere financial investments, the real value of CVC lies in the strategic partnerships they forge with start-ups. These partnerships can shape the trajectory of start-ups, offering them avenues for growth that go beyond mere capital infusion.
During our discussion, Joerg emphasizes this key aspect of corporate venture capital:
"On the other hand, there's always a partnership track as well. So there's a team working with a startup on how do we work together, vendor agreement, sales distribution agreement, those things can run in peril, they can run independent from each other. Sometimes investment is first and then afterwards there's a partner agreement. Sometimes there's already a partner agreement and then we invest. But that kind of strategic angle is very often there from a partnership side.”
With CVC, startups looking to progress and develop their offerings and systems further can get the necessary support, guidance, and funding they need.
Key Takeaway #3: In recent years, CVCs have been focusing on three main details when investing and conducting their business—interest rate optimization, foreign exchange management, and counterparty risk management. For founders, keeping track of these factors can prove beneficial when seeking investors in the corporate venture capital space as it helps ensure smoother negotiations and more effective onboarding.
Here’s what Milos had to tell us about these three determining factors:
“We're really seeing kind of, let's say, two main buckets where companies that we're in constant dialogue with and especially in the last six months on bucket, one would be interest rate optimization and foreign exchange management. And on the other side, especially since the silicon valley bank implosion on counterparty risk management? I think counterparty risk management has been really top of mind for most companies.”
Once you start working on interest rate optimization, foreign exchange management, and counterparty risk management, you can tap into the CVC sector more effectively and raise the perceived value of your startup.
Key Takeaway #4: As capital flows in, companies need to ensure they're utilizing it efficiently. This means optimizing processes, managing resources effectively, and ensuring that administrative tasks don't detract from revenue-generating activities—as Milos explains:
“Or you can look into a forward market where you would be essentially planning those deposits into the future. But that gives you the benefit of utilizing that liquidity as opposed to having it sitting in Poland altogether. So we're starting to see companies really tightening the screws a bit when it comes to this operational efficiency and ensuring that these cash flows can be really well planned and optimized in the given environments that they're working in.”
When you start pulling investors in, ensure that you’re using the capital they provide as efficiently and as effectively as possible to maximize growth and increase investment potential in further seed rounds.
Key Takeaway #5: Being compliant with managing counterparty risk is best handled by a professional specializing it, so that founders can focus their time and resources on other revenue-generating activities instead. This is an especially important lesson to learn as tasks associated with this process are often complicated and time-consuming—which can detract from your ability to work on your startup’s other important aspect (such as operations, growth, and sales).
Here’s what Milos had to share regarding the important of outsourcing assistance:
“Okay, how do you manage counterparty risk? On the one side, if you look at it from a banking perspective, you can open up multiple bank accounts, so you establish multiple relationships, you spread your liquidity to those relationships and thereby reducing the risk in any given counterparty. Now anybody that's done that or tried to go to that experience will probably have felt some operational hurdles in handling. It's expensive from a direct cost perspective, but also indirectly. Right. They need people who will manage these processes, people that will manage the banking relationships and that also takes up a lot of time and resources which they can dedicate to other projects, internal projects which can be further focused on revenue generation. Right.”
With the help of outsourced services for managing coutnerparty risk, you can better conserve your resources and maximize the capital you’re given after an investment from a CVC firm!
The resurgence of Corporate Venture Capital underscores its pivotal role in the startup ecosystem. With Deutsche Bank’s Joerg Landsch and Milos Spiridnovic as our guides, we've delved into the heart of CVCs, revealing their transformative potential. For startups, it's not just about securing capital but unlocking a world of strategic partnerships and resources—and as the investment landscape evolves, CVCs stand as pillars of innovation and growth.