Theoretically what you say makes sense, but I think in practice, it doesn't work as nicely.
Corporate M&A can do many of those things already. They have cash. They don't need 'a fund' to do that ... and yet most corporate M&A is a disaster.
I wouldn't believe it until I saw it at a large company and then it all clicked and it actually makes sense.
M&A & VC teams are considerably more removed from the strategic impetus of companies than you might imagine - these are human organizations with a lot of individual self interest. M&A teams like making deals. They are opportunistic I find more than strategic ... which can be ok, but they find something cool and want to make a big thing out of it - but the product people in the company may not want them on board.
So company A acquires company B. Now what? Aside from new branding and T-shirts ... it takes a lot of effort to integrate these things. A new product that fits well into a product line, that does not need to be integrated technically, this might work.
Sometimes companies get bought because the CEO saw the website or met the CEO and 'liked him' and the product kind of makes sense. The head of M&A wants to please the CEO and goes gangbusters to make it work.
Legal, IP and financial due diligence are all the least important kinds of due diligence! Product and cultural due diligence are what matters, and they are weirdly not on the checklist - or not as intensely as they should be.
I think instead of VC, these companies should be focused in rigorous, objective oriented, well-managed M&A activity.
I don't even know who a good example would be - it used to be Cisco, I'm not sure anymore.
Having dealt with both, there is a difference. Corporate M&A is corporate finance. Their teams come from investment banking backgrounds and are not equipped to evaluate early-stage investments. They therefore don’t get pitched them.
Corporate VCs, on the other hand, exist to evaluate young companies and write small checks. The market know that, and therefore shows them early-stage deal flow. (Whether this be founders pitching directly, competitors mentioning them, or investors or their LPs or lawyers getting chatty.) This flow provides different investment and intelligence opportunities from the corporate finance flow.
Practical example: if you’re pitching corporate M&A, it tends to start with an NDA and a data room full of financial models. If you’re pitching a corporate VC, a one-pager and high-level deal terms can kick directly into negotiations.
Do "corporate VC" people have the mindset of a VC in that they're aware that most investments will fail and that's ok as long as a few "moonshots" go really well?
Was Yahoo! buying tumblr an example of corporate VC? How about Facebook buying Instagram?
> Do "corporate VC" people have the mindset of a VC in that they're aware that most investments will fail and that's ok as long as a few "moonshots" go really well?
In my experience, the VCs themselves do. Their bosses say they do (hence why the corporation started a VC arm). But after a few failures, that tends to change. (Analog: why many corporate cultures try and fail at emulating Skunkworks.)
> Was Yahoo! buying tumblr an example of corporate VC? How about Facebook buying Instagram?
No, that’s M&A. Generally when one says Company A bought Company B, that’s corporate finance.
GM investing in Lyft is corporate VC. Tyson investing in Beyond Meat is corporate VC. Minority stakes, early-stage companies and a strategic motive describes corporate VC.
In my fund we do, even our CEO reminds us that it’s ok some of our bets will fail, but the rest of the organization is a bit less in tune and thinks we just are a new stage to the M&A process
In my experience, M&A people are not often bankers, they're glorified biz dev types or lawyers.
Also 'corporate VCs' are generally terrible VCs.
But yes, investing in is different than buying in.
Anyone care to indicate a corporate VC model that has actually worked well strategically? As far as I remember - could be wrong - even Google's VC arm is there to 'make money first' less so strategic. Or I could be wrong.
Corporate M&A can do many of those things already. They have cash. They don't need 'a fund' to do that ... and yet most corporate M&A is a disaster.
I wouldn't believe it until I saw it at a large company and then it all clicked and it actually makes sense.
M&A & VC teams are considerably more removed from the strategic impetus of companies than you might imagine - these are human organizations with a lot of individual self interest. M&A teams like making deals. They are opportunistic I find more than strategic ... which can be ok, but they find something cool and want to make a big thing out of it - but the product people in the company may not want them on board.
So company A acquires company B. Now what? Aside from new branding and T-shirts ... it takes a lot of effort to integrate these things. A new product that fits well into a product line, that does not need to be integrated technically, this might work.
Sometimes companies get bought because the CEO saw the website or met the CEO and 'liked him' and the product kind of makes sense. The head of M&A wants to please the CEO and goes gangbusters to make it work.
Legal, IP and financial due diligence are all the least important kinds of due diligence! Product and cultural due diligence are what matters, and they are weirdly not on the checklist - or not as intensely as they should be.
I think instead of VC, these companies should be focused in rigorous, objective oriented, well-managed M&A activity.
I don't even know who a good example would be - it used to be Cisco, I'm not sure anymore.