From all indications, corporate VCs are gaining traction in the venture capital investment arena. That is changing the landscape for traditional VC firms and venture-backed startup companies.
“Some of the numbers would suggest there has been an across-the-board increase over the last 10 years in corporate VCs participating in financing,” observes Stephen Rapundalo, the president and CEO of MichBio, a statewide industry association for the biosciences.
“Anecdotally, I’ve seen a greater presence of the corporates at industry meetings where there’s plenty of partnering occurring,” he explains. “These corporate VCs are looking for new opportunities. They are trying to learn what’s going on, and they are keeping tabs on certain companies. Then when the timing and due diligence are right, they will reach out and get more engaged in greater depth with a specific company.”
Rapundalo will be the moderator for a May 14 panel composed of corporate venture capital investors at the 2019 Midwest Growth Capital Symposium. Among the panelists will be: Scott Lancaster, MD, the clinical director and a general partner with Spectrum Health Ventures in Grand Rapids; Jay Cui, a manager at AbbVie Ventures in Chicago.
During their discussion, the panelists will analyze the corporate VC’s mindset and compare it with the investment approach and objectives of traditional venture capital firms.
Among the major distinctions between corporate and traditional VCs are:
- Objectives and motivation – Corporate VCs tend to be more focused on strategic investing while traditional VCs are looking for financial returns.
- Sources of capital – Corporate VCs have the benefit of deploying “patient capital” and tapping the deep pockets of major bioscience corporations whereas traditional VCs must raise money from institutional investors and generate returns on that investment.
- Approval process and timelines – Corporate VCs and traditional VCs may have different approval processes and investment timelines to consider.
- Scientific knowledge and background – Corporate VCs generally are steeped in the science and have strong backgrounds in research, regulatory matters and the bioscience industry while traditional VCs may come from a business background and lack hands-on experience in drug or product development.
- Exits – Corporate VCs may opt to acquire a venture-backed company to fill their product pipeline whereas traditional VCs may prefer an IPO or sale to a strategic so they can lock in a return on their investment.
Startup companies seeking venture financing from corporate VCs versus traditional VCs should be aware of other differences in the investment criteria and measures of success between the two, according to Rapundalo. Although all venture investors look for strong, experienced management teams, corporate VCs also key in on the scientific relationships, research affiliations and thought leaders associated with a startup company.
“For corporate VCs, it’s about building relationships with these innovators who can provide them with access to novel products that will fill their drug, therapeutics and device pipelines down the road,” Rapundalo says.
“Corporate VCs are using their capital to invest in startups as a strategy to spread or manage risk in their R&D pipelines,” he remarks. “Many corporates are willing to invest at an earlier stage than traditional VCs to fill gaps or timelines, or if they have areas of therapeutic focus.”