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VENTURE CAPITAL

5 Reasons to Take Corporate Capital
 

Start-up VCs get all of the attention, but Fortune 500 companies might make better investors for your start-up.

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Venture capitalist Fred Wilson is not a fan of corporate capital; he said as much during one of Pandodaily's fireside chats in New York last week.

Wilson was served a rebuttal on Tuesday, however, at Bloomberg's Next Big Thing Summit in Half Moon Bay, California. Panelists from four corporate investment firms sat down with Bloomberg reporter Douglas MacMillan to set the record straight. Corporate capital provides a few things traditional VCs can't offer, they said.

Here are their five reasons to consider--or reconsider--a corporate investor.

They're already stakeholders.

Corporate investors have a built-in motive for supporting innovation within their sector: It strengthens their own business ecosystem, according to Citi Ventures CIO Deborah Hopkins. This may seem contradictory to the notion of free market competition, but Hopkins explains that industry innovation actually helps existing companies more than it hurts them. 

The payment processor Square, for example, could be deemed "disruptive to our own business" says Hopkins--yet Citi has invested heavily in the start-up. Why?

"We're not focused as much on financial return as on strategic return," Hopkins says. "What we get back [from Square] is first-class learning from an exciting entrepreneur."

They have awesome resources.

According to Hopkins, corporations have one major asset that traditional VCs lack: a customer base. 

"That's the golden ticket," she says. "Unlike a VC, we can help [start-ups] scale."

An existing network of customers can provide young companies with the low-risk setting they need to test and develop a winning product, says Comcast Ventures managing director Michael Yang--which is good for both the parent investor and start-up. According to Yang, corporate investors see start-up partners as an opportunity to innovate (read: make riskier decisions) while offering those start-ups the benefit of a safety net for product development.

They have friends on both sides of the table.

Corporate VCs are well connected; they rub elbows with both traditional VCs and other key players in their sector. So, they can connect you with their customers or colleagues, and additional funding, according to SanDisk Chief Strategy Officer Sumit Sadana.

In addition to making the most of their corporate network, says Sadana, SanDisk tries to keep its portfolio companies' best interests at heart. "We could do a right of first refusal," he says, "But we try not to do that. We bring them to customers that we have good and deep relationships with."

"We don't believe in pushing exclusivity at all," echoes Hopkins. "We see it as counter to being the champion of these companies. [Instead] we built partnerships with other VCs who bring us companies... because of our way of working alongside them."

They're not focused on your IPO.

"For a VC, going public is the end. For corporate [investors], it is a means to an end," says Heidi Mason, a managing partner of the Bell Mason Group. She adds that the "end goal" of most Bell Mason investments is a portfolio company's growth.

"We have an opportunity to break the [traditional investment] cycle... and completely accelerate the impact [we] have in an emerging ecosystem," she says.

Last updated: Jun 18, 2013

FRANCESCA FENZI reports on entrepreneurship, technology and small business news from San Francisco. Her work has previously appeared in TIME, USA Today, Pop City and The Northside Chronicle.
@FrancescaFenzi




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