Corporate Venture Capital #4 - using corporate venturing as a strategic tool , how CVCs make their decisions – by Vivin Hegde

This is fundraising radio entered as a guest speaker web director at TAC office and this episode will talk about corporate venture capital. Again.

How is it different from a regular venture capital who should consider CBC, which is by the way the probation for corporate venture capital, and who should stick to just regular V.

C leaving unless he called by you giving us some background on yourself and on office. Thank you Washington. I'm happy to be sure. Maybe I stop here.

The sounds give you a little bit of background and that's what you do. Then I get into myself. Fifty is a construction and services company founded in ninety one and Europe. So speak its old company.

Predominantly with European roots, but now we haven't present in hundred countries. What about six dollars?

Thirty thousand people and the two things that have held us in good shape over the years the two things one is innovative products and bring that into customer.

So, we are fully integrated right from the manufacturing distribution services and so on so forth. And we've always done a lot of work internally, in terms of spend three, fifty, five million dollars on it.

But as time is progress in areas like robotics, the one.

They felt the need to engage with the startup ecosystem, much more deeply and that's when we set up the DEC office. So we sent this office about two years back.

And what we try to do is we have the eyes and ears of the organization in terms of looking at new trends, either opportunities or fits. They also look at investments, acquisitions, potential partnerships.

The also managing external partnerships. We have a couple of fund investments. We have some other partnerships, and we also manage some of the large customer relationships. So that's what stuff. Okay.

Personally, I've been with him for about seven years. Now I started in Europe and this time it's a tiny little country next to last year.

I spend a couple of years working on various proper strategy projects during the software strategy,

or North America strategy and tool mode here,

that the sales team for a couple of years before setting the salsa and try to for six years.

What convinced spent a year in Africa seemed before us before moving back to India. So looted from nomadic life can be.

I dabbled in banking for a short while as London, the Dutch bank, mechanical engineer, education, positive, ninety, and finance economics. So that's a very quick overview of what.

I do think office stuff that's a Pre, thorough overview though. Thanks for that. So, first, let's start by the very basic.

How does corporate venture capital work who basically provides you with money and what are your major metrics there at the office corporate venture capital the V.

book is the work of the bunch, which typically means, we don't have a fund then we have investments we get that off the company balance sheet coffee venture capital can also have a separate fund.

So, for example, if you look at Google Ventures, that helps, but a lot of other countries typically work off the balance sheet and finance, the process is about ensuring that that's a strategic fit. It's not purely for financial gains.

It's to ensure that we are moving the objectives of the company forward, and therefore we have restrictions on which areas we can invest in and which areas we cannot for example, robotics isn't interesting for us.

But if we said health sciences, regardless of how I tracked the opportunities, I wouldn't invest that. Typically, the process also starts from us identifying the opportunity, making the business case.

And then also bringing along the business owners. So that any decisions that we make.

As the business owners input as well, got it, got it. Next question is, how do you source your deals? So where do you find those starts that feed your specific criteria?

So, actually, it's a very diverse set of social that we look at and it also changes with the period of time when they're very early. They are a little bit reliant on something. We see. So, we have a couple of fund investments.

We get access to the inflow from there, so quite aligned on what they gave us. But as time.

Come from conferences work from your website. So I would say it's almost all these people. I know, but I know could also mean that I first came into touch with them through conferences on websites.

So, if someone comes to me, and I talked to them, I have a good conversation. It's unlikely to check in the next three weeks.

But it's very likely if the product is interesting that we stay in touch over the next three, six, twelve months, and we develop a deeper relationship, and eventually end up investing. So.

Sources could be the initial point. First contact could be anywhere, but it takes some time before we say okay, this makes sense.

Right, right it does take time you're right in bed and my next question was about R and D. so you mentioned that you Spence? I forgot the exact number it was like three hundred something million?

Yeah, fifty four hundred million dollars. What doesn't mean that you spend three hundred and fifty four million dollars on R and D means a few things so we have a lot of product lines, right? If you start keeping units we have probably ten thousand of them.

So, for incremental innovation on bringing the new iteration of the product, we have like, sixty, seventy product launches.

So, bringing this new product already also means we're working on some frontier technology, for example, material sciences and important.

So finding materials,
which are extremely hard,
but also not something we could be working on,
we could be working on sense the technology on embedding censoring, though,

with some for products that also bind their feed to this.

Some of them is incremental product innovation, but some of them is truly breakthrough technology that we either develop in house work with the newest these two different.

Got it understood so, next question was. Forgot my next question.

It's Monday, so it's fine so always holy in my head, I was, like, repeated over and over and then like, bam, it's got alright. Alright. I'll by the way I'll cut that out, I'll try and make sure that I cut that out.

I know what my next question was about your level of investment. So it's clear that you invest in specific sectors. You cannot invest in some specific sectors as well.

So you have specific investment criteria but do you have a specific level of which to invest in? So do you generally invest that series? A series? B, we're preceed or even scenes.

So, in that sense, we are completely flexible, right? That's a we don't even need to invest. As long as it's moving as forward. Strategically. We could be a customer for that startup. It could be a customer. We could like, label the product.

They could get your technology product partnerships. It could make small seed investments or investments of a few hundred thousand. If it makes it easy. See this investment, which we've done, we've made this be investment as well.

And we also done acquisition, so for us, we have complete flexibility in how we do. It is just a matter of how well it fits strategically what you're doing. Right right. That's really interesting. And.

Right, right and you mentioned that those couple will services you acquired without making prior investment in them and they were early stage starts. How early were they on? So were they like precis where they sees teach. So one was achieved stage.

One was preceed. Nice. So how do you find those companies to us lookout for them on CrunchBase? Or do you see them on some conference?

How do you find them if there's so typically preceed you don't find on transcripts unless you're doing a targeted this is based on networks. This is based on knowing what's happening in the ecosystem, or we get feedback from customers.

We get feedback from other venture firms typically networks do it right right, right. That's really interesting.

Have you ever had ever happened to you that you see something on tech crunch or some other technical publication, where you're like oh, that's an interesting startup. I should reach out to them. Did that ever happened to your? Is this?

Unfortunately, mostly that's one startup that I saw a deal by. Then I was like, this is interesting. This is one of the use cases we're looking at at least talk to them make them started.

A collaboration have an active pilot running with them right now, potentially doing into an investment as well.

That's awesome. That's great to hear because that's one of the questions that I get pretty frequently and my answer is always, you know, if you can get yourself from the tech crunch, probably you'll get some sort of a deal from that. So, try your best.

But my next question was about current investing, so right now is the crisis. Well, no, it's pretty tough. No one really knows what's gonna happen a month now. So are you investment right now or are you waiting for the desk to sell? How does it work?

We're investing right now I'm actually in the middle of a couple of projects where.

If everything goes, well, they could turn into investments, so for the right opportunities still investing right right. Got it.

So another thing that I want to discuss in terms of reaching out to investors, and, you know, growing your network is, what sort of event should people attend?

So I have a specific section in my website, which is called deep tech and people in deep tech.

Usually struggle in terms of finding connections because there are not that many conferences focusing on their specific field, because they're so narrow, et cetera, et cetera. Rich further. So, what's your advice to those people?

What's your advice to founders who are trying to find a good conferences or skewed points of contact with investors? Where should they look? And so it depends on your end market.

I'll give you my example on what conferences a company works in construction site and so typically, any good construction tech conference,
I would say a few words on the wall of concrete,
which I go to,

sometimes there's auto desk and a few others that we try to track,
but only the top three ones,
because they tend to be a lot of these and then I also look at topical issues, for example,

jewel boxes.

Interesting. So Silicon Valley robotics is a good organization in the market that as well. So, they have roadblocks and which happens every two weeks. So, that gives you some exposure.

Excellence robotics event in Berkeley, the interview about us, right and identify whether you are trying to target one sector, or whether you're trying to target one topic.

So, if you think of yourself as a robotic startup, then you presented more of the robotics conferences, and then you might get traction. And it's also important to understand what stage you are.

Then, if you have too early and you are at these conferences, then customers come to you, you don't have a product, the shorter them. So you don't want to really get the traction. You should I think the conferences when you're able to digest the next steps.

Otherwise you don't get the full benefits of being at the conference, so there's a fine aspect as well from just identifying the right functions. Right right. That's that's a good point.

And here we're switching onto the topic of actually rain check investing and, you know, due diligence. Basically, so I know that we see is when you look at the pitch deck, they want to see how the

companies can grow.

How are they gonna monetize the team? Like, How's it different? Since corporate venture capitals usually look for strategic investments. What do you usually look at on the pitch deck?

So the first thing I would look at the pitch deck is why is it relevant to be like this? What is the strategic fit? And even if it's a Super attractive financial proposition, if there is no strategic linkage to us, then.

I will not even ask for the second meeting, because I'm not going to invest in if it's not strategy. So, that is the first thing that I would look for. The second thing I want to look for is how do you think of collaborating?

If I write a check, it's just spiritual. What is, is that a technology agreement that we put in place? Are we getting an insight into some of the you're testing right now? Producing right now?

Or is that a market collaboration opportunity that comes to that?

So, Congress typically also want to help the startup, so the lot of avenues for us to be, but we also want to understand why exactly we are doing Andre.

So, next step, we discussed a little bit on the beach deck. I wanted to show it to the real me. So what are the major mistakes that you see, founders do when they first meet you or when they try to present through their company?

So, for example, on the conference, when the founder runs into, and he or she realizes you are the person who might write them check what's the major mistake that they usually make?

So I can think of two or three that right? The first is because startups meet so many races and strategics, and so on, you have a standard pitch deck that you want to share with them or a standard that you want to check with them on.

What's important to me is it's customized.

I want to be presented something that resonates with me so, at least understanding what my priorities are is important in that composition so that you can customize yeah. Which person you're talking to.

That is something that start a phone. Sometimes. That's right. Second this, and this is more about a pitch deck than conversation it's about pitching at the right level. Then, for example, when you talk about time, you could talk about.

Okay. It's a six billion market. It's a billion market and we'll get two hundred million outset. But you don't talk about the assumptions, you don't talk any details and it's just and the assumption, that's that's what I said it has no back into it.

On the other hand, some others who go into the detailed business modeling and try to talk about okay. Five years down the line and grow by X percent. Sir presenting at the right level is important.

You can be too high level onto detail because you'll lose the audience and either race.

Right. And finally the third thing is focusing the strength of the team. See, founders have a diverse skill sets.

But, typically,

you then to talk about the person who's in the room,

if you don't back as much about the people who are outside the room for an equally important part,

part of the discussion,

the equally important component of making a decision to invest in the company.

So, I think that's about that sometimes gets missed as well.

Nice great, and we're coming up to probably the last question of today's episode, which is a call to action. What's the one thing that would recommend people do as soon as the app is over?

So this one team on which I was trying to talk about, it's customers right? The call to action very likely,
depending on what stage of start up you are,
if you're and very early stage startups,

when you're still put building the product I would say if customer feedback, as soon as possible to talk to them now,
talk to them to find out how the time to make us impacted,
you know,

market all impacted the process and the product.

So, get that feedback today undefined that if you're in the latest startup, then you all probably have some customers. So, I would say, go back to your biggest customers to get. So you don't know how they're feeling about tomorrow.

So find out how,
that,
even if you have locked in contracts for the next year, just go back to them,
find out what are the plans,

how has the mood on the plans for the next year so that you don't have any surprises even if there's bad news did you get that back nice idea so that branch mitigated and rather than getting it as is complete surprise,

then you can't really do much about it.

That's that's where great advice. Yeah. Customers is the key. And here, I actually came up with a full up question, which is.

The thing that you mentioned earlier, we choose a assumption so you said that you can just come up with random violations and say that we're going to acquire two hundred million markets you need to

validate the assumption, and you usually validate that through revenue. Right?
And I was wondering,
what do you think is the significant amount of revenue to prove that assumption so, for example,

if I'm claiming that I will capture,
you know,
the market of ten percent of the market of people who,
like to play board games,
what's the significant amount of sales,
so I need to make that you would be,
you know,
you're like,
okay.
Yep that validates the assumption. So, for me, that depends by stage, right?

For example, if you're you hardly have enough product out there to validate this at that point, you might exceeds days it might even be three pilot customers who are being driving me to here, which might help validate that. Okay.

You're getting some initial traction on the decision on the seat level is made much more on the team and the concept rather than actual market validation.

But if you're moving to, then I would say what a lot of invest to start to think about is a million plus in recurring revenue. Right? That that typically is a starting point. And some of them want more. Some of them want less.

But that's the starting point,

I would say,

and also not all revenues cheated equal cutting is better than one time,

even recording different type of customers matter and that again is dependent on solution that you're doing that's great.

Specific advice. I love it. And on this specific advice point, we'll wrap it up thanks a lot for coming up and for sharing our experience in corporate venture capital it was a really interesting episode. Thanks for that again.

Good to be here and have a nice day.