Venture capital funding is very important for the growth and development of a startup. And having a Venture Capital firm, either private or corporate, can assist the Startup and founders to access a wide range of products and services that might otherwise be beyond their reach. Such services could be human resources, networks, customers and experience, that a Startup requires to take it to the next level of development. However there are subtle differences between a private VC firm v’s a Corporate VC firms.
Private Venture Capital firms are usually made up of a combination of wealthy individuals and family offices. The fund come with a large investment portfolio, with funds under management starting from $10 million upwards. Private VC firms are looking for high growth startups that can offer high returns on ROI.
A Corporate Venture Capital firm is established out of a corporation that has large amounts of cash to invest. They are often a separate entity to the parent corporation, however they have been given a directive by the parent corporation to only invest in startups, which will advance the parent corporation. Examples of Corporate Venture firms here in Australia would be Muru D who are back by Telstra or Caltex Spark, who is backed by Caltex. For most corporate VC’s the investment model is to boost their own parent companies growth, which reduces the need for inhouse R&D.
There are 3 key advantages that a Venture Capital firm, Private or Corporate can provide to a Startup when it invests.
The first advantage, is the ability to help build teams. When a Startup is raising its first $4 to $5 million, these funds are usually spent on the Startups product. In order to focus directly on product development, the startup will need to scope the product and build a road map which incorporates new features, benefits and designs. To action all of this, the Startup will need access to the best software engineers, the best talent, the best advice and the best tool to get the product out into the market. This is where a Venture Capital fund can be of assistance. Most VC’s have a network of IT experts, who can assist the Startup to get where it needs to go. A Venture Capital firm can call upon these network and request assistance. Often they have significant names on retainer just for this type of situation. Venture Capital firms have the reach to engage individuals who might otherwise, be focusing their talents elsewhere.
The second advantage of a venture capital fund, is the ability to find talent for management. If a startup needs a talented CTO, CIO or COO, then the venture capital firm, may be able to provide this type of assistance. Since venture capital firms have invested in startups before, they are often well connected in the market and so are able to make linkages much faster. The VC may have connections with recruiters or headhunters, be aware of projects that are concluding and are able to tap into talent resources within any given market.
The third advantage of a venture capital firm is that once the Startup’s product is ready to scale, a VC firm may have the resources to find customers, make introductions, do due diligence and provide feedback, and validate the product offering. A VC firm has a vested interest in making sure that the launched product of a portfolio startup is a success. So portfolio startups can draw on the VC’s experience, knowledge and expertise.
For Startups invested in by a corporate VC, there is the added advantage of becoming the corporates customer. Corporate VC’s have a vested interest in finding startups, that can solve a problem the corporate currently faces. In some cases a Startup backed by a corporate VC can test their product directly on the corporate customer and become the customer to the Startup. Corporates could then offer the Startups product to their customers.
Unlike the USA, Australia’s Venture Capital market is quite small and not as active. A complete list of Australia’s most active and largest private and corporate VC firms can be found by clicking here
Whichever your preference, there are advantages for Startups with Private and Corporate Venture Capital funding. The preference may well come down to, what option is of benefit for your Startup.