Partnering with corporates
Partnering with Corporates is a report by The CleanTech Group, prepared in collaboration with Silicon Valley Bank and underwritten by VantagePoint Capital Partners. The following was our Foreword to that report:
A great deal has been written about the importance of corporate partnering to venture-backed companies in general and in particular for companies in more capital-intensive sectors such as clean technology. Obviously, more mature sectors such as information technology and biotechnology now have thirty-plus years of relationships and learning on which to reflect. Cleantech is newer and very much still developing its own set of best practices. But, for a capital intensive sector, these relationships are regarded as more meaningful and more important to startup success than might be true in Internet, social networking or mobile-application deals. Recent years have also seen a significant increase in the number of corporate venture funds and thus the amount of corporate capital as a percentage of the total capital invested annually in cleantech opportunities.
At VantagePoint, we started our Cleantech practice more than a decade ago, and from the beginning, we have adhered to the notion that corporate involvement is a key aspect of what we see as the necessary ingredients for investment success. Specifically, we form Strategic Partner relationships with a select group of Global 500 corporations. These relationships focus on maintaining a deep and structured relationship with three levels of corporate involvement:
(i) a key executive sponsor at the board or CEO level;
(ii) a series of business unit relationships focused on joint areas of interest; and
(iii) the corporate venture unit as an integral part of the team that drives success for us, the startup and the corporate.
We also organize specific events that regularly connect us to these three constituencies within each partner as well as connect the partners to each other. This includes our invitation-only ResourcePoint Summit, an event that brings together our strategic partners, other significant corporate players, global thought leaders and government officials, as well as a group of what we deem to be the most interesting startups in cleantech. In addition, within our own group we designate individual partners with the responsibility of maintaining certain corporate partner relationships on a weekly or monthly basis, matching our sectors of interest with those of the strategic partner.
We find that productive relationships require significant time and mindshare commitments by both parties and require that same level of activity across all three levels of contact. We have also discovered that the level of focus among corporate partners tends to change over time, largely driven by CEO-level strategic priorities at the top of the organization. This results in our making occasional changes between partners as one corporation’s focus shifts away from areas of strategic overlap and others emphasize areas of strength and focus for us.
As we gain experience in working with corporate partners, we have discovered that such experience also makes it easier for us to connect with other major global corporations, as we better understand their thinking processes, capabilities, limitations and priorities and the differences between how they and we approach working with startups. In particular, we have discovered that while our strategic partners are quite good at working with us on technology validation and due diligence, they often see the pace of disruptive change in a more conservative light than the pace at which we and our portfolio companies are seeking to drive it. We also see that we place a meaningfully higher priority on the qualities of our CEO’s and management teams than do our corporate relationships (they, in turn, tend to be more technology focused; looking at what they might accomplish with those technologies in their own hands).
We have also discovered differences between our approach and that taken by corporates in working with other venture funds. Often, where the corporate venture group is the key sponsor of the relationship, we find a symbiotic deal-sourcing relationship; one in which the corporate venture group uses the outside venture firm as a source of deal-flow by virtue of sharing information not only on deals done, but deals looked at on a regular basis. These relationships tend to focus more on earlier-stage investments and on providing the corporate with an early indicator of potentially disruptive technologies. In contrast, we tend to focus on finding specific technology sectors into which we and the strategic can do a deep dive, attempting to look at every single company in that specific sector, often establishing a ranking and noting the differences between how we and the strategic rank the companies. Our objective is trying to find, with each corporate, just one or two companies where the nature of the relationship will actually move the needle for the corporate (typically this means relationships that represent billions of dollars in potential corporate revenue, either through M&A, joint ventures or partnerships). We find this focus better meets the objectives of the corporate CEO and specific business units, but perhaps less so the not-as-focused technology scouting objectives of some venture units.
In sponsoring this work with Cleantech Group and in seeking the assistance of Silicon Valley Bank to provide key statistical analyses, we have focused on discovering overall best practices in relationships between and among corporates, startups and VC’s, and on attempting to quantify whether such practices are producing meaningful results. In so doing, we have discovered that popular belief does not necessarily match actual results; more specifically that there are no simple answers, but lots of more complicated ones, that success requires hard work by all involved and yet that neither size, nor quantity of relations correlates directly to success. We hope that by digging deeper into a number of these complicated factors, we can better align expectations among the constituent parties, improve outcomes for the startup companies and better meet the expectations of both VC’s and corporations.
Managing Director VantagePoint Capital Partners