Corporate Venture Capital: No bueno.
#56 Angelinvesting.it - From idea to Series A - Weekly Newsletter
Dear reader,
I hope you have not had the misfortune of dealing with those abominations called corporate venture capital (CVC). Simply put, CVCs are funds allocated by a corporation to make VC-like investments in technologies and strategic areas related to the company's mission.
They sound very smart, but in my experience, they don’t work.
We are in the office of Shirley Lin, a partner at Goldman Sachs for the south east asia region. Shirley Lin Is sitting at the desk with another GS partner opposite. Between them, on the desk, are 7 pitch decks from startups in which GS has invested or is considering investing.
The year is 1999, Shirley Lin had an insight: the digital revolution from Silicon Valley will reach China and Asia. Betting on the best entrepreneurs will yield the bank millions if not billions.
The partner who traveled from NYC to explain how terrible Shirley Lin's idea was disagrees. The tones heat up, the decks are thrown to the ground with great theatricality.
Among those 7 decks on the floor, a company you will immediately recognise, is Alibaba.
A few months earlier, Shirley Lin had received the OK from the investment committee to buy 50% of Alibaba for 5 million dollars. Yes, you read that right, 50% for 5 freaking million. The deal of history.
Then, the investment committee cooled off seeing the bubble in America burst. First, 17% was sold, and then the entire stake for a total of 25 million. A good 5x gross on the 5 million invested.
Those shares, considering dilution, would have been worth 5 billion to the bank at the listing and would be worth more than all of GS today if still held.
Key takeaway
Corporates need to get innovation from the outside world.
Some tools are better than others. CVCs are one of the worst.
The time horizon and riskiness of VC investments do not align with corporates' needs.
Things like a change of the CEO, internal politics, or a couple of quarters going particularly bad can easily make things derail like in the GS example.
Have a great weekend,
Simone
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