NJTC Panel Looks at “Strategic” Corporate Venture Investing


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Are entrepreneurs and follow-on investors well served by the investment fund arms of such companies as AOL, Google, Condé Nast, SAP, Time Warner and Home Depot? That’s the question a panel discussion on corporate venture investing, moderated by Raymond Thek, vice president of the Lowenstein Sandler (New York; Roseland, N.J.) Tech Group, attempted to answer at the March 2012 NJTC Venture Conference in Somerset.

Introducing the topic, Thek said in the past 15 months he has been on the other side of many deals with such companies, and this trend is a new one. “I’ve never seen anything like it in 20 years,” he noted. While companies in the life sciences used this strategy in the past, it is now widespread across industries.

The panelists thought early-stage investing with so-called “strategic investors” is a good idea for entrepreneurs if the company’s fund objectives and strategic interests align with the entrepreneur’s goals and the value the strategic company adds is very specific.

However, deals need to be balanced, with nonstrategic investors also at the table to provide a counterweight to the sometimes more powerful entity. Also, the panelists advised, look for a strategic investor who can offer you something you can’t get elsewhere, like industry contacts.

 Young companies should realize many strategic investors may not spend the time to get the right sales director into the right spot at the company and provide other, more hands-on help VCs might offer. Also, if a strategic investor is around at the initial round, “you may not have someone working that hard for you on the follow-on rounds,” said Peg Jackson of Gridley & Co. (New York).

Gil Beyda, founder and managing partner of Genacast Ventures, operates a seed-stage fund that is a Comcast (Philadelphia) offshoot. It’s not technically a “strategic fund,” he said, since companies in which it invests don’t necessarily have to have anything to do with Comcast’s interests.

His view is that more large firms are looking at creating their own venture funds as an integral part of their strategy. Some see this as a road to acquisition, while others view it primarily as a financial-management tool allowing them to diversify their financial stream. Most look at it as a way to identify new sectors, technologies and trends occurring in the industry and be on the cutting edge or bleeding edge.

Jackson added that large companies are getting into venture funding because “technology is having such a big impact on their businesses in so many ways.” Firms are looking at their investment arms as a way to maintain a formalized team and a structure, to know what’s coming down the road in technology. The good news for investors who get involved with them: while it used to be an informal arrangement, strategic companies have now formalized these groups and offer professionally structured term sheets, which they didn’t do before, she said.

Strategic investors are funding small slices of disruptive technologies to be at the top of the curve, before their businesses can be disrupted, Sasank Aleti of LLR Partners (Philadelphia) pointed out. Getting technology to market goes much faster now, so you can see the impact of disruptive technology much sooner, he said.

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