Tips for Raising Funding from Corporate Venture Capital Firms
Andrew Romans weighs in on the process of raising funding from corporate venture capital firms and the common mistakes to be aware of.
Andrew Romans, partner at Rubicon Venture Capital and the author of Masters of Corporate Venture Capital, shared some valuable advice on the process of raising capital from corporate venture capital (CVC) firms and what entrepreneurs should be aware of during the process.
Andrew notes that if you really want to raise corporate venture capital, it’s worth understanding what a CVC’s drivers are and what they’re trying to achieve.
What you need to know about the CVC funding process
CVCs generally only get involved during the Series C round of funding; the stage when a company has proven its success in the market and is looking to go public. Raising funds through a corporate is a whole different ballgame though.
Below are a few tips to help you through this process.
1. Understand the risks. Once you partner with a CVC firm, you’re essentially marrying that corporate for the remainder of the life of your startup. Once you get funding from a CVC, you won’t be able to sell your company to another corporate later down the line. For example, if you received funding from Huawei, you wouldn’t be able to sell your company to Cisco at a later stage as they simply wouldn’t be interested.
2. Understand all terms and agreements. It’s important to know exactly what you’re signing up for. For example, some corporates will negotiate a Right of First Refusal (ROFR), which means that if you decide to sell your business to a large corporation later on, you’re going to have to offer the same deal to your CVC. It’s best not to sign an ROFR and to rather push for a Right of First Notice (ROFN).
3. Neutrality matters. Give careful consideration to losing your neutrality. If you disclose to Cisco that you took funding from Huawei, can you still get Cisco as a customer or get them acquire you? Probably not.
4. Take those meetings with CVCs. Meetings with CVCs are a great way to run your business up the flagpole to CEOs, CTOs, and business heads and maybe get a partnership. You might never want to accept funding from them to begin with but it’s good to go through their processes and see whether there might be a business unit that’s willing to partner with your company.
5. Have a balance of power. If you’re going to take money from a corporate, it’s important to be mindful of who else is in on your financing. It’s always a good idea to have a non-corporate VC in your syndicate to justify your valuation.
6. Do your homework. Find out as much as you can about any strategic partnerships you can launch with the parent corporation and try to articulate this when meeting with the CVC team.
7. Check in with your existing investors. Find out whether they understand the CVC investment strategy and if there is anything that could potentially damage your business in the future.
8. Do some reading. Read any books or blogs that might be available about the exact investment strategy of the CVC and take the time to learn more about the CVC process and how they make decisions. It’s always good to be as prepared and knowledgeable as possible.
9. Always ask questions. Find out as much as you can about how the firm is structured and how they operate.
10. Keep an eye on your legal bill. You can easily spend $50k a month and never actually sign the deal and take the funding so keep an eye on your legal bill.
11. Identify conflicts of interest. Be open with a CVC about your concerns over conflicts of interest. You should also discuss these with your financial VC.
12. Things can change. Be prepared for the fact that the person you’re dealing with at the CVC might change jobs before your next fundraising round or they could cancel the CVC program altogether, meaning you’ll need to find funding elsewhere.
13. Do what you did before, only more. When dealing with a CVC do everything you did with your financial VC but takes things to the next level too. Never run out of cash. Push your CVC as hard as possible to get value from your partnership. Corporates are a lot slower so push hard.
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