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This is the second part of a 3-part blog post called "The real difference between normal and corporate Venture Capitals".

In this post we will be analyzing how the Product Development and the Active vs. Passive approach create a clear distinction between the regular VC's and the Corporate VC's.

Product development

Pros:

A faster Pilot – that’s what comes to mind when you consider an investment by a Corporate VC. It is kind of an urban myth though: in several cases we have seen, the purpose of a corporate VC is not to develop products to be used solely by their firm – the aim is to invest in products that solve a real market pain, common to a lot of players. Therefore, what we see happening a lot is for pilots to be arranged (if the company is good enough) as a means of testing the product and in figuring out how far along it is, prior to the investment phase. But it is not linear: sometimes corporates invest in a solution for the same sector but for a different segment, at which point there isn’t a pilot involved. What you can count on is a hands-on approach on the product development, as anyone who sits down with you will question every feature of your product in a more contextualized way, due to their experience in the sector and their passion for solving problems that they are regularly experiencing. This is what happened with Movvo, where they started pilots with some of Sonae’s retail and shopping center brands prior to the investment phase, and the pilot’s success and the internal team’s feedback gave us the confidence to invest in the team, even though the product was, at the time, still evolving.

Cons:

Sometimes entrepreneurs want and need to do their own thing. Typically regular VC’s are much better at having a hands-off approach as, in the end of the day, their main goal is to deliver a financial return to their investors. Corporates tend to have an inner passion for the sector, and might, at times, not be able to contain their own views on the product – it will depend on how fierce the entrepreneur is.

 Active vs Passive

Pros:

Both regular and corporate VC’s have different approaches to investing and to how active they want to be. Some demand to be leading investors, others prefer to follow; some will need a board seat, while others prefer a more capital only approach. And almost all of them preach to be active while they unfortunately don’t deliver on that promise.

Corporates do tend to be more on the active side. And that’s a good thing in our view. By being an active investor, you will have someone on the other end of the line every time you need, as often as required. The active investor will also be proactive, acting as your external "salesman” and opening up his relevant contacts to you, saving you business development time. He will be active in questioning your business decisions and in questioning "why?” and "why not?” (more often than expected). And that’s when things get interesting: by having someone question you, you will be obliged to really think and defend your positions, as well as seek different solutions if you believe your approach is not the most solid one.

Cons:

You will always be questioned – no doubt about it. If an entrepreneur ends up not liking this, maybe he needs a different kind of investor, or maybe the best approach for him is to simply get a loan from a bank. The truth is that VC’s tend to be more on the active side, and that is one of their great advantages. The passive approach might be more appropriate for the experienced serial and successful entrepreneur. Even then, sometimes you need to question yourself and the best way to do that is by having a solid partner next to you.


Don’t miss the last part of this post, where we will discuss the advantages and disadvantages of Corporate VC’s with regards to the Investment Duration. Stay tuned by Subscribing to our mailing list!


Think your idea might have a good fit with Sonae IM’s investment themes (Retail, Telco and Cybersecurity)? Does your VC firm need a strategic co-investor for a specific deal? Get in touch now!


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