Corporate Venture Capital: top solutions for common pain points
By Katerina Mansour - 30 September 2021
If you work in the CVC space, you know that this is a very dynamic time. In 2020, global corporate venture capital-backed funding reached $73 billion, representing a 24% increase from 2019. This growth shows no signs of stopping, considering in Q1 2021 in Europe alone, CVC investments reached $4.6 billion.
While corporate venture capital is an exciting activity, we know that it’s not devoid of challenges. Indeed, at Early Metrics, we work with many leading CVCs in Europe, providing them with support on their key pain points. These include Bouygues Construction Ventures, Keys Reim and Henkel Ventures – to name a few.
Keep reading to find out how you could improve your CVC operations.
How can you improve your deal flow?
The VC and CVC space is getting competitive. With more and more players on the market, it can be challenging to identify suitable startups. Top startups now arguably have more options than ever before when looking for investors. As a CVC, you’ll want to identify rising stars before they get too big and desirable, as you then face the risk of losing them to one of your many competitors.
As such, having a high-quality, relevant, and continuously updated deal flow is vital. To nurture their deal flow, CVCs have been adopting various strategies: attending conferences, going through accelerator programmes, building relationships with institutional VCs, etc. However, all of these can become quite time-consuming, and the results aren’t guaranteed.
Early Metrics provides startup sourcing and rating services that can help optimise deal flow. We can provide an overview of various markets in terms of ongoing trends, challenges and opportunities. Within our in-depth discovery reports, we present an array of sourced startups (from our database of 30k startups) that match your interests and needs. Overall, our sourcing products help you strengthen your understanding of a market (use cases, technologies, trends) and detect top startups that have the potential to become market leaders.
The flip side of having a strong deal flow is that you might find it difficult to choose which startups to move forward with. This is where our high growth index comes in handy. Indeed, it can help you quickly rank a large number of investment candidates. The ranking is based on your own criteria and our scientific assessment of their growth potential and level of risk. As such, results are tailored to your needs.
How do you make sure startup valuations are accurate?
Aside from creating a strong deal flow, you might also face challenges when reaching the negotiation stage. The valuation process can be particularly tricky, especially for early-stage startups. Indeed, traditional valuation methods can yield an incomplete view of a startup’s valuation. Many valuation tools are not adapted to smaller structures like startups, especially ones that generate little revenue. Indeed, startups face:
- uncertain growth potential,
- have a lack of historical data,
- experience low survival rates,
- and a lack similar peers.
For a startup valuation to be as accurate as possible, valuation tools must be adapted to these challenges that differentiate startups from other companies.
Early Metrics has designed a startup valuation model that combines several different valuation methods:
- Discounted cash flow
- Peers multiples
- Future revenue multiples
- The entrepreneur’s target value
- A pre-revenue method based on the valuation of extra-financial pillars
These different methods help us provide a valuation tool that is truly adapted to startups’ unique circumstances. Our valuation reports can help you gain an independent and unbiased startup valuation both before and after a strategic decision. Indeed, we also offer follow-up rating services so you can monitor a startup’s progress over time.
For instance, one of the largest construction companies in Europe has incorporated our valuation services in their CVC’s standard process. By leveraging our valuations and ratings as a tool during their investment committees, they have been able to improve the efficiency of their decision-making process.
How can you track the performance of your startup portfolio?
Tracking the performance of your startup portfolio is key for any investor. This is all the more true for CVCs, as they often still face scrutiny from the top management of their parent company, due to the innovative and risky nature of their department. Yet, with many KPIs to define and closely monitor, it can become an incredibly time-consuming process. Furthermore, attempting to benchmark companies in your portfolio might seem near impossible, considering the drastic differences between each company and the data they provide.
Early Metrics provides CVCs with the tools they need to track their portfolio’s performance. For instance, a major asset management company in the real estate space uses our startup ratings every six months to track the growth of the ventures in their portfolio. This allows them to back their portfolio management decisions with up-to-date independent audits.
A complementary tool to our rating reports is our EM Analytics platform. The platform enables you to visualise your portfolio’s progression over time and benchmark your startups against their peers, based on our rating methodology.
How can you optimise your strategy and processes?
One last common issue that many of our CVC clients have faced, and that you might be experiencing yourself, is that of sub-optimal processes. It can be challenging to devise a strategy and build processes that meet both your goals as a CVC fund but also that of your wider parent company. Indeed, a CVC must adhere to its parent company’s specific goals and needs. As such, there is no one-size-fits-all strategy. Furthermore, while corporate venture capital has grown in popularity, it’s a relatively new type of corporate activity. It can be hard to know whether you have structured your CVC activity optimally or not, whether you are going in the direction that serves both CVC goals and that of the wider company.
Early Metrics offers workshops and can help CVCs build their own processes to maximise their potential. We’ve worked closely with CVCs to define startup rating processes that fit their needs and help them meet their strategic goals.