A special thanks to Nicolas for taking the time to speak to GoingVC Cohort 7about his experiences in Venture Capital and founding TDK Ventures.
Nicolas Sauvage, Managing Director at TDK Ventures, recently spoke to our 7th Cohort on the topic of Corporate Venture Capital. You can view the full discussion below and we’ve highlighted some of the key takeaways from the lecture as well.
The full lecture is available here:
The first key is the difference between Corporate Venture Capital and traditional Venture Capital. Whereas traditional VC funds are brought to market by raising capital from a multitude of sources, the sponsoring business, in this case, TDK, acts as the sole LP to the Corporate Venture fund.
credit: Nicolas Sauvage
The biggest misconception when it comes to CVC vs VC is that CVCs are often thought of as having to choose between having a Strategic or Financial purpose, whereas Nicolas clarifies that CVCs have a unique dual mandate embracing both Strategic or Financial purposes, in the same terms as the same financial motivations as traditional VCs.
In that thought, Nicolas describes the need for CVCs by discussing the fact that companies, by nature, are generally good at exploitation (i.e. excelling at iterating on ideas within the firm to create solutions to problems, and therefore products and eventually cash flows) but often struggle in the ability to do exploratory learning: discovering new opportunities, e.g. in new markets with new technologies.
This enables CVCs to lean more into exploratory learning that is less focused on achieving short term business goals, which is a nice diversification and offset for established and public companies that must set and report quarterly results to investors. This also manifests itself when it comes to how CVCs invest. Corporates are choosing between developing the technology internally, acquiring a complementary business entirely, or investing via their CVC in a complementary business. The latter two exist likely only in the absence of the first - and the decision between acquiring the entire company versus investing in it comes down to the motivations of the parent (i.e TDK).
Corporate development, as opposed to corporate venture capital, is in the business of acquisitions and is making those decisions based on the cost/benefit of acquiring a company versus developing the tech itself. Corporate venture capital, on the other hand, is all about learning and pushing into lesser known territories.
While the operating models of traditional VCs are well known but continue to evolve, CVCs have trailed their Venture counterparts for much of the past two decades when it comes to operational excellence. However, as CVCs have matured and refined their value-add to portfolio companies, and VCs have increasingly co-invested with them, the value-add due to the differences in motivations and domain knowledge have created improved outcomes.
VCs are more often finding that CVCs can bring value to the table that perhaps other investors may not, increasing the probability of success among investments, so it behooves traditional VCs to spend time understanding and partnering with CVCs.
With an understanding of how the operating models and strategic goals of CVCs and VCs align, how then does the investment decision making process compare?
credit: Nicolas Sauvage
Unsurprisingly, a goal for CVCs is ‘Venture-like’ returns. This is a primary goal for CVCs as they should be, as previously mentioned, financially motivated. Beyond that, the mission and philosophy of the fund come into play. For TDK Ventures, this means ensuring that startups have a meaningful path to contribute to a sustainable future and that TDK can add strategic value. The last part, strategic value, is what differentiates CVC from VC.
This means the startup must fit into the strategic, long term goal of TDK. This is generally defined as having clear-cut synergies with existing lines of business and research initiatives - which ultimately justify what is an R&D expenditure for TDK. So while these companies remain independent from TDK, the TDK Ventures team does work hard to positively influence the outcomes of the company.
More from the Lecture:
About TDK Ventures
TDK Ventures is the corporate Venture Capital arm of TDK Corporation, which is based in San Jose, California, and Boston, Massachusetts. The mission of TDK ventures is to invest in – and serve – early-stage innovative startups to bolster innovations in Digital Transformation (DX), Energy & Environmental Transformation (EX) that will improve and sometimes save people's lives, especially around Cleantech, Industrial, Mobility, Materials, Energy and Medical spaces.
In 2020, TDK Ventures was named to the Global Corporate Venturing Powerlist 100.
About GoingVC Lectures
As part of GoingVC’s 16-week flagship program, GoingVC hosts live weekly zoom lectures and discussions led by VCs to educate members on various aspects of venture, ranging from developing an investment thesis, deal sourcing, due diligence, raising a fund, and much more. This lecture in particular was focused on Corporate Venture Capital and happened during our 7th cohort, in November of 2020.