Corporate venture capital takes many different forms. The most common one is to help the parent company keep its fingers on strategic innovation. Typically, this includes both adjacent revenue opportunities, as well as new business areas, including some that may be disruptive to the company’s core business.
My main observation about what corporate venture capital needs to do differently from generic VC is around how the subject of TAM (Total Available Market) is considered.
In ordinary venture capital, more often than not, the goal is to identify billion dollar, hyper fast-growth business opportunities.
These, though, are extremely difficult to find.
There are, however, many more $100 million, $200 million business opportunities out there.
Some of these may be add-on modules to an existing product line. Some could be critical to satisfy a small number of key customers whose loyalty is of value to the corporation.
Some could be new innovations in the domain that may bring in only $300 million of additional revenue, but would position the company as a thought leader in the industry.
All these are good motivations to invest for a corporate VC.
None of these objectives matter to regular VCs. The only thing that matters is whether the new opportunity has a billion dollar TAM and a hockey-stick growth curve.
The company may not have enough budget in its P&L to be able to invest in enough of these opportunities, so the VC arm can play an important role in keeping the product roadmap robust and vibrant.
It can also play an important role in keeping the Intrapreneurs encouraged to develop their ideas into full blown, revenue-generating businesses.
As a matter of fact, given the poor rate of returns of the generic venture capital industry, there may actually be a significant amount of interest among Limited Partners to start investing more in corporate VC funds that invest with more focused intent.