Mixed Venture Capital Syndicates: How Independent Venture Capital Firms Evaluate Corporate Venture Capital Arms as Syndication Partners

Abstract

Background and Problem Formulation: Since 2012 there has been a steady increase of corporate venture capital (CVC) activity in The Silicon Valley. In 2017 more than 20 % of the total venture capital investment was made by corporate actors. As opposed to their independent venture capital (IVC) counterparts, corporate investors often have strategic incentives for investing, as they try to further their business model and acquire knowledge. Almost all venture capital investments happen through syndication, meaning that independent venture capital firms and corporate venture capital arms end up collaborating despite their differences. Purpose: This study aims to investigate the relationship between IVCs and CVCs as they invest alongside each other. More specifically it looks at how IVCs evaluate CVCs as syndicate partners. Limitations and Delimitations: This study has solely focused on the venture capital ecosystem in the San Francisco Bay Area (The Silicon Valley). Furthermore, the study has only approached the problem from the point of view of the independent venture capital firms. Only 10 firms were interviewed, making the study less generalizable than what would have been the case had interviews of a greater number been conducted. Furthermore, while most of the firms that have partaken in this study are within tech, some are investing within health sciences, however, no distinction between these have been made. Methodology: This is a multiple case study. Ten semi-structured interviews have been conducted with general partners at ten separate IVCs. Before conducting the interviews an interview guide was created to be used as a tool to keep the interviews within the designated topic. Once conducted, the interviews were transcribed and subsequently broken down with the use of thematic analysis.

Results and Conclusion: The study shows that IVCs value predictability with their potential CVC syndicate partners higher than anything else. This entails being certain (to the greatest extent possible) that no strategic shifts within a corporation will lead to swift short term shifts of the corporation’s venture arm’s investment thesis. However, once predictability is guaranteed any potential value-added capabilities that the CVC might possess can be considered.