191. Corporate VC (David Horowitz)

191. Corporate VC (David Horowitz)
Nick Moran Angel List

David Horowitz of Touchdown Ventures joins Nick to discuss Corporate VC. In this episode, we cover:

  • Backstory/ Path to Venture
  • Talk about the 14 years you spent with Comcast Ventures — what you learned and why you left?
  • What lead to founding Touchdown Ventures?
  • At Touchdown, you partner with leading corporations to manage the complete venture lifecycle from entity formation to investment management…Can you dive into the thesis/focus of the firm?
  • Why would a founder choose corporate VC funding over institutional funding?
  • I was reading through the “Risky Business” blog on the Touchdown website and found some pretty interesting articles…specifically one that talks about “the most overlooked skill in Corporate venture” being deal management…that it “requires more effort than all other activities combined”…why is deal management so challenging?
  • Why do you think CVC’s funding has historically been more inconsistent than institutional venture funds?
  • Why are corporations willing to take minority stakes in startups? As Fred Wilson said on CVC—“You want the asset? Buy it.” Is there a risk to founders of taking investment from a large corporate that can “look under the hood” and reverse-engineer the tech or exploit the IP?
  • Is the core objective of a CVC financial return or is it more of a strategy play? (i.e. market insight, actively trying to grow certain sectors)
  • How does the mindset of a CVC change in a bear market, especially compared to institutional VC?
  • How does follow-on funding work in corporate VC? If the corporate has a poor financial year, does a lower funding allocation affect follow-on allotment for winners?
  • The firm was recognized by Global Corporate Venturing for having both established and managed the most corporate venture funds to date… At the industry level corp VC has peaked in funding in recent years. Why do you think corp VC has grown to this level and why did you raise the number of funds that you did?
  • One of the articles on the Risky Business blog talks about fraud detection with reference to Fyre Festival and Theranos…Talk about some red flags that an opportunity may be a fraud and what you should do if those red flags are present?

Guest Links:

Key Takeaways:

  1. Corporate Venture is really all about external innovation and bringing companies in from the outside to successfully impact the corporation.  
  2. After building up a lot of expertise and experience, David felt that they could build a firm that effectively provides fund management to large companies while also helping them get to professionally managed corporate venture a lot faster, which ultimately lead to the founding of Touchdown Ventures.  
  3. Overall there has been a lot of momentum and growth in the Corporate Venture space within the last 5 years – in the US over half of the capital in venture came from CVCs. 
  4. Their thesis at Touchdown is to provide a combination of the venture capital experience with professional management, while still operating much like a traditional VC and adhering to those best practices.
  5. To be successful in Corporate Venture, David believes its important to have both VC and CVC experience. He states that the corporate management pieces really de-risks a Corporate VC and helps them to be successful.
  6. A founder might choose Corporate VC over Institutional funding because CVCs tend to understand the domain and can go deep in that area while also providing more than just capital with the resources they have access to. Typically CVCs can provide the potential for customer and commercial relationship along with bringing some legitimacy to a company thats just starting out. 
  7. David’s response to Fred Wilson’s comment on CVCs “You want the asset? Buy it” is that it may be challenging for corporations to really know if they want to buy the asset in early stages. The company might be too premature for a CVC to fully commit, therefore making a minority investment is a good first step in the right direction.
  8. A minority investment can help cement relationships and create more alignment of interest. It’s impactful for both the startup and the corporation while also giving the corporation some optionality to buy the asset in the future, therefore having that earlier relationship may be helpful. 
  9. The core objective for a CVC should be both strategic play and financial returns. If there is only a strategic approach, it may be challenging to find alignment with other investors, founders and the management team. If there is only a focus on financial return, it’s easy to miss the opportunity to bring impact back to the corporation. 
  10. The best CVCs have the right balance between both strategic and financial return objectives – focusing on the financial returns while also operating like a traditional VC.
  11. In past bear markets, corporates have often pulled back. David believes that in bear markets your mindset needs to remain focused on innovation in order to be successful. 
  12. David stresses the importance of professional management of funds – the CVC that is professionally managed has a budget, in terms of capital that’s been allocated for both new and follow-on financing that is ready to access if the company has a poor financial year. 
  13. Typically there are 3 elements to investment strategy – sector, stage and geography. At Touchdown they tend to be agnostic to the geography and the stage, instead focusing on who the best startups and entrepreneurs are regardless of those 2 elements.

Transcribed with AI:

welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet

Welcome back to TFR today David Horowitz joins us David is the founder and CEO at touchdown ventures which partners with leading corporations to establish and manage their venture capital platforms. In today’s interview, we discuss the story behind the founding of touchdown ventures, the investment focus and how they’ve successfully raised and managed the most corporate venture capital funds, the similarities and differences between corporate VCs and traditional VCs. Why founders choose corporate VC over traditional. If there’s a risk to founders partnering with large corporates that can copy what they’re doing. We hear David’s response to Fred Wilson’s criticism of corporate VC and the minority positions they take. We talk about what’s contributed to the recent growth of corporate venture capital. We discuss why deal management is the most important and time intensive activity that they do at touchdown. We talk about how corporate VC responds in a market downturn or also a poor fiscal quarter for the corporate. And finally, we wrap up with David’s thoughts on fraud detection, and what one can do to spot red flags in fraudulent tech companies. Here’s the interview with David Horowitz of touchdown ventures.

David Horowitz joins us today from Philadelphia. David is the founder and CEO at touchdown ventures touchdown manages venture capital funds for large corporations currently partnering with approximately 10 large corporations, including Kellogg’s, Aramark, 20th, Century Fox, Allegion, and Tegna, among others. Touchdown is recognized for having both established and manage the most corporate venture funds to date. Prior to touchdown David spent 14 years as a partner at Comcast ventures. David, welcome to the program.

Hey, Nick, thanks for having me. I’m really excited to be here.

Absolutely. So tell us a bit about your path to venture.

Sure, absolutely. So actually, originally from North Jersey, so outside of New York, and I feel like my life has been migrated down to New Jersey Turnpike. So as you mentioned, I’m actually live in South Jersey, but closer to Philadelphia, on the big 10 guy like you, I went to Michigan, I did accounting and finance, I have a business background, went into investment banking, and worked at Bear Stearns actually take no responsibility for what happened to that firm that happened long after I left. But actually, the one thing that I do want to mention is when I started there, I was an analyst right out of undergrad, and sat around waiting to be staffed on my first project and I got a call and that call actually really changed my whole professional career. And that call was to work on at that point Cablevision, which is one of the largest clients of Bear Stearns at the time. And I knew a little bit about the cable industry, I was a, you know, certainly a user, like cable television, like sports. But, you know, ended up my two years there and almost exclusively working on the cable industry and really built up some expertise and some, even some passionate about that area. And so, when my wife actually did graduate school in the Philadelphia area, I had to go find a job. And you know, it was, you know, people out of banking, were either leaning toward moving from what they call the sell side and investment banking to the buy side. So either you typically go into venture capital or private equity, I was much more interested in the venture capital side. And, you know, given my cable background, I’m not joking about this. But you know, all possible roads lead to Comcast. And I was just very fortunate to be at the right place at the right time, Comcast had just started this Venture Capital Group, and I was the first associate they hired. And that was the year 2000, so almost 20 years ago, and that’s kind of how I got into venture capital.

Wow. And yeah, talk a bit about that experience at Comcast ventures. It was

amazing. It was life changing. First, it’s really you know, it’s really about people who you work with, and I work with, you know, one of the founders of Comcast, Julian Brodsky, he started the venture group and still close to him today. He also was the CFO of the company was responsible for all the acquisitions that Comcast made, you know, even some of the new initiatives in terms of including the venture fund. And then Sam Schwartz, who’s still with Comcast, he’s the Chief Business Development Officer there learn a lot from him. He came from both adventure and a consulting background. He really bought a really interesting perspective about how to add strategic value to Comcast. And then another person Lewis Toth, who really important mentor of mine who actually proud to say, is an advisor to us a touchdown today, many other people I work with, but you know, what really was interesting was, you know, this sort of, I learned about the impact of corporate venture group could really have not only to the Start Dogs, which is really important, you know other VCs that we call invested with, but but really to Comcast, and I think that’s what most people didn’t see from the outside that I saw on the inside, really almost any new business Comcast started during the time that I was there was either inspired by or that business was created by partnering with one of our portfolio companies. So while I’m extremely biased, because I was involved in building this, you know, it was kind of the right playbook of how to do corporate venture the right way. And, you know, I know that Comcast is in Comcast ventures has received praise and accolades for doing that. So just being part of that working with that team, helping to build that starting as an associate and kind of working my way up to, you know, ultimately, you know, be one of the leaders in the group over that period of time.

Did the balance of r&d to corporate venture, did that shift over those those 14 years?

It did, I mean, Comcast, I would say, traditionally, didn’t do as much r&d internally. And so that created, you know, the ability to work with, with startups and external party. I mean, if you think of even some of the most innovative things that Comcast has rolled out that probably, you know, two of the most innovative things back when I started, there would be the cable modem. And the set top box, you know, both of those were created by third parties, and ultimately, components were led by startup companies. More recently, a Comcast does an amazing job of bringing a lot more innovation internally, they’ve built a new technology innovation center, hired a lot of engineers and developers, they build their own set top boxes now. And so I think, you know, I know some of the folks that were, you know, like Sam Schwartz would say that this venture group was really instrumental in helping to drive that innovation culture in the company. It’s always

an interesting balance. I used to work in m&a for conglomerate called Danaher. And there was always sort of a delicate balance with regards to how much innovation was organic versus how much we sourced externally and or, you know, partner with startups that we could help either take a position with them early on, or potentially acquire them when the technology was right. But maybe they didn’t have the appropriate channel access, or sales and marketing strategy. So interesting challenges to address. And I think it’s different corporate, by corporate, everyone’s got their strengths, their core competencies, and so depending on who you’re with that strategy can change significantly. Yeah,

and I know, we’ll talk about I’m sure more in this podcast, but I think what a lot of corporations are realizing is, you know, they can’t put all their eggs in kind of the internal r&d basket, there has to be some allocation or exposure to what’s happening outside the four walls. And that’s what corporate venture really is about external innovation. It’s about, you know, bringing companies from the outside in. And that’s, you know, a lot of what I was mentioned, in terms of the the impact that Comcast was, was doing that you’re launching, for example, Comcast launched a home security business, a key software partner to develop that was a portfolio company called I control, Comcast actually ended up acquiring that company over time. And so that’s often cited as a, you know, a very successful case study of the corporate venture impact to a large company like Comcast. So

David, I’m gonna ask you a question that I get all the time. So things are going great, you’ve moved up up the chain at Comcast things are really working well, in the venture group there, you guys have momentum, the business is doing well. And then you decide to leave. Why leave and start touchdown ventures?

Yeah, you know, you spend a lot of time with entrepreneurs, you get inspired to do do something entrepreneurial self, I’ve always had an entrepreneur in my blood, my father was an entrepreneur. So that was something that I’ve been thinking about for a while and needed to find the right idea. And what I realized is, you know, I really had built up a lot of expertise and credibility in this corporate venture space. And I just kept getting calls from other corporations, I saw the growth of this market. And you know, people that when I was at Comcast wanted to pick my brain on how to do this, and at one point, the light bulb went off, there really didn’t exist. A company like touchdown ventures never existed before. And I felt like we can build a company that provides, you know, effectively what we do today, which is corporate venture capital fund management, to large corporations, you know, I think we can help those companies get to, you know, what I call professionally managed corporate venture, and we’ll talk about what that means on this podcast a lot faster. It’s just the growth of the corporate VC space is incredible. I even just saw a recent report, I think it was citing data from PitchBook, that over half of the capital, think about this over half of the capital in venture in 2018, in the US came from corporates, that is amazing. Well, you know, 510 years ago, that would have been, I don’t have the data in front of me, but that would have been, you know, significantly less than and that’s driven by companies like SoftBank. That, obviously is the largest venture investor, they’re considered a corporate. So there are some reasons why the numbers are skewing, but I think overall, you know, there’s there’s a lot of momentum right now and growth in this space. And that’s, you know, obviously, you know, what I saw five years ago to lead me to start this firm.

Yeah, and you’re partnering with these large corporations. Many You very notable brands, and you manage the complete venture lifecycle from entity formation to investment management. Tell us a bit more about this approach your thesis and why it works. Yeah, I

think our thesis is, you know, venture is one of the riskiest asset classes, I think we all and all of your listeners know that we call our blog, which I know we’ll talk about in this podcast, risky business, and because of that, or also fans of the film, but you know, I really do believe and there may be people that disagree with this, but to really be successful in corporate VC, you need to have VC experience you need to have, I would say, even corporate VC experience is really important. And so, you know, I think the worst thing that a corporation can do is to hand a checkbook and hand investment decisions to a team that has never made venture capital investments, and really our thesis is, is we can provide, as a partner, that venture capital experience, and really that professional management, which will really talk about, and really, in a lot of ways, operating as much like a traditional VC and adhering to those best practices, but then, you know, bringing the corporate impact piece, and that’s what you know, I think, just to be successful in corporate VC, you really need these two things. It’s the VC experience, but really the capital and resources to support the startups, and to bring some of those learnings back into the corporation. And it’s that, you know, that process, which, you know, obviously, helped build a Comcast kind of took that into touchdown, that really, I think is what makes what we do successful somebody think the alternative right now is that a company will, you know, either hire other people or take their existing team. And I think in this risky environment, we provide a, you know, this professional management really does de risk, you know, corporate VC from being successful. Tell us

a bit about what onboarding or you know, launching the process looks like with a partner. So, you know, they’ve decided they want to take a more active position with regards to venture they want to partner with early stage tech companies, you guys create a partnership? Is it sort of a couple months of strategy work in alignment? On goals? Or, you know, how does, how do you kick off sort of a corporate venture partnership?

That’s a great question, we have a really good process that we develop, it takes about about 90 days, you know, on average, and it starts with your point of setting up with the goal, what are the goals of success here? And how do we even measure those? And that’s something that, you know, we’ve touched down have a lot of experience in in terms of not only how do you build those goals, but how do you measure them. And the measurement part, frankly, is, especially with when you’re talking about strategic value, and corporate impact is actually harder, we’ll go out and interview every buddy in the organization and really try to get their input on the strategy, we’ll build the strategy, we’ll build the model portfolio, how are we going to invest the capital, obviously, including, you know, the allocation between new investments and reserves, you know, do the alignment with the infrastructure piece in terms of accounting, legal finance, so you’re really talking about setting this up in a way where it’s going to be successful and typically would not start, you know, sourcing deals or looking at opportunities unless, because I think what comes out of this is how you market and communicate this, but internally to the company and externally, and you really do nothing to communicate until you until you know what you’re trying to accomplish here. So, so that’s the process. And we’ve gone through this enough times, you know, I think, you know, almost 15 Now to know, you’re obviously very biased, but you know, we feel this is a best practice of how to launch and set up a new corporate venture fund. David,

why would a founder choose corporate VC over traditional venture?

I don’t think it’s an either or, you know, I think, you know, the best entrepreneurs probably want to syndicate an investor group that includes both, but I, you know, I think there are reasons corporate make great if there is a choice, I think there’s a reason why corporates do make great investors. And, you know, I think they understand the domain, they typically go very deep in that area, you know, they can provide more than just capital, you’re typically there’s some potential maybe at the time of investment or post investment, some customer commercial relationship, even, we’re providing some legitimacy to accompany you know, maybe it’s an earlier stage company, they’re still you know, maybe they have a couple of early customers, but having a big corporate invest in them can provide that legitimacy when they’re out there going and talking to you know, other potential customers, other potential partners, you know, there many other reasons, but I think this idea that a corporate can bring more than just capital everybody’s talking about that, I mean, certainly in the institutional VC space, but you know, corporates really, with the resources, you know, really can deliver that.

You mentioned the blog before risky business, love the name of that sort of fun fact is I crowdsource the name of the podcast over five years ago. The Number One Choice is what we went with TFR the full ratchet number He was the syndicate. Number three was risky business. Oh, that’s really funny. Yeah, yeah. So anyway, I was reading the blog, great blog, by the way. And, you know, there was an interesting article, specifically one that talked about how the most overlooked skill in corporate venture is deal management, and that it requires more effort than all the other activities combined. Can you tell us a bit about why deal management is so challenging?

Yeah, I mean, we spoke a little bit earlier about this idea of professional management. And I think that that’s something that not every corporate VC really understands. And to us, professional management is really, you know, operating, you know, like a traditional VC would, in terms of how you think about building a portfolio, managing a portfolio supporting the portfolio companies, you know, a lot of corporations, they may you start your VC investing, either at a corporate development, or maybe from the business unit. And the mentality is, you know, this, sometimes we see this with corporate development and mentality might be, you know, going and finding the next deal and not worrying about the portfolio, or maybe it’s the business units job to manage the portfolio. And, you know, that blog post that you referenced, was really meant to provide some more awareness to corporate VCs, you know, don’t don’t just go, you know, I think most VCs understand this, that you, you probably want to, when you’re thinking about prioritizing time management, you know, spend time on the companies that you’ve already invested in, figure out how to get, you know, add value there. So, I think the difference in the corporate VC space is this extra, you know, layer may or may not be the right word, but this extra support, that in a lot of ways is expected from the entrepreneurs in terms of, you know, how can that corporate that startup work with the corporation, and whether that’s, you know, commercial partnership, whether that’s a revenue relationship, whether that’s a technology license, I mean, every relationship is different. I do think some of the best corporate VCs can go above and beyond that, you know, typically, they’re very deep in their sector, so they can really help with things like recruiting, business development, your general strategic advice. And, and, you know, typically, you’re not, it’s very hard for an institutional VC to be as deep as a corporate VC is. And that’s, that’s an advantage that I think a corporate VC has. So again, to summarize, the blog is really meant to more raise awareness around, you know, why this is important, and not to drop the ball. I think that’s what my co founder and partner, Scotland, Edinburgh, he wrote this blog post, and I think, I think he cited this idea of not dropping the ball, which which some, some newer corporate VCs tend to have a tendency of doing.

What’s sort of the cadence or standard amount, degree type of interaction that you have with the actual startup companies that that you’re working with?

From a portfolio management perspective, yeah, I wouldn’t see it really, that different from how a traditional VC would, at least in this context that we have where, you know, we’re kind of the corporate VCs professionally managed. So, you know, if we’re leading a deal, you take a board seat, if we’re now asked for a board observer seat, or have some other way of working with them, I think the only other other piece that is different is typically as part of our investment thesis of why we’re investing, there is some commercial relationship, commercial potential, or some value piece that we think is already happening or will happen between the startup and the corporation. And playing a little bit of that matchmaker may be getting back channel feedback on from the Corporation on how that partnership is going or from that startup, and really trying to get those two sides together. And that’s a great role for a corporate VC, which is really, you know, really to be the advocate in a lot of ways for the startup within the corporation. And, you know, it’s your as a startup, you know, you’re at a disadvantage, you’re a smaller company, you’re resource constrained. And so having somebody you know, effectively within the corporation that can act as your advocate, advisor champion and help you, I think the best corporate VCs do a great job at that.

David, why do you think corporate venture capital funding has historically been more inconsistent than traditional venture funds?

I would say the industry has really matured even over the last five years since we started to touch down so you know, when I first started in corporate venture, which was the year 2000, there were very few core VCs, there was Intel Capital, Cisco, a couple of other ones. I would say there’s probably more, you know, what I would call unprofessional corporate VC, which is more minority investments done as one offs by, you know, corporate development or business units and the last few years has been a real professionalization of the industry. You’ve got organizations. There’s a great one that we do a lot of work with called Global Corporate venturing, and they’ve done an amazing job of really bringing together leaders in the industry sharing best practices at conferences and events. You know, we tried to do our Share with the with the risky business blog and other education and workshops that we do. You know, I would say historically, you know, corporate venture hasn’t been a must have for a company. So if you were, you know, an older line company, maybe an industrial or manufacturing or automotive and you pick the industry, if you didn’t do corporate venture, you knew where your revenue was coming from, you knew where your cash flow was coming from. And I think that today is different, there’s much more tremendous pressure among large corporations to figure out innovation. You know, there’s a great graph we actually use in some of our presentations, when we’re presenting touchdown to corporations. It shows the average life of the s&p 500. And I think if you, if you were to look at that, say, even 20 or 30 years ago, the average life was, and don’t quote me on these numbers. But if somewhere around 40 or 50 years, it means peak companies got to the s&p 500, they were staying on it for a long time, and that’s shrinking. And we see a lot of the bankruptcy bankruptcies that are happening, especially areas like retail, where obviously companies like Amazon and others are very being very disruptive. And we’re starting to see that, you know, crop in and other areas, whether it be financial services, or automotive insurance is another one. So I think there will be more consistency. And I think the more that people, you know, subscribe to this need of doing this professionally, I think there will be more consistency going forward. And I’m optimistic that, you know, more people are listening, you know, to things that we’re evangelizing but certainly others around these best practices.

Sure. Why are corporations willing to take minority stakes and startups? You know, there’s, there’s plenty of critics that criticize investors taking small stakes. You know, Fred Wilson has written about how if you want the asset, buy it and get your ownership. So why would a corporation be willing to take, you know, very small positions in tech company?

Yeah, I mean, first of all, we have tremendous respect for Fred. He’s certainly one of the, you know, best venture capital investors of all time, actually, a lot of the more negative comments that Fred’s made on corporate venture over the years is really inspired us when we start touched down on on how to avoid those mistakes, how to do it the right way. So we really tried to listen to him, and I spoken to him about it in the past. But if we hear for Fred’s comments, if you want the asset, buy it, I think the challenge is not every corporation at that early stage knows that they want to buy the asset might be too premature to you know, to buy the company. So, you know, I think that the idea of what you know, let’s start as a partnership, it usually if the big corporations partnering, then you know, why not also make a minority investment and it creates it sort of cements the relationship creates more alignment of interest, you know, as we talked before, impactful both for the startup and the corporation. So it does give the corporation some optionality in terms of, you know, maybe in the future, they do want to buy the asset. And so, you know, having that earlier relationship could can be helpful. So Fred’s point is if you want the asset, buy it, but again, I think that the reason why this minority investment option exist is you know, that at those earlier stages, the corporation really doesn’t know yet.

Is there ever a risk to the tech company, I’m dealing with a situation right now. It’s it’s very early stage. So we’re precede investors. So it’s an emerging tech, it’s hardware based, there’s some significant IP around the tech, and two huge corporates in the industry, both their CEOs, shocking, but both are CEOs have reached out directly to the CEO of the startup. And remember, this is an unfunded startup that’s just soon to close a pre seed round. And both you know inquired about the business, they want to invest and are asking a lot of questions about the IP, they really want to see under the under the hood of the provisional patent that they filed. Is there ever a risk early on that, you know, these large corporates are, you know, coming in to potentially exploit or expose the startup? Or, you know, how do you think about that?

I think there’s a risk, I think it if they do that, then the reputation will be tarnished. And it would be very difficult for them to, you know, to make other investments. But you know, it depends on who’s asking if it’s the, you know, clearly people that are asking who might try to replicate it, because they have the experience, then the risk is probably higher if it’s the corporate venture, professionally managed corporate venture capital group that’s going in because, you know, their job is to go find promising startups that one day could work with the corporation, I would say the risk is lower, especially if you can reference them and they have a track record of, you know, working with earlier stage companies and helping to commercialize that So, right, I think I think you have to look at each Corporation individually and understand and do your, you know, probably talk a lot about diligence in this podcast. And obviously, diligence is important from the investor. But we all know it’s just as important for the startup to do due diligence on on who the who the investors or potential investors are. Right,

right. David when when I worked in him In a, there were financial investments, we’d make financial acquisitions, as well as strategic acquisitions. And you know, this question comes up with CVC. Is the investment for financial return? Or is it more of, you know, a strategy play of sorts? And maybe a various organization? Organization? Or acquisition acquisition? Or Or sorry, rather investment to investment? what’s your what’s your take on this? What have you found? In your experience?

Yeah, we believe it has to be both. So you know, I’ll kind of take them individually, if the corporate venture group objective is strategic only, I think the challenge there is a couple fold one, you’re really at that point is a lack of alignment with the other investors, the founders to management team, you know, obviously, they’re typically all in for making that financial return. And that exit. The problem, if we go on the other side of the spectrum of financial only, is I just, you know, especially for a public company, you know, their investors, if they want to be in VC could just invest in VC. And so, you know, I think you also just missed the opportunity to bring that impact that we’ve talked about on this podcast to the corporation. So, you know, we do really believe the best corporate VCs have that right balance between focusing on the financial returns and generating them like a traditional VC would, but also thinking about, you know, I like to use the word impact, it’s a word, we use a lot of touchdown. It’s an important sort of cultural buzzword for us and how you define what that impact is. I think that’s the challenge that corporations have, and certainly something that we put a lot of thought to one of my risky business blogs is how do you measure, you know, that sort of, we’ll call strategic value or that corporate impact? Got

it? What about, you know, bear markets? So as we’re thinking about, everyone says, we’re in a bubble, this has been, you know, a long, long standing sort of long cycle bull market. If we look at the bear case, right? Corporate VC has professionalized. There’s, there’s more of it than there’s ever been. How do you think the mindset changes? And actually, you’ve been a corporate VC during the last, you know, significant market turn? How does the mindset and the the approach change for a CVC? In a bear market? You know, versus maybe how the mindset changes for just a traditional venture fund?

Yeah, it’s a great question. And we’ll probably learn the answer, at some point, to your point, in past bear markets, you know, corporate tadpole pullback. So I could certainly see that as something to look at. I do believe, as I mentioned earlier, this idea that innovation is a must have, and if you believe corporate VC is a key part of that, then, you know, in my heart of hearts, I do think that has to be preserved. And I think some corporates, hopefully, most will believe that. And, you know, certainly you can slow down the pace of investing, which is actually easier to do in a lot of ways in a corporate model than a traditional model where you’ve raised the fund and have to deploy that capital, although, you know, in previous bear markets, we’ve had traditional VCs giving back money to, to their investor. So both can happen. I do think the data shows and you’ve probably seen this as well, it’s actually a better time to be investor in a down economy, you know, the the market corrects a capital becomes more scarce, people slow down, investing, valuations usually go down. So usually, there’s some rewards of sticking around not not, you know, especially from a financial return perspective and take corporate VC, if they’re less investors can can, you know, he’s gonna be more significant than than they are today. But we’ll see what happens. I’m sure there will be some that pull out just just because of, you know, bigger issues with the corporation. And certainly, it would be surprised that happens.

Got it? Well, while we’re talking about bear cases, what about the case where a corporate has a poor financial year, for instance, you know, how would follow on funding and even initial funding work? You know, if the corporate has as a down year, does that mean, their funding allocation to follow ons, for instance, also is adjusted down?

Yeah, I think the answer goes back to this, you know, this theme that I’ve talked about around professional management. So I think the corporate VC that’s professionally managed, you know, has a budget, you know, in terms of capital two that’s been allocated both for new financing and follow on financing. And, you know, that that should be set aside and able to access even if the company has a poor financial year. So I think in the, you know, what, the corporate Corporation is doing investments more on an ad hoc basis, which we call non professional management, then I think, yes, you’re right, then there is some risk and you know, it really comes down to whether, you know, that the appropriate budgets have been set aside, which again, is not that different than traditional VC where, you know, traditional VC firms are usually really good about setting aside those follow on reserves and budgets. So it’s, it’s it’s pretty similar in the in the corporate VC environment. So

I’d imagine that each of your engagements are different in certain ways. But do you have a standard way that you look at fund horizons? With each of these corporates? You know, do you put together a fund over a defined time period? And that’s a set value? Is this something that’s renegotiated every year? Or every couple of years? How does that work? David?

Yeah, I mean, we typically like to mimic as much as possible, the traditional VC model, which would be a five year investment period, we’ve done some shorter investment periods, sometimes that could be helpful in terms of demonstrating value before thinking about, you know, quote, unquote, fun, too, which would be a next investment period. But I don’t think there’s a right or wrong answer, obviously, I just wrote in a blog on, you know, five prerequisites that you need to think about before starting quarter VC. And one of them is not surprising is, you know, the having the right time horizon and patience. And that’s something that, you know, corporations really need to have to be successful, and nobody can deliver financial results, you know, that in the short term, I do think you can produce some of these strategic results, the corporate impact piece that I mentioned faster. And that’s one of the reasons why we’re, we focus on that, because we know that that’s something that we can deliver sooner rather than later, he

talked about sort of the professionalization of corporate VC and how to a large degree that’s also led to the growth of corporate VC, can you talk about sort of your strategy going forward? So you have created and you manage the most funds in the corporate VC area? Do you plan to raise more in the future? And, you know, how do you think about, you know, the number and scale at which you’re going to be able to, you know, operate most effectively?

Yeah, you know, I think we’ve, you know, I’m really proud of what we build, I think we, you know, we think we touched down a lot more, you know, like a platform where we have, you know, really the process and methodology. And we’ve talked a little bit about this on both how to set it up and how to operate it. And so that gives us confidence that, you know, we can continue to do this with more corporations and grow. And so we are, you know, continue to be in growth mode, the demand right now is very high. I just feel like both when we started even today, you know, we’ve hit the market the right time with the right offering, a lot of the corporations have come to us see some of our thought leadership, see some of the experience we have, you know, we’ve been referred, of course, by other people on our network, but she really appreciate other VCs, even other corporate VCs. And we like to, you know, continue to to grow, that there’s some areas sector areas that we’re not in right now that we’d like to grow into, we really just started over the past 12 months to really break more into healthcare, pharmaceuticals, industrial, you know, but for example, you know, we’re not, today, we don’t have anything in financial services. You know, as I mentioned earlier, I think that’s a good area to focus on. So so we’re optimistic, we’ll continue to go raise and create more corporate partnerships. And I think it’s easy in a lot of ways, it’s easy for us to do that. Because we we feel like we can, you know, we have the confidence of the experience to know how to do this, the hard part is, you know, customizing it to the corporation, every corporation is a little bit different. Their culture is different, the people we’re working with, they’re different, the objectives are different. And so the reason I think we’ve been successful, if I want to share that here is that we’ve taken this, you know, process and methodology, but we really understand you had to adapt it to the corporate and the corporate culture to make it successful. And that’s something that I think we’ve been very good at, and certainly, myself and my other colleagues have trained our team on.

And imagine, there’s got to be some exclusivity you give a category level or a sector level when you work with a corporate.

Yeah, I mean, relationship a little bit different. I mean, typically, we’ve had situations where, you know, we’re not working with, you know, direct competitors, for example of some of the corporations, on the countryside, the companies in a similar sector that are complementary, actually can be really interesting, and especially when we’re looking at startups in a particular space, and having, you know, multiple funds in multiple ways that touchdown as the corporate venture manager can both invest and add value to that corporate to that startup. And we think that’s one of the ways that we can differentiate ourselves versus other investors.

What’s the most common stage at entry for corporate venture investment?

I would say, you know, again, it depends. I do you see this trend, that corporate venture has gotten earlier stage and even done, you know, seed in Series A, that was not necessarily the case, you know, five or 10 years ago, you know, a touchdown. You know, we tend to be a think about venture capital, there’s really typically three elements to strat to investment strategy, there’s sector, stage and geography and, you know, we tend to be agnostic to the geography and even agnostic to the stage and hyper focused on who are the best startups and entrepreneurs in that set. factor in going deep and an extra mile, sometimes that might, in that sub sector of where we’re focusing, it might force us earlier stage. And sometimes it might force you know, forces later stage, obviously, in some areas, as you know, there aren’t any later stage companies. So the only option is early in some cases, the particular sector is more mature. And the right thing to do is to, you know, the best company that’s operating is a later stage company, that’s more of our philosophy. And I think that’s generally fairly similar for other corporate VCs in this in this area. And, you know, even though I’m in Philadelphia, you know, we’ll do deal and we have offices in San Francisco and LA, you know, we’ll do deals anywhere in the US, we’re not one of those firms that says, you know, we only invest in New York, or Silicon Valley or Boston, you know, we’ll, you know, we’re gonna, we’re gonna go find the best companies in those sectors regardless, or they tend to happen to be in some of those areas, because obviously, that’s where most startups are based. But we’re, we’re not geographic focused, either. Got it?

quick sidebar question. There was an article on risky business about fraud detection, with some interesting references to fire festival and Theranos. Can you talk about some of the red flags that, you know, an opportunity may present that you should look out for and sort of how you respond or what what you do when those red flags are present?

Yeah, my partner, Scott, who really is a prolific writer, you know, pen that article. And usually, there’s some definitely a few red flags that I’d focus on. And Scott highlighted that in the article, I think of fraud, usually, they’re usually trying to restrict the amount of due diligence that you’re able to do. So they’re not gonna let you talk to customers. And typically, they’re naming big name customers, but you can’t talk to them. You know, they don’t want you to talk to other investors, they don’t even want to talk, have you talked to other team members, you know, doing any referencing is difficult, they typically try to rush you to make a decision, there’s a fear of missing out, they know, the more time you have the more likely or discover you know, it, you know, that there is something going on? No, I think on Theranos, in particular, you know, and obviously, you know, never looked at that company, and have only have only followed the aftermath of what happened there. But, you know, no one was really ever to backup the claims of the entrepreneur. And I think you have to go that extra mile to satisfy yourself, it really is about diligence. And you can’t take what the entrepreneur says is gospel, you always have to, you know, a lot of people use Trust, but verify, maybe verify, then trust, you know, is the right approach. I think the key part of venture diligence, which I’m sure a lot of your listeners know, is really talking to References, I think that’s, you know, very different about venture capital versus even other asset classes of investing. If you don’t do you know, a dozen or whatever the right number is of, you know, third party references supporting those claims, you know, I feel like you’re not being thorough, you know, one reference that we really like to do is, you know, even talk, you know, if we can talk to them as talking to, you know, obviously talking to customers, potential customers, even former employees, you know, those people generally have great insight, both the company and the management team, from an insight perspective, they may have left because of something that was going on. And so I feel like you just kind of have to go that extra mile. And that’s where, you know, you can’t be lazy. And you know, you’re investing in this risky asset class, you really have to, you have to be thorough.

David, if we could cover any topic here on the program? What topic do you think should be addressed? And who would you like to hear speak about it?

Yeah, I mean, I think some of the things that I’m thinking about, we’ve talked a little bit, I mean, certainly, more corporate VC would be great. Obviously, I’m very biased and big fan of that, and certainly can can help make some suggestions there. I think in general, we’re seeing more globalization adventure. You know, even some of the corporates that we’re working with are global companies, operations everywhere, and globalization is becoming more important. There’s no question diversity, inclusion is really important. You know, it’s something that we’re really focused on it touchdown. And a lot of people in the venture industry are the other one that we talked a little bit I was, you know, venture capital, outside of Silicon Valley. There’s some great groups, you know, really like what Steve cases group is doing at revolution, Rise of the restaurant and many other folks, I mean, certainly what even you’re doing and other people were doing, and in areas like the Midwest and other areas, so I’m sure that’s already been a theme that you’ve talked about, but it’s something that we really support. And, you know, as I mentioned before, you know, we’re certainly working with corporations in areas like the Midwest, and certainly, you know, very open and interested in investing in those areas as well.

David, what investor has influenced you most?

Yeah, really two that come to mind. And we talked a little bit about Fred Wilson, and earlier and I mentioned, you know, some of the comments that he made around corporate VC really sharpen our thinking about, you know, how to do this the right way. And, you know, frankly, to try to win peers and other respect on what it means to you know, to be a professional corporate VC. The other one who I’ve actually gotten to know and probably respect as much as anyone is Josh complimented First Round Capital. I was lucky first to get to know Him. When I was at Comcast, you know, we back to you know, his startup which was called half.com. In which he sold to eBay very successfully, I got to spend some time with him. He actually, for a brief period of time was before starting first round was an entrepreneur residence actually with us at Comcast. And so I got to work with them closely from that perspective. But, you know, he really, in my view, and there may have been others started around the same time, but I think first round, and Josh in particular, really pioneered the sort of modern Seed Fund, and really saw what it takes to be successful. And I think he really paved my thinking, I know others in the corporate venture and other space around, you know, have seed and that early stage investment had been direct from from peers areas, you know, we ultimately, we ended up starting a seed fund at Comcast, there’s a number of other things that I’ve learned from Josh, by spending time with him, he really truly is one of the most amazing people and lucky to have him in Philadelphia as well, which, which is, which has been great for the city of Philadelphia. And

then finally, David, what’s the best way for listeners to connect with you?

Yeah, a warm introduction. You know, I think anybody would say that from one of my existing connections knows, always appreciate it. You know, I think we try to be more approachable firm than most we do try to take every opportunity, even if it’s unsolicited. Seriously, I think what, you know, it gets harder over the years, especially as our firms grown in the the amount of inbound that we get has, has increased. But you know, obviously, we try our best. And certainly on social media, you know, we’re very active, please follow us touchdown ventures on Twitter, LinkedIn, and our Risky Business Blog on medium. And if you’re interested in that space, we both publish a lot of original content, but also like to highlight content that we’re seeing on the internet from others, that we really like it around corporate venture capital. Sounds

good. Well, David, it’s been a real pleasure having you on here I get countless questions from from founders, about various corporate VC, and how to work with them and who to work with. And I think it was really important that we, we cover this topic and go deep on it and couldn’t think of somebody better to have than, than you on the program and everything that you’re doing a touchdown ventures. So thanks so much for spending the time and sharing your insights.

Yeah, thanks for having me. I really enjoyed it. And congrats on all the success you’ve had, both with new stack but also with this podcast. I think it’s really tremendous. been a real pleasure speaking with you today.

Likewise. Thank you, David.

All right, take care.

That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us