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.