Understanding Corporate Venture Capital: An Advertiser's Guide
By Robert Kleiman
Here’s what you need to know about the venture capitalists funding the disruption of the media landscape.
Agencies, investment firms, and startups are co-mingling these days. All the activity is changing the face of our industry. Everyone is planning for the future and aiming to stake a claim in, and reap the financial benefits of funding the next major innovation. Companies want to uncover value wherever they can find it. This trend is upending the status quo across sectors, especially advertising and media. These shifts in the business climate also include high valuations, confusion, and misnomers. All of this surrounding hype can make one question what the future holds and how this shift could affect their business or industry. So how is this affecting your business?
The term corporate venture capital refers to the practice of companies deploying capital in creative ways to unlock potential. To stay current, more and more agencies too, are beginning to act like VCs. The creative shops are starting separate arms or are beginning to invest in startups. In turn, they make investments in companies rooted in marketing technologies, social media or analytics platforms or consumer-facing products and services. The benefit of this structure is two-fold. Not only can these agencies provide capital to the startups they fund, but also they can provide resources, expertise, and scale to help these startups grow, in exchange for equity which can supercharge the relationship.
With extensive networks available to both agencies and large businesses the rationale of this organizational setup makes economic sense. Agencies can introduce the startups to clients, strategic partners and different domain experts. Advisors and leaders can bring founders of these companies into the fold to ensure that founders learn how to get the most value out of the partnership. Further, the model allows startups to battle test concepts; when doing diligence and iterating, through this structure teams can incorporate many departments to gauge the viability of the product in question.
Further, for agencies, having access to more sophisticated tools (via their investments) can differentiate creative shops from competitors when pitching for business. As the traditional advertising agency model shifts, adopting this structure is a means to future-proof the agency business (for retaining and winning more clients). Everyone is looking for the long-term value ideas and is shopping around for deals.
Large corporations too are pouring money into new, scrappy companies as they look for value anywhere they can find it. These investments exist not only financial goals but also for strategic alignment. VCs look for teams that are highly focused on innovation and are inventing the future. Some of the reasons that corporate VCs are popping up:
1) Financial Returns
2) Competitive Advantage
3) Strategic Value Buy (For Research and Development, for Potential Exists, for Understanding Different Technologies)
Each firm will have its own ways to find, cultivate, and vet value. But agencies, VCs, and legacy companies are together at the table which, suggests a changing dynamic for the long run. The world could begin to see even more startup and agency partnerships. The corporate venture capitalists are here to stay for now. It’s important to understand them and their goals.
For more in depth analysis and quotes from the panelists. Visit the full article here.
Conversations with Venture Capitalists was planned by Robert Kleiman & Colin Powers of the Ad Club Young Professional Committee. Special thank you to the panelists.