The Venture Capital ecosystem includes corporate funds such as Coinbase (a marketplace for buying and selling cryptocurrencies) and Stellar (a foundation that promotes the open network for storing and moving money). Both invest in startups whose objective is to promote the development of technology and new businesses in the blockchain ecosystem. Coinbase Ventures has invested in companies such as Bitso (cryptocurrency marketplace in Latam), AirTM (digital wallet), Dharma (promotes the earning of interest anywhere in the world), Nows (facilitates cryptoasset loans using real-world assets as collateral), Alchemy (blockchain development platform), Messari (data analytics platform and library for the cryptoasset industry), among others.
Without the participation of corporate funds like Coinbase and Stellar the development of the blockchain sector would be limited. As part of that, it is important to recognize that CVCs generate value to the ecosystem not only by investing capital but also by sharing corporate capabilities to startups, supporting them in their growth and sharing corporate reputation.
According to comments from Andrea Lo (Stellar), Gonzalo Martinez (Cardumen Capital) and Constantino Matouk (Bimbo Ventures) during INCMty, corporations responsibly contribute to the ecosystem by funding long-term projects that some other investors would probably not have the patience to finance. This is fundamental, especially for new technologies that are in the early stages of the innovation curve.
In addition, these innovations have an impact on corporate businesses, which need to transform themselves. Just imagine the banking sector, which has had the need to innovate at an accelerated pace in order not to be left behind in the Fintech world.
The path of each CVC is particular, they must evolve over time recognizing trends and have a clear investment thesis that allows them to participate by investing in disruptive technologies. Furthermore, the natural evolution of the CVCs establishes that as the investment arm matures, the interests of the corporate must be separated from the interests of the fund to really generate an impact on the startups.
Probably at the beginning of a CVC’s life they are inclined to invest in mature startups, as they have traction and a proven business model. However, as time goes on, CVCs may invest in multiple stages, including seed stage. Therefore, it is important that the corporate does not have expectations of financial returns the first 3–4 years of life, they need to understand that it is a commitment of at least 10 years.
An important question for any corporate is, when to collaborate and when to invest in a startup. Collaboration occurs in early stages where the startup is probably still in the process of building its business model and requires partnerships with corporations to test its technology and strengthen its credibility. The investment should be made in those cases where the strategic value of the startup is such that it allows the corporation to have a breakthrough or acquire capabilities that its competitors would not have. You might consider investing the minimum to obtain those elements of value such as board seats, economic rights or control.
Strategic value always needs to be transformed into financial value. Therefore, corporations need to invest in sustainable models. Their objective is to finance technological development without losing money when developing this activity.
There are also foundations like Stellar that in collaboration with other foundations and governments work together to develop the blockchain ecosystem. Corporations could think about collaboration with startups and the ecosystem through some parallel vehicle and not necessarily through the CVC investment.
When a corporation establishes a CVC, it must keep in mind the value it will generate within the organization but also the value it will generate for the rest of the community. There is a symbiotic relationship between CVC investments and the development of startups. If the startups do well, the corporation will do well.
“With investment power comes great responsibility, the more money you have to invest in startups, the more critical it is to establish responsible ways to invest it.”— Andrea Lo, Stellar Foundation Fund
Hector Shibata Salazar, adjunct Professor at EGADE Business School and Director of Investments and Portfolio at AC Ventures Fund
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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