Brad Feld, a managing director of venture capital firm Foundry Group, talks to Global Corporate Venturing about his thoughts on corporate venturing, the cycle, how entrepreneurs should interact with corporates, and accelerators.
You recently flagged the rise of strategic investment in start-ups by public companies as one of the signs we are in a more positive part of the cycle ahead of a correction that will happen. Why do you think this and what excess are you seeing? History has shown us that when we are in a positive part of a cycle, corporate investors become more active. However, this isn’t correlated to the timing of a correction. My point is more that a correction is inevitable, and when it happens many of the corporations dramatically slow down or shut down their strategic investment programs. This is a mistake on their part – they should stay consistently active through the up and the down part of the cycle. And – all cycles inevitably have ups, then downs, then ups, then downs.
What should corporations investing in the start-up world do to ensure they are not victims of a change in the cycle? They should have a long term – at least a decade long – strategy. Define it, allocate capital to it, execute it, and don’t chase returns.
How often do corporates manage to do this and can you give examples of where it has been done well and badly? Most corporations operate on cycles much shorter than 10 years – often as little as quarterly, but usually annually. This is much too short. Unless they are taking a long term view, and committed to investing for the long term, they will get the timing wrong.
In what way do you look to deal with large corporate executives and their venture units? I try to understand what they are trying to accomplish and then participate with them in a way that is most constructive to them. Every company is different, and the goals of the corporation with the venture units vary.
How do you recommend your portfolio company executives to act in their dealings with large corporations in their sector? I encourage every entrepreneur to realise that large companies always behave in their self-interest. The entrepreneur should focus on helping the large company achieve its goals. The mistake of many entrepreneurs is to try to get a large corporation to do something against its nature, or that is unnatural to it.
Corporations argue they provide different benefits than VCs to start-ups. They can be large customers, have an international network, a more widely recognised brand and are also often less valuation sensitive than VCs. What do you make of this argument? ‘Whatever.’ Each VC offers different things to the startups they invest in, so categorising “VCs” as one archetype is a weak approach. It is kind of like a VC saying “all corporations are the same.” It is nonsensical. In addition to the organisations being different – and providing different value – the individuals generally are different from company to company.
What do you make of the growing trend of corporates getting involved in the early stage and accelerators? Are they helpful? I’m a huge advocate and believer in it. I am one of the co-founders of Techstars and working with large companies to build accelerators together, like the Disney Accelerator, Sprint Accelerator, and Barclays Accelerator has been an awesome experience.
Toby Lewis, Global Corporate Venturing editor, will be interviewing Feld at the IBF Corporate Venturing and Innovation Partnering conference in Newport Beach on February 10 and 11. Register to receive a $300 discount, using code: GCV