Everything Founders Need To Know About Corporate Venture Capital

Kyle Tsai: 0:00

The way of CVCs being invested can be really different from what VC usually do. So VCs purely focus on financial return, but some of the VCVCs in most of the cases they always have to bring in the strategic value in it.

‍Amardeep Parmar: 0:18

Everything founders need to know about corporate venture capital what exactly are

Amardeep Parmar: 0:23

CVCs. Why should founders look to CVCs for investment? How do you know if you're the right fit for CVCs? What do CVCs look for in investments? What do they offer beyond simply the capital? We've got an expert with us today, kyle Ty, who's an investor at W, which is Telefónica's VC arm. He's actually an exit founder himself and is running and building a massive community of CVCs, so he's a perfect person to tell you all about this today. I'm Amar from the Bay HQ, and this podcast is powered by HSC Innovation Banking, so thank you so much for coming on today. We're going to dive into corporate venture capital today and let's start with the very basics like what exactly is corporate venture capital?

Amardeep Parmar: 1:08

I think a lot of people don't fully understand this.

Kyle Tsai: 1:11

Yeah, definitely so corporate venture capital we usually call it as a cvc. So corporate venture capital, in a really simplified way, is this is really similar to as a vc, but it's backed by a corporate, which is we call as a parent company, and the way of CVCs being invested can be really different from what VC usually do. So VC is purely focused on financial return, but some of the VCVCs in most of the cases they always have to bring in the strategic value in it. So the strategic value can also be separated into two. One is to enhance your core business and the other one is to making sure that you bring up the entire, like peripheral services around the core businesses. So it really depends on how the parent company wanted to sign this and how the parent company sees the cbc department as a business entity or as an independent, like a financial driven firm. So, and one way to describe CVC is CVC is an investment on that, focusing on bringing the strategic value by bringing the innovation startup in.

Amardeep Parmar: 2:14

And for founders right, who are listening so many of them I think they would tend to target traditional VCs, but maybe they're a bit more blind about CVCs and they don't necessarily apply as much, or they maybe don't reach out to as much as they should do. Why should founders apply to CVCs? Why do they want CVCs on their cap table?

Kyle Tsai: 2:31

Yeah, so I think CVCs is actually always not on the top priority whenever founders are trying to have a fundraising and whenever you go on to see some investment news, you would never see CVCs be on top of everything. But I think there's two reasons because of that. The first reason is probably because the founders understand that whenever you have to go for CVCs, the first thing you need to know is what exactly that CVC invested in. And, to be honest, we're not doing a great job on this. We're not being transparent enough to tell people like what are the startups that we invest. So the founders usually end up with getting a lot of rejections and getting a lot of like back and forth and about like, taking them a lot of time. And the second thing is because a cvc usually act a little bit slower because not because we have to analyze and in terms of, are you a good company? We also have huge team on the back side of our head that we want to making sure a if this align with our strategic value. Second of all, as internal team, like technical commercial team thinks is this is something that could potentially work with the corporate itself and that tends to like spending around in months compared to, like some vc firm can finish that in weeks.

Kyle Tsai: 3:44

But one thing that I think a lot of people, a lot of founders, have overlooked is what CVCs can bring on the table is way beyond the capital. It's more about the commercial partnership that can eventually bring. And one thing that you always have to remember is, as a founder, you're driving a business, and to drive a business is not about how many capital you can invest in or you get invested in. It's about how many revenue that you potentially are going to drive and to bring the revenue in. At the end of the day, after having a call, getting the investment from an investor, you still have to go into the market to actually land a project, land a contract, to sign a contract, to actually deliver the work, and we as a CVC, can bring you both of the benefits. So that's why I think a lot of like founders because of the speed and because of the not transparent enough causing that they always usually forgot about cvc could potentially be a good option.

Amardeep Parmar: 4:39

And how would that work, for example, right, so let's say that they're going to have a partnership with you and you're also an investor. How is that relationship, how does the mechanics of that work?

Kyle Tsai: 4:47

So in Warya's case we do have two separate teams in our company we have an investment team, we have a platform team. So in terms of working with them, actually we have different angles of working with the company we invested in. So the first thing we do is we call it as a strategic fit. So in terms of a strategic fit, when they come in or we approach them, we always find an angle to already see how to work with them. So we will find a certain director level, c-levels in either Telefonica or in the UK. The Telefonica's name is basically Virgin Media 02. We'll find a director helping them to see the angle, to integrate them, and that director has to be verbal approval so that they are happy to run a POC with this startup. So in this case then we can deploy the capital afterwards so that it making more sense about bringing the strategic and then bringing the financial.

Kyle Tsai: 5:38

The other one we call it as a tech bet. So in terms of tech bet is namely because it's more like a bet. So the way we do it is actually reversely we deploy the capital in the beginning and then we find an angle by our amazing platform team. In the next three to five years. They basically do like a trial and error going to every team showcasing the startup, making sure the startup be the best in front of the potential stakeholders in these scenarios, and then, after the final angle, potentially shove them in and integrate them in the future product roadmap of Telefonica.

Amardeep Parmar: 6:08

So I'm sure some people listening right now are thinking this sounds amazing. Right, you get both money and you also. Well, you get money in terms of investment, but you also then get potentially massive amounts of revenue as well. But you're going to get lots of applications from people who aren't necessarily the right fit. Which kind of companies or which kind of startups maybe shouldn't be applying to CVCs and maybe it's not the best move for them and they should be looking at other sorts of funding instead?

Kyle Tsai: 6:31

Yeah, I think startup, that CVC might not be on your top priority or top options would be those potentially too early. Because we have a hard lesson. We learned in a wider also that we started ourselves as a accelerator incubator but we changed, we pivoted our business model around five years ago because the biggest pain point we see is those two early founders. When they basically graduated from the accelerator we realized we can't really help them on working with Telefonica because the size is too different, the language is too different, and the ft's and the startups not enough to dealing with all these kind of like back and forth, trial and error, uh conversation. And so that's why you see a lot of like CVCs. They usually only invest in any startup like from series a above, because series is actually on the pivotal moment of having an early market success and then trying to expand to a different market. So I think that is the best, best timing for founders to think about getting a CVC investment. So if you were earlier than that, only if you have a special like propriety technology, you think it's going to helping the core businesses of the corporate. That otherwise I wouldn't suggest you to put us as a top priority, but always keep in mind that in the future, the potential would be a good fit.

Kyle Tsai: 7:46

The second part is those that we usually talked about between like investment is about are you an investable company? We see a lot of companies that can bootstrap all the way up and they actually didn't manage to need the corporate resources that much, and on the same time, we also see people that is not that strategic enough. So in terms of strategic, this word is actually quite ambiguous and we even till today I'm just trying to learn how to define that. But whenever you want CVC to get invested by CVC, you always have to think about what are the strategic value that I can help or I can benefit to those departments or corporates.

Kyle Tsai: 8:30

If no, then I wouldn't suggest you to get our investment by us because at the end of the day, if you see CVC as VC, you wouldn't get an investment. The best startup we receive or we approach is always a startup by a strategic angle. We start by talking about what are the strategic angles that we can bring on both sides. Then we get our investment ready. So I think to get everything to cut to the chase is that you have to be mature enough. The second thing is you have to know what is the strategic value that you have to bring on the table, and I think these two things is actually the most important thing out of every element.

Amardeep Parmar: 9:05

So you mentioned there a bit about what you're looking for in investments, right, and could you dive a bit deeper into that, right? So somebody is, especially if you're reaching out to people, which I know you do as well. So what would attract you to somebody? So seeing a company that's doing well and when you reach out to them it's showing some level of interest, which obviously gets them excited and it's going to get people to be like, oh wow, they've reached out to me. What would encourage you to make that step to reach out to somebody because you think that their company is going to be a potential good fit for your portfolio?

Kyle Tsai: 9:35

So I think in my scenario because I was a founder before, so I deeply understand how a founder would perceive the expectation of when a VC investor or CVC investor approach you. You get a hype, you get all the like excitements like coming from that, but on the same time that the reason why we approach is something that we also discussed previously with other like CVC friend about we try to define what is a hot deal for us and we're trying to define is unicorn something that we chase for? Is unicorn something that we want to get them? And the answer is definitely yes, unicorn. Who doesn't? Who doesn't love unicorn? Right? But in terms of the hot deals, I realize that cbc is actually not that easily to get excited by how good their previous investors are. You could potentially see oh, there are some sokovia backed, besama backed, really good firms, vc firm-backed. It's actually super good for us also. But only the moment that we approach people is because they have shown that they clearly know how to talk to corporate. Then we will talk to them. Because there are some amazing founders, they have done an amazing job, but they actually don't know how to work with corporate, which is a shame because we do see that as big as value that we can bring. If we can't bring the value, how can we expect startups to, to, to to perceive that actually like join us, join the force?

Kyle Tsai: 10:56

So, um, I'll probably split down into some like scenarios, specific scenarios like these, when these box ticks and I'll be like I want to approach them. The first thing's a, if they uh, manage to have an early market success and they're like reaching a local market or even their verticals, and we see the projections that they will end up into, like telecom, or even in in the UK or in Europe, or even the entire like global markets, then we will approach them. Second thing we see is how good they have done on the commercial traction. In terms of commercial traction, you don't need to go for the big companies, but you have to understand how to design your product roadmap, how to design a go-to-market strategy. Only by you clearly understand that we can actually align with your product roadmap or go-to market strategy, to put our name in it, to actually tell you like when should we do it.

Kyle Tsai: 11:49

And the third thing is, we will only approach startups that is not urgently looking for funding, because we know clearly this is not something that we can bring on the table. So the way I do this is I always talk to founders probably around six months or even nine months before they actually open around, because during the whole time you're is, I always talk to founders probably around six months or even nine months before they actually open the round, because during the whole time you already find an angle. So the time you invested everything is already like half finished, and then it's quite easy for you to actually like taking them and bringing them to show them the value on the corporate side and on the capital side. So, yeah, these three reasons potentially be the ones I'll be super keen to talk to those founders.

Amardeep Parmar: 12:29

We hope you're enjoying the episode so far. We just want to give a quick shout out to our headline partners, HSBC Innovation Banking. One of the biggest challenges for so many startups is finding the right bank to support them, because you might start off and try to use a traditional bank, but they don't understand what you're doing. You're just talking to an AI assistant or you're talking to somebody who doesn't really understand what it is you've been trying to do. HSBC have got the team they've built out over years to make sure they understand what you're doing. They've got the deep sector expertise and they can help connect you with the right people to make your dreams come true. So if you want to learn more, check out hsbcinnovationbanking. com.

Amardeep Parmar: 13:06

So let's say you reach out to a founder and, like I said, it's at six to nine months potentially for you to invest. What can they do in that relationship to prove the value to you? So you made an initial connection. What should they be doing to keep you warm and to keep you interested? I think sometimes this happens, right? Somebody might meet an investor and have that initial chat and they're really excited, but then it kind of drifts away and it doesn't quite go anywhere. How can they best do the best way to really keep that relationship strong?

Kyle Tsai: 13:36

Yeah, I think keeping the relationship is actually a really, really, I would say really more like an art compared to comparison. It's not like a science thing, because human is something. People networking is something that is most difficult things that you can do. But one thing I would suggest the founders in terms of to maintaining and sharing the relationship goes well is always remember to showcase the value of yours, but not always see us as an investor or don't see us as the one who bring money on the table and job done. See us somebody can be on your force, be on your team about to helping you to achieve the level you want to achieve. So I love the founders that when they approach me I love that whenever that happens is that in the first or second call, they look me in the eye saying that what are the value they can bring for me? Because there's always so many times that founders believe they're on more like an inferior side and invest on the superior side, which is I strongly disagree. It's more like a reverse pitching. Investors have to understand what are the values that you can bring. Otherwise it's not investment. It's not a good investment, right? So the founders I love when they approach us saying that what are the values you as a vc or you as a cvc can bring for us? Showcase us about that and then, on the same time, don't forget to showcase about what all the things you can potentially help and, on the same time, because you under definitely have to understand that cvcs or vcs, the deals that we have to go through every month or every week is like actually quite a lot. We can't really like devote it a lot of times on helping to connecting to the right team, and there's always that, in terms of like finding you the right team, you have to wait internally about oh, what's the change that the team's actually been happening? I have to wait until they respond me so that I can talk to you. What's the update on that side?

Kyle Tsai: 15:29

But please always feel proactively, showing the people you want to meet or even find out a way to like hey, kyle, I think this team in Telefonica is super interesting and this is the conversation I think would be helping you to showcase our value. Can you help us to connect with them so that you have already prepared a strategic angle, as I mentioned about, and it's easy for us to actually like starting the conversation and saying hey, I have amazing startup, we're trying to invest in them, but we're still under validation. But I believe you guys can actually have some synergies between these two teams. How about having an intro call? We discover a little bit together. I think that is the best way that you're constantly showing and constantly hustling about finding the angle, which has saved us a lot of time, and you showcase how clearly you know about our value and your value.

Amardeep Parmar: 16:14

I think it's really similar to what you said there about the relationship between the investor and the founder. And I do think there's two types of founders that I've seen, where some of them are just desperate for money any type of money right, but that attitude makes or repel an investor, right. Whereas when the founders feel very strong in what they're doing, they've got that conviction. Then they can have that conversation with you and say, well, actually I need to make sure you're the right person for me as well. And I think, like I said, many investors really respect that. And you said there about them understanding, say, Telefonica, and saying, okay, this team at Telefonica would be the one for us to connect with. Do you have any way that could

Amardeep Parmar: 16:54

help people try to navigate especially if they're not from a corporate background themselves? What kind of different ways could a large organization, a large corporate, help that maybe they should be thinking about and trying to map out? Do you have any tips on how they could do that?

Kyle Tsai: 17:09

Yeah, we actually got asked a lot of times in terms of like, hey, I know I'm building this, I'm I'm super curious and but I'm super like not quite so sure about which team I supposed to talk to. It's such a huge corporate and I think there's a multiple ways that you can give it a try. But, as previously, what I mentioned about, like, you always have to have an early market like traction, right? So as long as you have an early market traction, you always have to look back about what are the teams I usually talk to. Am I, if I'm more like a customer experience platform? Was the team that I usually talk to to build an early market success? Is the customer experience team? Or is the R&D team? Or is it more on the UI UX team? What are the teams I usually have the best conversation about?

Kyle Tsai: 17:54

And you replicate that model to the corporate side, but this would not only like lead you to probably the high level team, but you also would have more dialogue to prepare in terms of different kind of blurbs. So I'll give you an example. So we do have scenarios that a startup that come to us. They told us that they usually talk to, let's say, a cybersecurity team, but we end up not talking to a cybersecurity team but on the other side, the other team, because on the same time the startup itself is also pivoting on the same time. So by sharing that information don't only share about A what are the teams or kind of like department you have usually worked with also tell us more about if you want to pivot your business strategy. On the same time, if we bring the let's say, if there's a cybersecurity team that you have usually talked to we bring the cybersecurity that we believe is going to be a fit. And after talking you realize that oh, maybe this model is not going to happen, is not going to fly in corporates, and that team might be telling that, hey, I don't think this is going to fly, but how about go to like, probably you used to do large corporate, large enterprise?

Kyle Tsai: 19:06

They tell you to think about maybe SMEs or even Soho, and then if you're thinking about SMEs and Soho is a good one, then you have to pivot again. Then we find another team for you, but you don't need to expect yourself to precisely know which team that you're supposed to be under, but you always have to know what in high level perspective, what are the teams that you usually can talk to? And the easiest thing leverage LinkedIn.

Kyle Tsai: 19:28

If you know you're usually working on the optical network, go on Telefonica search who's working into optical network, look about what are the things they usually do about and see what are the angles you can potentially push them through. And even better, if you were doing optical network and the people you find would be a super great fit. They probably left that team because people change teams a lot, but also trying to connect to them because, on the same time, their previous knowledge will help you a lot on navigating to the right people, eventually helping you to bring on the ball.

Amardeep Parmar:

And one of the things I'm super passionate about as well is connecting cvcs together.

Amardeep Parmar: 20:02

Right, and I think you identified a problem there where a lot of times cvcs work in silos. Can you explain that. What's the reason behind that? Why do you think that cbc's could really work together and why would that benefit them?

Kyle Tsai: 20:13

I think cvc is actually a really, really. We're actually quite weird but actually we're quite appealing on the same time. We're like the sexy but a little bit ugly creature, but we managed to find our like value problem the same time. But eventually I see the angle. Like CVC Collaborate is.

Kyle Tsai: 20:33

There's two reasons because CVC tends to not exactly fully showcase in front of people. We're not being transparent enough, we're not telling people what kind of things we want to do, and the reason behind that is because CVC changed a lot, and in terms of a lot. It can be every quarter we change a little bit. Every year we change a little bit. It might be the stage we suddenly want to change it to earlier stage. It might be region we suddenly want to look into a new market, emerging market maybe or new technology. It might be changed in terms of an investment thesis. We might doing something on b2b cloud and maybe next day we might turn it into industry 4.0 or might become like smart city 4.0, things like that. So we change too often that we start to wondering should I tell people what I'm doing right now? And the other thing is that CVCs usually don't know how to leverage their actual resource in terms of corporate resources. I understand that when I actually have a conversation with other cvc, they understand their corporate resources. It's like a magical, their magic, it's like a secret sauce for every cvc. But actually, if you manage to share it as a little bit like magic sauce or, let's say, secret sauce between cvcs, you actually can generate more revenue, more value, than you can ever imagine.

Kyle Tsai: 21:53

So it all started from all these kind of like reasons and I started to feel like, hey, I think I want to know more about cvc because I know that cvcs are all different. And when I started to do that around a year ago, I started from talking to who we believe was the most similar to us, which is Telecom CVC. And as we started to talk to every Telecom CVCs, we understand that two reasons. One is that Telecom CVCs don't usually only invest in Telecom and Telecom CVCs most of the cases they don't even invest in Telecom. So that brings us actually reflected a little bit earlier this year saying, hey, but why do we only focus on telecom cvcs? It doesn't make sense for it, because everybody looks way broader. Even our staff look way broader than that. So we decided to go bigger, we decided to go global, because we think this is like we want to, connecting the geographic footprint and we do think that the resource supposed to share globally. So we started, like, discussing and talking to all CVC and we realized that everybody is all different but the pain point is quite similar, all unfold under three brackets.

Kyle Tsai: 22:57

The fifth thing is definitely deal flow. In terms of deal flow, exchange, new market knowledge, new market insight. The second thing is, like external DD, we want to, like create a fast track between, like CVCs to their corporate route. They're helping other CVCs to understand how to locate or navigate, as you the question that you mentioned about how to navigate the like organization and corporate and cvc can do matters to do that like mutually to help each other.

Kyle Tsai: 23:21

The last thing is more about the portfolio growth and in terms of the profile that you will see, cvc have around five tens or even hundreds of thousands of portfolios in most cases, on the same time that we only have a limited capacity in terms of helping them to grow. So we want to do something as deliberate and providing equal options for the portfolio founder to decide which market they want to grow and because we are so insistent in global presence, that's why every portfolio founder can choose what kind of market they want to grow, and we're always a certain CVCs over there helping them to do the commercial and technical readiness so that they can basically doesn't need to worry about like oh, I don't think I'm confident enough, the CVC, they were actually telling you this angle but potentially be the best angle for you to enter the market and I think it's really amazing.

Amardeep Parmar: 24:11

So, just before we turn to quickfire questions, obviously you've come from a founder background into the CVC world and you're meeting so many different other CBCs as well. What's the most exciting thing about that transition for you? What's the bit that's keeping you as excited as you are?

Kyle Tsai: 24:26

Something that excites me the most is and I think it's something that it drives me like changing transition from founders to CVCs even to back in the days, from founders to VCs to CVCs is I love to see when there's some untapped market being explored and people suddenly realize that actually this is something needed. So, as I'm reading an article from the ARC which is like a portfolio from Sequoia, the way how they design in terms of like the product market fit have been separated into. I think it's in three. And the first thing, they called it as a hair on fire, which is like oh, this is something I needed the most and a lot of founders have already working a great job with that.

Kyle Tsai: 25:12

The second thing is called heart effect, which is something that they feel there's a pain point. They do know there's a pain point but they don't know how to solve it. And there's the other thing we call as a future vision, which is far more future. They probably not be a good fit, not a solution right now, but will be needed. So I love to solve the hard fact which is like people all have that pain point but nobody willing to do that or nobody know how to do that, and I like to be the pioneer in that field. I like to explore that together.

Kyle Tsai: 25:42

I there's always a commitment I made to other cvc is that I don't do something not useful. I only would do something useful but not useless, and I love honesty and transparency. So all the people that we are having a chat with is super transparent to us, because we all want to make something that we have been desiring for a long time, to make it good, to make it a in a really, really promising way, and we all have the same belief is only by collaboration the cvcs would become better, and we do think that this is something that we have been missed out a lot and yeah, so yeah, I would say it's more about discovering the intact market, discovering something, some problems that hasn't been solved yet.

Amardeep Parmar: 26:27

So I've learned so much myself today. I think it's been a great episode. Thank you so much. We're going to have to go to the quickfire questions now, so the first question is who are free British Asians or Asians in Britain you think are doing incredible work right now and you'd love to shout them out?

Kyle Tsai: 26:41

Yeah, think this is a really, really great question. I want to shout out to a different, like a different, profile. So the first one I want to shout out is Abdul. Abdul's from Intel Capital, and he's a legendary guy. He's so knowledgeable and whenever he talked about how to leverage between investment and strategy resources, he's so on point and I love the way whenever I talk to him, he's so insightful and he's like he's like a magical wizard. I foresee everything, to be honest, and I learned a lot from him. I think he's such a really, really great person with great personality. I love that.

Kyle Tsai: 27:20

The other, uh, I want to shout out is Farid. So Farid is a general partner as a VC firm called System Nova and he's such a ledge. He's connected so many people. He knows how to leverage resources between people. He's always on top of people. It's like whenever he saw some specific topic, he'd think about certain people, and the way he leveraged resources is out of my like imagination. I can't even believe how people can actually function like that. So it's crazy. And the last thing is one of our portfolio founders called Alex, and he's a founder of Hiya, which is one of our portfolio. The reason why I love him is that he is basically the most humble person I've ever seen. He's so knowledgeable. On the same time, he's so humble. He knows exactly where the future is going to be like and he knows exactly how to pair highest development with that future trend, and the way he analyzes on the startup ecosystem is such on point and such insightful. So, yeah, these are three people that I'm biggest fan of.

Amardeep Parmar: 28:24

Awesome. So if you want to learn more about you and what you're up to and what investments you're doing now, where should they go to?

Kyle Tsai: 28:31

Yeah, so you can always find me on Linkedin. I just turn my Linkedin into creator mode. Uh, not an easy job. Um, I'll try to keep up on my posting habits. On the same time, whenever you want to reach out to me, you can always like connect me on my Linkedin, or even just like go on our website and reach out to me via email.

Amardeep Parmar:

What website for the cvc as well?

Kyle Tsai: 28:51

Yeah, so currently, in terms of the cvc initiative and community we're building, this is something that we want to keep it early. We want to share that earlier, but we're planning to have a landing page, of course, but at the same time, it's that we are still under discussion with a lot of CVC on building the blocks together. So potentially, we're going to launch the entire CVC community in July this year. So in July we will be announcing more information about that

Amardeep Parmar: 29:21

Awesome. And then is there anything that? You need help with right now that maybe an audience member could reach out and help you.

Kyle Tsai: 29:27

Yeah, definitely so, currently, in terms of building this blocks that one most important things is building by cvc. So, at the end of the day, if there's any great cvc network of everybody's and you think this is something that would fit their value and you think this is something they're gonna fit in terms of their strategy also, because, at the end of the day, the other CBCs still like startup and founders and startup, we have to make sure that we can bring the value they want and they can bring the value we want. Right. So, if they have any CBC network, happy to have the intro, happy to have a chat.

Amardeep Parmar: 30:00

Awesome, so thanks so much for coming on today. Have you got any final words?

Kyle Tsai: 30:03

Yeah, really, thank you so much for inviting me. I love, love, love these kind of like really really great vision, really great. I think the reason why we're here today is I want to talk to everyone, I want to share to everyone and I want to making sure that you hustle your way, but whenever you hustle your way, always think about how can you help people, how can I help people, how can I help people? Only by bringing the mutual benefits, only by understanding and to provide something that others people needed, will make you stronger and better.

Amardeep Parmar: 30:36

Thank you for watching. Don't forget to subscribe. See you next time.

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