AMA: Sr. Associate at a CVC fund

Been a long time reader of WSO and I have to say it has been helpful. I thought I would give way to those wanting to explore corporate venture capital more to ask questions. Quick background: sr. associate at a corporate vc fund (TMT F500) in an emerging market. Have a total of 4 years experience; 2 spent in a biz dev role with a growth phase startup, 2 as an investment analyst in a diversified holding co in their early stage portfolio, set up the whole operation from scratch alongside MD. Been almost a year in my CVC role and again I was called on board to build the operation with a senior corporate officer- it's a small market with a few professionals so although I had it easi(ER), I wouldn't say I had it easy-. CS undergrad from a good school in said region.

Direct any questions and let's see what I can answer without giving myself away.

Comments (24)

Jul 21, 2014

Just saw this post. You have had a pretty neat path up to this point in your life.

What is your current day to day task as a Sr. Associate?
As you and the few professionals build the operation, what is your interaction like with the rest of the F500 company?
As you make emerging market investments, do you see yourself in an active operational capacity within a few of those investments?

Any feedback would be appreciated, as I've been approached for an opportunity by a CVC this past month, and am interested in some of the details..

Thanks for taking the time to do an AMA!

Best Response
Jul 22, 2014
SocratesIsMortal:

Just saw this post. You have had a pretty neat path up to this point in your life.

What is your current day to day task as a Sr. Associate?

As you and the few professionals build the operation, what is your interaction like with the rest of the F500 company?

As you make emerging market investments, do you see yourself in an active operational capacity within a few of those investments?

Any feedback would be appreciated, as I've been approached for an opportunity by a CVC this past month, and am interested in some of the details..

Thanks for taking the time to do an AMA!

Thanks !

1) My in office day is divided between 50% DD work, research, brainstorming sessions within the company to drill down more on fields that we want to invest in. 30% doing admin work - that's the bad side of corporate- ie: clearing out payments, support services to portfolio companies etc and about 20% meeting new entrepreneurs, reaching out to execs etc.

My out of office day -usually 2-3 a week- is usually a couple of visits to the portfolio companies that I am monitoring to help on pricing, strategy, biz dev, planning etc.

2) It's not quite smooth, because for them they see us swanning in and out of the office, with a relatively huge budget and comparably higher pay checks. But we do interact heavily with finance & commercial functions. The first for controllership duties and the later to help our port co's partner with the company on revenue generating projects.

3) Quite frankly i somehow am in an operational capacity with them albeit not on a full time basis. The markets we operate in are quite nascent and the entrepreneurs need some structure & handholding so I have devised a system that works for me. I meet with the management teams once weekly to help them problem solve and carry out some projects related to pricing, biz dev, etc but once i feel like I am doing their work for them i step back for a couple of weeks until they get back to an abstract level. But eventually I would rather start my own company.

4) A CVC has a couple of benefits and a couple of drawbacks from my experience, maybe mine is different than yours.

Benefits:
- You become more focused on a specific industry/vertical thus you can start developing a deep understanding of said industry and can easily figure out opportunities to build a company of your own
- It's definitely much more laid back since we have a target number of investments per year, once you hit that you are good
- I can originate my own deals, don't need a partner to back me, we have a quarterly investment committee where we present our deals and we go through a grueling session with the CXO's and those who pass the session get a green light
- You have the first BIG client for your port co's and you can give them access to your distribution channels, marketing channels, etc

Drawbacks:
- unless you have a separate budget things will move a bit slower
- You are constrained to invest in companies that would potentially stimulate the core business of the company
- With time you can get a bit laid back since it's the general attitude
- At the end of the day you are a high salaried employee, no carry included

I hope that was helpful

    • 3
Jul 28, 2014

Thank you for answering these, I really appreciate it! This will help going forward into better understanding this potential opportunity.

Jul 21, 2014

here's what the youngins want to know, I'll think of some more questions later on:

1. how'd you break in?
2. what's the pay like?
3. what're your exit opps?
4. what advice would you give to a non-target with a 3.5 GPA in finance who wants to do VC?

Jul 22, 2014

1) I had a hard time breaking in finance to begin with. No one wanted to hire the CS kid with the entrepreneurial background. Senior year along had 10 interviews with the all the available I banks and got rejected. Even though we don't have a chartered path to finance jobs like the US or Europe. One of the associates i interviewed with took a liking to me and my tenacity and he managed to get me an internship with an investment fund he knew. After 6 months, I reached to one of my mentors that I had cultivated during my undergrad startup years and he offered me a job at his holding company. After around 6 months - during which i frequented his office with a crazy amount of ideas- they decided to launch an early stage fund so i got tasked with the research, I did a good job and was assigned to one of the MD's to launch the fund. 2 years later, while trying to exiting one of the investments we got in touch with the F500 company, although the deal went sour after 3 months of negotiations, i apparently left an impression. So a couple of months later they called me to join them and launch the CVC fund with one of their senior guys.

2) Can't be comparative with other markets, but if you treat the currency as a unit rather than as a value, I clear out 130K all in after tax.

3) I can make MD if I stay long enough since this is arguably an exit. But if i leave my options are: pursue my MBA (Most likely), start my own company, transition into a operating role within the company or join another VC (least likely, small market, no one wants to step on toes)

4) Keep on coming. People told me I couldn't do a lot of things and I did. Yes there are some well trodden paths but that doesn't mean they are the only way. Also, network is important but it's what you bring to the table that matters. Know how to capitalize on your network.

Jul 23, 2014

Sounds like you have a really unique background - thanks for doing this.

1) I'm curious about your regional and language background. Did you go to school in the US, and if so how did you end up in your emerging market? Is it necessary to be fluent in the local language? And is the company your with a multinational which has a vc specifically for this one small market? If you could reveal what region/continent or industry vertical your in that would also be appreciated (but I understand if you're not comfortable doing so).

2) It sounds like you took a pretty impressive amount of initiative at your holding company to set up an entire early stage fund. As an analyst who wasn't even assigned to work on one, how did you 1) come up with investment ideas (was it companies in your personal network, did you use AngelList/the news, or cold-call or something?), 2) do DD on them and substantiate those investments to your seniors (did you have an investment thesis for each, or any data on them?), and 3) execute on your investment ideas, given that you didn't have any experience in early-stage VC. I'd also be interested to know whether the startups you looked at were in this emerging market or SV/NY/etc.

Aug 3, 2014
moosen:

Sounds like you have a really unique background - thanks for doing this.

1) I'm curious about your regional and language background. Did you go to school in the US, and if so how did you end up in your emerging market? Is it necessary to be fluent in the local language? And is the company your with a multinational which has a vc specifically for this one small market? If you could reveal what region/continent or industry vertical your in that would also be appreciated (but I understand if you're not comfortable doing so).

2) It sounds like you took a pretty impressive amount of initiative at your holding company to set up an entire early stage fund. As an analyst who wasn't even assigned to work on one, how did you 1) come up with investment ideas (was it companies in your personal network, did you use AngelList/the news, or cold-call or something?), 2) do DD on them and substantiate those investments to your seniors (did you have an investment thesis for each, or any data on them?), and 3) execute on your investment ideas, given that you didn't have any experience in early-stage VC. I'd also be interested to know whether the startups you looked at were in this emerging market or SV/NY/etc.

1) African market, I am a local and I studied in my region. It is definitely necessary to know the market and the culture, its a relationship business at the end of the day. As for the company, it's a global technology company and that's all i can say on that matter. We focus on telecoms, media and tech opportunities.

2) It took a lot of balls to be honest and I could have been sacked if things went sour but I felt the need to pursue it.
To answer your sub questions: 1) I had been observing/studying the market for a while and had a plausible thesis that the senior guys pretty much agreed with. Once i got their approval I had to show them I had something in hand so I started building a pipeline and testing my thesis during conversations with management teams, once I felt comfy enough that they would bite, I arranged a couple of meetings between the MD and the different start-ups and they went well. So i got a pat on the back and an encouragement to structure "something" while doing my day to day job of course.
2) I had a broad macro thesis but of course every company had it's own rationale behind it. I spent considerable time with management to build projections, growth prospects, etc.
3) The amounts allocated to my experiment weren't that huge so i got a bit of a leeway, but usually the process went like this: spotted an interesting opportunity, build a case for it, pitch it to MD, yes/no decision, then setup a meeting, yes/no decision and then prepare documentation with lawyers etc and close. we focused on the local market that's where our network is.

I hope it's helpful.

    • 1
Jul 24, 2014

full disclosure: no experience in VC, may be a stupid question

1. about VC, one thing I've always wanted to know is how a VC portfolio is constructed. for example, in my area, I see a lot of VCs that are very concentrated in one industry. from a diversification standpoint, this seems risky as all of your eggs are in the same industry basket. is diversification a concern? Or, do you just focus on owning what you know and forget about diversifying across industries?

2. how do you value companies? I'm woefully uneducated in stuff like this, because all of our holdings have at least 10 year track records (in many cases, 30+ years), they've experienced very different markets, have pretty stable economics, etc etc etc., and thus call for a DCF type valuation (PEP is not a disruptor, if you follow that). how do you take a company with no track record, negative earnings (if in the pioneer stage of the biz cycle), probably not a super solid financial footing (balance sheet anyway), etc and slap a value on it? I'm guessing that it calls for a lot of assumptions, but how do you manage the risk inherent with having so many assumptions?

3. do you consider angel investors & VC different? I personally don't, but I don't have any idea for certain

4. unless it would reveal your identity, I'm curious as to how your firm picked its niche (whatever that may be). I see VC and PE firms that say "we want firms w/EBITDA between Xmm-Ymm in ABC industry," how does one get to those parameters? do you ever break/bend them?

5. what differences in due dili would you say exist between VC & PE?

Aug 3, 2014
thebrofessor:

full disclosure: no experience in VC, may be a stupid question

1. about VC, one thing I've always wanted to know is how a VC portfolio is constructed. for example, in my area, I see a lot of VCs that are very concentrated in one industry. from a diversification standpoint, this seems risky as all of your eggs are in the same industry basket. is diversification a concern? Or, do you just focus on owning what you know and forget about diversifying across industries?

2. how do you value companies? I'm woefully uneducated in stuff like this, because all of our holdings have at least 10 year track records (in many cases, 30+ years), they've experienced very different markets, have pretty stable economics, etc etc etc., and thus call for a DCF type valuation (PEP is not a disruptor, if you follow that). how do you take a company with no track record, negative earnings (if in the pioneer stage of the biz cycle), probably not a super solid financial footing (balance sheet anyway), etc and slap a value on it? I'm guessing that it calls for a lot of assumptions, but how do you manage the risk inherent with having so many assumptions?

3. do you consider angel investors & VC different? I personally don't, but I don't have any idea for certain

4. unless it would reveal your identity, I'm curious as to how your firm picked its niche (whatever that may be). I see VC and PE firms that say "we want firms w/EBITDA between Xmm-Ymm in ABC industry," how does one get to those parameters? do you ever break/bend them?

5. what differences in due dili would you say exist between VC & PE?

1) Not that I know any better, but I see that the industry has been shifting - the past 10 years or so- from venture capital investing as an asset class lumped together towards thesis based funds. The more specialized you are, the easier it is to raise LP commitments or so it seems. In our case,it's different since our mandate is to invest in our core business only, and open/explore new markets for our company.

2) Well we usually value companies in a multiple of ways to make sure it's fair for everyone. We usually build a top down market share model based on conversations with industry execs, research reports, management calls etc and then work with management to produce a bottom up 3 statement models based on projections and try to see if the 2 models intersect. We control our risks by breaking down our investment into milestone based financing, so we agree on benchmarks, and milestones and we disburse funds accordingly. That said, unlike PE, you are investing in the future not on past performance so it can be tricky and always will be.

3) Not really no, the only difference maybe that VC's might have a bigger clout, always on rolodex of contacts and deeper pockets. But I do believe that having an institution behind you as opposed to some random guy makes you work harder, you feel more responsible/beholden, atleast that's what I have seen. The human factor in investing plays a huge role.

4) We have target sectors, maturity stage, founder preferences and a rule that it must be related to core business. Anyone of them could be bent a bit except the last one.

5) PE is more technically heavy since you have lot's of info to dig through, otherwise one and the same. We do background checks, industry research, some modeling, etc

    • 1
Jul 26, 2014

thanks for doing the AMA, will frontpage this again on Monday

WSO's COO (Chief Operating Orangutan) | My Linkedin

Aug 3, 2014

My pleasure. Lot's of people were helpful so its only fair we payback our dues.

    • 1
Jul 27, 2014

What's the difference between CVC and traditional VC? Is the goal for a CVC to generate substantial return or to buy a company that complements the corporations core business?

Aug 3, 2014
packmate:

What's the difference between CVC and traditional VC? Is the goal for a CVC to generate substantial return or to buy a company that complements the corporations core business?

A traditional VC is one where partners call the shots, a CVC is one where the corporate calls the shots ! CVC is a vehicle for business development, R&D, not more.

Jul 27, 2014

I'm wondering if VC would be suitable for entry level guys (undergraduate), in terms of the skillset, the environment, or exit opportunities?
Do the company provide any training system or something like that for new employees, that is to say, do you have any SOP or general struture for valuing, DD, pitching?

thanks for doing this!

Aug 3, 2014
ZachHsuTaiwan:

I'm wondering if VC would be suitable for entry level guys (undergraduate), in terms of the skillset, the environment, or exit opportunities?

Do the company provide any training system or something like that for new employees, that is to say, do you have any SOP or general struture for valuing, DD, pitching?

thanks for doing this!

Not for everyone, if you are naturally curious, seek your own learning and know how to utilize those around you to learn then definitely it's a great opportunity. No we had to build everything from scratch.

I will say this, a VC job is a fast track to the front row of industry & life experience, even as a young analyst, you are a rare commodity and people -even sr. ones, CXO's/MD's etc- want a piece of your mind. You will see how people deal around money, which is sometimes ugly, you will interact directly with key players and you will pick up an investor mindset which is a mix of being a cynical, contrarian tinkerer and it's a nice mindset to have. But if you can't hold your ground, you're gonna be toast before you even know it.

Jul 27, 2014

I don't work in VC but am pretty familiar with it through friends/contact who are in it or who have raised capital for their own companies but not at all with CVC. At what point of the VC cycle do you invest? Startup/angel, A, B, C, etc rounds? Your goal is to develop something that will eventually complement your core business, so do you do a control investment as the only investor? It seems like it would difficult to not be the only equity investor involved and not have control because, and I'm assuming you eventually buy the entire company if it pans out, you'd have either a weird valuation conversation with other investors or someone else could outbid you, most likely a competitor.

I'm assuming you don't look to other exits such as an IPO but emerging markets tend to not have as robust of an IPO market anyway. How do you value an investment for the founders and when you make the investment do you lock them into not only an employment agreement for the VC period but when you eventually buy the entire company? And I'd be curious how entrepreneurs take to working in a gigantic company.

I'm curious on the general strategy.

Aug 3, 2014
Dingdong08:

I don't work in VC but am pretty familiar with it through friends/contact who are in it or who have raised capital for their own companies but not at all with CVC. At what point of the VC cycle do you invest? Startup/angel, A, B, C, etc rounds? Your goal is to develop something that will eventually complement your core business, so do you do a control investment as the only investor? It seems like it would difficult to not be the only equity investor involved and not have control because, and I'm assuming you eventually buy the entire company if it pans out, you'd have either a weird valuation conversation with other investors or someone else could outbid you, most likely a competitor.

I'm assuming you don't look to other exits such as an IPO but emerging markets tend to not have as robust of an IPO market anyway. How do you value an investment for the founders and when you make the investment do you lock them into not only an employment agreement for the VC period but when you eventually buy the entire company? And I'd be curious how entrepreneurs take to working in a gigantic company.

I'm curious on the general strategy.

We do anything between seed to series A. We don't do control, in fact we prefer to syndicate. We invest with 1 of 3 goals in mind; 1) To generate returns from exit, 2) generate returns from value added services to our subscriber base 3) we acquire a technology. We haven't done the 3rd one yet.

2) No IPOs because at that scale it's not really a feasible scenario. However, we look to sell out to strategic investors or an MBO or M&A activity by our company or others. We lock them down after we invest but we haven't done an acquisition yet so can't comment. That said my MD was an entrepreneur who came on board a decade ago and he decided to spin off the CVC, so it says something about entrepreneurs continuing to innovate.

Jul 28, 2014

1. How much time is spent analyzing/updating your portfolio versus conducting due diligence on prospective (and currently invested?) companies?

2. Where are these companies in terms of pre-money valuation before your fund invests in them? What is the typical stake size, and is it mostly preferred or convertible debt?

3. How many companies are in the portfolio at any given time, and what is the rate of failure for these startups?

4. Does your fund use the "VC method" to value companies, or something else?

5. Any general advice for getting a u-grad VC internship coming out of an angel investment internship?

6. I have not read much into corporate VC; is the goal to mostly gain monetary returns or some permanent asset (IP, partnership, acquisition) from the invested companies?

Much appreciated, thanks a lot. Sorry for so many questions, please feel free to be concise when answering

Aug 4, 2014
Unheard of:

1. How much time is spent analyzing/updating your portfolio versus conducting due diligence on prospective (and currently invested?) companies?

2. Where are these companies in terms of pre-money valuation before your fund invests in them? What is the typical stake size, and is it mostly preferred or convertible debt?

3. How many companies are in the portfolio at any given time, and what is the rate of failure for these startups?

4. Does your fund use the "VC method" to value companies, or something else?

5. Any general advice for getting a u-grad VC internship coming out of an angel investment internship?

6. I have not read much into corporate VC; is the goal to mostly gain monetary returns or some permanent asset (IP, partnership, acquisition) from the invested companies?

Much appreciated, thanks a lot. Sorry for so many questions, please feel free to be concise when answering

1) You will find a complete breakdown of my days in my first reply :)

2) Between 4M & 10 M and we shoot for anything between 10 & 20 % ownership

3) 7-10 so far we are seeing a 30% failure rate

4) what do you mean by a VC method? scroll a couple of posts down and you will see how we do valuations but what what you need to keep in mind is that Valuations arent key at this point.

5) You should have made some good VC relationships through your internship, no? I will give you a piece of advice that worked for me - no offence to anybody- but don't just be another analyst, one who puts his head down and asks for more punishment and is scared to talk. Everyone knows its hard work and if you're working at a competitive place that means you are probably smart enough to cut it. So after getting comfy with your surroundings start cultivating relationships with your superiors AWAY from work, strike a convo about an interesting topic as long as you know what you are talking about. My MD and I - the first one- had a common interest in helping orphanages and thus i became his point man for discussions and later actual work on the side as long as i didnt fuck up my work. And believe me I have seen the difference, the MD's appreciate some good humor with monkeys who arent afraid to tread waters with them as long as they know where it ends.

6) Both

I hope that was helpful.

Aug 2, 2014

Do you work on intellectual property licensing/transactions as well with start ups? In your opinion, would someone with a background in intellectual property finance and valuation have a shot at CVC ?

Thanks a bunch for doing this!

Aug 4, 2014
ModelThis:

Do you work on intellectual property licensing/transactions as well with start ups? In your opinion, would someone with a background in intellectual property finance and valuation have a shot at CVC ?

Thanks a bunch for doing this!

We have another unit under R&D that does that and we frequently work together, whereby they would be incubating some startups that are focused on the company's value chain and we would like to invest in them. So in essence they are a sourcing channel for us.

Yes you would. I have seen a guy do it, he was with a tech transfer office and went CVC.

Sep 12, 2014

thanks man!

Sep 13, 2014
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