Most corporate venture capital divisions will disappear over the next five years, according to RegTech Lab co-founder L. Michael Meyer.
Speaking on a panel at the Global RegTech Summit 2018 Meyer was joined by senior staff from AngelsCube, RegTech Lab, QRC Group, Motive Partners and Dawn Capital. One of the areas brought up by the speakers was the concept of corporate venture arms and their position in the market.
Meyer said, “Most CVCs will not exist in five years. They don’t do a good job of it, they don’t attract the best talent internally, it is innovation theatre in many ways and the ways most CVCs are set up is when they make an investment it has to have an internal sponsor to approve it. Those sponsors rotate every two or three years to a new business assignment so there are a bunch of orphans inside a CVC. I think they will evolve they have to keep doing innovation, it’s just I think CVC will be a failed effort.”
Some of the arguments against the corporate venture arms is that they can increase valuations, or they can actually work against the benefits of the startup. When corporate invests into a company it is unclear whether they are looking for an exit or if eventually they will just acquire, which can in turn raise the valuation too high. Another viewpoint is, a company selecting a corporate as an investor can cause issues when looking to implement solutions with their competitors, or raise new funding. However, some believe it’s the complete opposite, and they do offer different kind of opportunities.
Not everyone on the panel agreed corporate venture arms create issues or they will all evaporate, but instead that they will evolve and find their spot in the market.
Motive Partners client partner Ash Bhatia said, “Corporate venture is transforming as well, quite significantly right now. A lot of them have a lot of money available but are realising they need to hear from the other corporates and they need to have a network or an ecosystem where they can have those conversations.”
Through Motive Partners’ Lab, Bhatia has noticed that many large institutions from different regions around the world, and so not competitors, have been able to come together and discuss very similar challenges. Once they have been able to have these conversations and understood the issues, they then choose to invest and that is the key part they must play, according to Bhatia. Corporates have to invest at the right stage, but it’s important they work together to get various opinions on issues. Currently this is not really happening.
Evgenia Plotnikova, principal Dawn Capital, believes that while there are issues with CVCs, they are still needed. The key issue it that they have to find the right time, sometimes corporates can be more beneficial at the early stages of a company, but other times it’s a little later down the lifecycle.
She said, “Where we’d warn the startups is it’s important not to shoot yourself in the foot. If you pick one of your clients as your investors, you need to be aware you might be selling it to their competitors. So, managing your risk accordingly becomes very important.”
One thing Plotnikova would like to see more of, is European corporates making more acquisitions, as exits are still ‘very far and few between’ and a majority take place in American companies. If more corporates get comfortable acquiring and exiting startups here, it can boost the ecosystem.
The panel also discussed what RegTech companies need to be doing to get adopted, with the overarching idea being that they have to be more than just a new technology. Companies that are just implementing a new technology and offer no real benefits will not be as successful, as they need to be solving problems facing financial institutions.
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