Rashmi Gopinath / November, 2017
How is a corporate VC’s investment strategy different from an institutional VCs?
Rashmi Gopinath, Partner at Microsoft Ventures explains the differences in investment strategies between corporate venture capitalists and venture capitalists.
The difference between the investment strategy for a corporate VC and an institutional VC would primarily depend on the investment focus areas for the corporate VC vs for an institutional VC. Our strategy for example at Microsoft is to align ourselves with the key areas that Microsoft has strength in and wants to develop more capabilities in. Our investment thesis is very much aligned with those enterprise software areas, where Microsoft either have a strong product presence in or would like to develop a bigger presence in those areas, artificial intelligence, machine learning, and cyber security are some of these key areas, where we would like to build more of an expertise in. So that for us drive our investment strategy and how we look at investment in those areas.
For an institutional VC, the key investment strategy for them in terms of focus areas is dependent on the strength that the GPs or the partners at the fund bring. Could probably be influenced by the LPs that want them to focus on specific areas, but in most cases, it is the expertise of the GPs. The strategy in terms of the sector that they invest in, or in the series that they invest in, it’s very fragmented and it’s very different. There are some funds that only focus on seed stage or angel stage or early stage, there are some funds that focus more on later stage. For corporate VCs, the stages that we come in typically is when the product market risk is lower, so there is a product market fit that is identified. There is some level of initial revenue traction that the startup may already have. Most of the corporate VCs typically focus on the series A through seed stage investments. There are some corporates that even come in later.
I used to work at Intel, at Intel we would come in post-series B when the company had at least 2-3 million in revenue. Cisco has a very different investment strategy when they look at stages. It really depends on what the corporation is looking for when they set up the VC funds in terms of the value that they are looking to get back from that VC fund. At Microsoft, our function is to be the sensors in the startup ecosystem and bring back important signals from the startups to Microsoft. So that Microsoft as a company doesn’t miss on any of the most important trends that most of these startups are looking to build. That’s our key investment strategy, and an institutional VCs typically would base it on the expertise that they have.