#31: Scaling Up: Strategies for Growing Your CVC Portfolio
Hi, I'm Jeppe and welcome to my weekly newsletter on Corporate Venturing, released every week. My aim is to provide a comprehensive perspective on the latest developments in the field and its related topics, drawing from the insights of top management, venture capitalists, founders, LPs, and family offices. I aim to offer valuable information and thought-provoking content that will aid in understanding the importance of Corporate Venturing in business strategy.
In the fast-paced world of Corporate Venture Capital (CVC), managing and growing your investment portfolio is a strategic art. You need to strike a balance between diversification and focusing on your winners that matches your overall strategy. In this newsletter, we'll explore four key elements as you build out your CVC portfolio with an emphasis on nurturing your standout investments.
1. Portfolio Diversification with a Focus on Winners:
Portfolio diversification is a cornerstone of risk management, ensuring your investments are spread across different startups, industries, and technologies. The intent is clear: reduce exposure to any single investment and minimize potential losses. Yet, within the realm of diversification lies an age-old investment principle - "betting on your winners."
It's the recognition that not all startups in your portfolio will yield equal returns. Some exhibit the characteristics of high-potential winners, poised to reshape industries. Identifying these companies and allocating the necessary resources to foster their exponential growth is where CVC excellence shines.
Diversification mitigates risk, but strategically nurturing winners is where exponential rewards lie. Distinguishing between the two and striking the right balance is an art CVC practitioners must master.
2. Deal Sourcing and Evaluation with a Winner's Lens:
Effective deal sourcing goes beyond numbers; it's about discerning quality amidst quantity. The CVC landscape teems with startups, but among them, a few hold the potential to lead industries.
Betting on your winners involves recognizing early signals of success. What sets them apart - a unique market fit, an exceptional team, game-changing technology, and early traction? These traits are the hallmarks of winners, and your CVC should be skilled in identifying them. It takes time to built an investment team and a lot of coaching to be able to spot winners. But when you get it right you will start to see the benefits.
To scale your portfolio, you need to identify, engage with, and invest in these potential leaders. The journey starts by developing crystal-clear criteria for evaluating startups based on these winner traits.
3. Follow-On Investments to Support Winners:
The initial investment is the beginning, not the end, of your journey with a startup. Winners emerge with remarkable growth potential, and follow-on investments are strategic moves to fuel that growth. Identifying the companies in your portfolio with exponential growth prospects is the key to successful CVC.
These potential winners need additional resources, whether in the form of capital or other vital support. To truly scale your portfolio, ensuring these startups have what they need to reach new heights is a must.
Your follow-on investments strategically cement the position of potential winners within your portfolio and set them on a trajectory to lead their respective markets.
In early stage venture we normally see fund managers reserve +50% of the for follow-on investments
4. Exit Strategies with Winners in Mind:
Exit strategies, be it through IPOs or acquisitions, are critical junctures for CVCs. But having winners within your portfolio can significantly impact these exit events, shaping the financial returns you realize.
5. Navigating Practical Implementation:
My extensive experience as the CFO of a prominent early-stage venture fund has provided valuable insights into the intricacies of picking winners within a portfolio. Over the years, I've honed the art of identifying high-potential startups through rigorous processes. One such process involves conducting quarterly ranking sessions where we meticulously assess each portfolio company concerning current investments and potential follow-on investments, all with the aim of optimizing financial returns.
Conclusion:
As you embark on the journey to expand your CVC portfolio, mastering the art of balancing diversification with supporting your winners becomes paramount. This dynamic process necessitates continuous evaluation and adaptability to harness the full spectrum of opportunities that your portfolio holds.
I hope you enjoyed this week's newsletter. If you have any suggestions or contributions that you would like to share with me, please do not hesitate to reach out. I would be delighted to hear from you.
/Jeppe