After more than 16 years in CVC, the following contradictions need to be managed well to establish a performant CVC unit.
The first contradiction is about intrinsic team motivation
CVC teams need to be excited about venture capital as this is the core business model. At the same time, the team needs to embrace what a large corporation can deliver and be proud of the corporate brand and values. It's important to find people who are passionate about both and see that the corporate backing the CVCs investments is in fact, an unfair advantage compared to other investors.
The second contradiction is about the team incentive structure
A CVC team needs to appreciate the financial rewards of the venture capital model, which is based on aligned financial incentives for the entrepreneurial founder teams and their investors. But at the same time, and this links to the first contradiction, the team needs to understand that a corporate environment puts some limitations on the maximum upside. CVCs need people who appreciate the opportunities that come with our partnerships, even if they don't guarantee unlimited riches.
The third contradiction is about startup vision & corporate strategy
CVC teams must believe in the vision of the startups they invest in, as this helps to break through the inevitable hurdles on the road to scale & success together. At the same time, the CVC team needs to embrace the corporate backer strategy to create successful partnerships and drive mutually beneficial outcomes. In our case, with our investment strategy, we try to align EnBW as developer, owner, and operator of sustainable infrastructure with our startups, offering smartness, efficiency, or new functionality for this infrastructure of the future to enable partnerships as an option besides the VC investment.
The fourth contradiction is about attitude toward uncertainty
This is a point I learned from a comment from Joachim Vandaele:
A CVC team, and their LP, needs to accept that a venture capital fund is a vehicle to operate under uncertainty. It is well understood that not every investment will be a home run; some may fail completely. The nature of venturing typically requires taking many small ‘uncertain’ decisions (ie. the outcome and its probabilities are unknown).
Corporates, on the other hand, are used to making fewer, big decisions, but with a higher probability of success based on a single project. So, to the extent that corporates prefer value stability, predictability, and risk mitigation, failure is typically not well-received. Hence, CVCs require teams who can manage the dynamics of risk and failure in both venture capital and corporate contexts.
Our solution to this was transparency about our startup portfolio performance from day one to show our corporate backer, that in fact taking multiple smaller risks with higher uncertainty combined with active portfolio management lead to an overall portfolio risk function that works very well for the corporate backer.