NEW BOOK: Will crowdfunding have any impact on corporate venture capital?

 

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By Kevin Berg Grell, PhD.
Co-editor/author of “Crowdfunding: The corporate era” , CrowdfundBeat Sr. Guest Editor,

Corporate crowdfunding

With contributions from 11 industry insiders, my co-editors/authors and I recently published “Crowdfunding: The corporate era,” which provides an early snapshot and analysis of how online financing and in particular crowdfunding has large enterprises.lHcFrdZH

In one of the case studies, we explored how Sony has integrated typical rewards-based crowdfunding for market validation. Product ideas coming out of the company’s seed acceleration program were tested via crowdfunding platforms such as Indiegogo before prototyping. This procedure is integral to the company’s ambition to de-risk product development, and the $28B company has since our book was published taken this strategy one-step further.

Over the summer, Sony announced the launch of “First Fight” – a crowdfunding platform owned by Sony and exclusive to product ideas coming out of the internal seed accelerator program. While this move is a testament to crowdfunding’s applicability beyond fundraising, it begs the question: Is crowdfunding the future of product development for large enterprises? In this context, it’s important to note that corporate venture capital isn’t perceived as negatively in Japan as it is in markets with more traditional venture capital ecosystems.

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Corporate venture capital

In a recent Techcrunch analysis, venture capitalist James Riney explores some of the major differences between Japanese and US venture capital. The most important point is the participation of large companies in the startup ecosystem.

In the US, corporate participation is typically between 20-25% of venture capital deals, making corporates the exception rather than the rule especially in early stage ventures. In Japan, the image is the exact opposite.

Participating in the majority of venture-backed deals, Japanese corporates are more common and accepted players in startup finance. In this light, it is not surprising that the first moves are seen in areas where corporate venture capital is already striving. Nor should it come as any surprise that an incubator like 500 Startups spearheads the “corporate moves” in Silicon Valley. The ecosystem is simply geared towards later stage corporate participation when compared to Japan.

Value for corporate venture capital backed B2C deal flow

This could all, however, be about to change!  As CB Insights point out, corporate venture capital has been on a robust path of early stage participation. The checks have been growing and their frequency increased.

Figure 1: PwC-NVCA MoneyTree (TM) Report. Corporate venture capital by sector.

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So who gets funded? If we look at the MoneyTree™ graph above, it is clear that the overlap between the typical rewards-based crowdfunding and corporate venture capital is rather limited.

When raising money via crowdfunding (disregarding the funding-model), it is clear that the potential crowdfunders must have either a deep knowledge about the particular product/service that will be the bread-and-butter of the company, or the crowd must be able to identify with the need for product/service. For this reason, crowdfunding has resonated with B2C-centric companies and real estate; i.e. very limited overlap with typical corporate venture capital deals.

HOWEVER… crowdfunding might be exactly what US based corporates need to accelerate in B2C deals. As we have pointed out in “Crowdfunding: The corporate Era,” when companies like Sony, IBM, Chrysler, etc.  tap the crowds it is first and foremost a means to collect information, validate ideas, and de-risk their activities. A sentiment that every venture capitalist would applaud.

 

“Crowdfunding: The corporate era” is published by Elliott & Thompson. Print version available on Amazon.co.uk (Kindle and print) and Amazon.com (Kindle only). Learn more about the book here.

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