Corporate venture capital, a potential driver of Thai startups
Corporate venture capital (CVC) is a practice where a big company invests in external startups to complement strategically to the business of the company. Notable global companies that have corporate venture capital funds include big names such as Intel, Google, Cisco, Microsoft, Yahoo, Foxconn, to name a few. I strongly believe that CVC is the form of funding that will be most influential in the early formation of Thailand startup ecosystem.
CVC can be considered a subset of venture capital. But it is different from traditional VCs, which are managed by investment management companies whose primary goal is to maximize the financial return on the investment. On the other hand, CVCs usually place as much emphasis on the strategic returns as on the financial returns and therefore operate quite differently from traditional VCs.
To put into perspective, Silicon Valley was in fact started by funding from CVC, not the traditional VC. The widely-accepted first venture-backed startup in Silicon Valley, Fairchild Semiconductor, was funded by a corporation named Fairchild Camera and Instrument. Traditional VCs were not yet born at the time, at least in Silicon Valley.
After a series of success of Fairchild Semiconductor, followed by various other startups formed by its veterans, including Intel, traditional VCs emerged as a powerful force that drove the creation of the Silicon Valley as we know it today. But it is important to remember that the starting point was from a corporate venture capital, not the traditional VCs.
In fact, most investments in Thailand startups so far have been from CVCs, not the traditional VCs. Notable deals include Global Care Solutions (invested by Microsoft) in 1997, Sanook.com (invested by MIH, South Africa) in 1999, PaySbuy (invested by DTAC) in 2008, Tarad.com (invested by Rakuten, Japan) in 2009, Power-All Venture (a subsidiary of The VC Group, invested by Foxconn, Taiwan) in 2011, and Ookbee.com (invested by Intouch) in 2012. Most of the companies that receive investment are still active; some are the leaders, in their respective fields. This is an illustration of the importance of CVCs as the source of funding for Thailand startups.
Because the interests of CVCs are both strategic and financial, they tend to operate differently from the traditional VCs. They tend to think more long-term and be more patient with the startups. They also tend to lend more management and marketing assistance to the startups they invest in to ensure their success. In a CVC deal that I know about, the investors have invested for more than 4 years without much return because they deem that startup to be of vital strategic importance to the company.
In Thailand, like other emerging economies, startup ecosystem generally lacks sufficient institutional infrastructure to propel startups with good products and services into success quickly. Startups in such environments operate at a handicap compared to startups in more developed ecosystem. It might be a wise idea to consider, in additional to the traditional VCs, corporate venture capital which is an alternative form of funding that might be appropriate to their situations.