Securing investment from corporate VCs for your climate startup

Corporate VCs (CVCs) exist within corporations – think GE Ventures or Shell Ventures – and make strategic investments on behalf of the company. Often, their motivations go beyond just making money, while their connection to a corporate behemoth means they can bring extensive resources and potential customer relationships to the table. But the hierarchical and risk-averse nature of large corporations means they operate at a much different speed to other types of VCs, and you’ll have to approach these deals in a different way.

Taylor Chapman is Principal at New Climate Ventures, and an ex corporate VC. We sat down with him to discuss what drives these VCs, how the process differs from regular VCs, and questions you should ask to uncover any red flags.

How corporate VCs differ from regular VCs

1. Their motivations
Even if they have a climate focus, traditional VC funds are overwhelmingly focused on returns. But while some corporate VCs share this outlook, for many it’s overshadowed by other motivations. These include:

a. Seeing around corners. Here, a CVC backs an innovative technology (not necessarily one they’re going to adopt), in order to gain insights into how realistic it is and how it might impact their business.

b. Piloting and adopting new tech. The CVC will make investments while the corporation simultaneously becomes a customer, in hopes of gaining a competitive edge. 

c. Securing early access to potential M&A targets.  Here the CVC is less interested in an IPO return, but rather strong performance and market positioning that will result in a favorable M&A transaction in 3-5 years.

d. Public Relations. No matter how well-established, corporate giants want to be perceived as innovative or as “good”/climate-friendly, and investing in up-and-coming climate startups helps them foster that image.

2. Their speed
The process of doing a deal with a corporate VC will follow many of the same steps as with a regular VC, including comprehensive corporate/legal diligence, investment committee review, etc. But the timeline with corporate VCs is typically more drawn out because there are more people who’ll need to be convinced, such as an internal technical team, a legal team to vet the deal and the startup, and a business unit team. 

Because it’s a longer, more cumbersome process, you can’t just spring on corporate VCs that you’re closing in two weeks and expect them to jump onboard. You’ll need to engage as early as possible, ideally giving them 3-6 months to navigate a transaction. And remember, if you don’t manage to get them to invest before you need them to, there’s always the opportunity for them to become customers, so it’s not all lost.

3. Their hierarchical structure
The top-down structure inherent to corporations means these VCs are often constrained by what the people above them think. That means you’ll have to put in the time ahead of a decision-making meeting to get everyone on board, as opposed to hammering it out in real time.

However, you may be able to leverage this feature of corporate VCs to your advantage. For instance, if you know that your point-of-contact mentioned you favorably to someone up the chain, you can use that past conversation strategically. For example, if you indicate to your POC that they might  miss out on the deal, that might well motivate them to move faster, so that they won’t have to admit to their boss (or similar) that they missed out when asked about it. 

4. Their aversion to risk 
While conventional VCs understand some startups are bound to run out of gas – this fact is baked into their model – in the more risk-averse corporate world, failure is taken a lot more seriously. What’s more, where regular VCs have their eyes on the upside, corporate VCs are less interested in the potential rocketship outcome and spend more time and effort understanding downside scenarios.

To mitigate these VCs’ fear of risk, make it as easy as possible for your lead contact to be your champion. Arm them with a prebuilt due diligence questionnaire containing your most frequently asked questions, so they can answer any of their colleagues’ queries in your preferred language.

5. Their expectations of you 
Unlike regular VCs, corporate VCs aren’t typically looking for a scrappy, risk-taking founder – they want a steady hand at the tiller. You may need to tone down your cockiness and idealism if you want to make a good impression.

6. Their group dynamics
In large corporations, there can be tensions between the different sub-groups involved in the investment decision. For example, an operations lead may be tired of being asked to look at different technologies for the CVC team - she just wants to focus on running her business.  In cases like these, you’ll want to be able to offer a “win” to both parties - e.g. innovation to the CVC, but ease and cost savings to the ops lead.  It’s also critical to know who holds real veto and decision power among the various factions - who can sink the deal and who can push it through. 

Questions to ask corporate VCs about their process

1. What’s your primary motivation in investing? 
Knowing what they’re looking for in a startup will help you understand how to position yourself.  Really drill down to understand not just the financial return targets the CVC has, but also their strategic goals.

2. Who’s on the investment committee? 
The dynamics of the committee will be shaped by who sits on it, which might be the CEO of the parent company, the CFO, the VP of Innovation, the venture unit, etc. Because not everyone will be looking at things from an investor’s perspective, it’s worth finding out the various roles of everyone involved – some will be evaluating how they would implement the product in their own tech stack, or thinking about it as a line of business. 

3. What’s the background of key decision makers?
Understanding background is critical to securing buy-in.  For example, if members of the investment committee used to be VCs, they’re more likely to be familiar with the scrappy nature of your early years.  But if they’re solidly corporate, they may be put off by how small your young company (and its revenues) are, and will likely need much more reassurance re: downside risks.  

4. Is it a distinct managed fund, or invested off the company’s balance sheet? 
Corporations can be fickle in their investing strategy, more so than a conventional VC would be. Market downturns, competitors merging, a new CEO who wants to put their own stamp on things, and a host of other external circumstances can mean changes in the company's strategic priorities that you can’t control.  For CVCs that invest from the corporate balance sheet, deals may go south if macro factors affect the broader corporation. But a dedicated fund is less likely to be put on ice. It can also typically move faster, as it has more autonomy. 

5. How many dedicated full-time staff are there? 
Sometimes employees will act as a corporate VC alongside another role. Similarly, you should find out who does their technical diligence, and if they’re full time –  i.e. will you have to wait around until someone with the right expertise becomes available?

6. Are there any commercial terms they insist on? 
Some corporate VCs insist on some form of exclusivity. If they ask for right of first refusal, exclusivity, or anything else that could hamper your commercial growth, this is a big red flag and generally means their capital is not worth it.

Taylor Chapman is an operator + investor in mission-driven businesses.  At New Climate Ventures, he invests in decarbonization-focused companies, typically at the seed stage; NCV’s investments range from bioplastics to carbon management to climate-focused software. Taylor has been in the climate tech world since 2021, first as an angel investor, then as a Senior Fellow at Cascade Climate, before joining NCV.  Previously, he oversaw corporate VC and M&A at SEI, a publicly traded education conglomerate, and was an Engagement Manager at McKinsey’s NYC office.  He was also an operator at two VC-backed startups (Remind and NationSwell) in NYC and SF.