(Thanksgiving Day Special) The Secret to Becoming a Corporate Venture Capitalist in Energy
According to Wikipedia (it replaced People Magazine as the "source" for all truth): "Thanksgiving Day football games in the United States are nearly as old as the game—and the organized holiday—themselves. The first Thanksgiving Day football game took place in Philadelphia, Pennsylvania on Thanksgiving Day of 1869, less than two weeks after Rutgers defeated Princeton in New Brunswick, New Jersey in what is widely recognized as the first intercollegiate football game in the United States, and only six years after Abraham Lincoln declared the first fixed national Thanksgiving holiday in 1863."
So in other words, Thanksgiving = College Football. So what da fuq happened? Today is Thanksgiving...but somehow the NFL has taken over traditional college football on this sacred day. As a Texas Longhorn, I miss the annual bonfire and rivalry against Texas A&M. Gone forever. Where is my bloody mary? There are many others to mention: Yale v Princeton, Ole Miss v Mississippi St, Alabama St. v Tuskegee, insert your favorite Thanksgiving Day college football game here. How many of these still exist? Yes, there is a conspiracy here and we need to get to the bottom of it. I digress.
Instead of watching your favorite college football team today (cuz you can't), get on LinkedIn and think about your future career. If you want to join the ranks as a fellow corporate venture capitalist in energy, grab a cocktail, your favorite salty snack and read away. What else do you have to do?
As a corporate venture capitalist in energy, I am not sure if this is a destination, a path on the journey, a fun respite, and/or a little of all of the above. I am not "woke" nor ever truly had a long-term vision for my forever career. I did grow up knowing (hoping - albeit it is not a strategy as I am told) that I wanted to be one of three things: (1) a musician, (2) an amateur golfer that played on Tour as a gentleman, and/or (3) an entrepreneur. And I always knew that regardless of the path, I would also have the means and time to surf much better waves than the shallows being presented to me outside of my family's beach house on Galveston Island.
Becoming a corporate venture capitalist (CVC for short) in energy doesn't happen overnight. I frequently field requests for GTKYs (Get to Know You sessions) to discuss the skills and experience needed to become a corporate venture capitalist. If interested in joining the ranks, please read on and let's discuss. Do you have what it takes?
Some of my colleagues have mentioned that recruiting new talent into our field feels similar to trying to find a goat with five legs. While I don't understand this reference, I can tell you that the path to a CVC is random. Are you thinking about entering the CVC world or the VC world? This is my advice on the skills and experience you should possess.
Part 1: Technical and Analysis Skills
One of the first things you need in any industry is the right combination of technical skills to handle the job. The technical skills you most need to become a CVC in energy, however, may not be the ones you think. You don't need to be able to make the technology. You need to be able to find the ones who can at the right price.
1. Sourcing Deals
Before you embark on your CVC journey, consider whether you have the right tools necessary to source deals. You need a strong global network and a solid understanding of how to find entrepreneurs. Consider:
Do you have connections amongst the industry's largest customers? I have outlined many of the players that invest heavily in our industry. Who do you know and can you help our network by adding more decision-makers into the mix? Are you familiar with the service companies and their venture teams in the area? If you don't already have these connections, do you know how you will make them? If you don't have a plan in place for generating those connections, you may doom your efforts before you begin. Why? It will take you years to build these connections and earn trust.
Get to know the top investors in this space. You need to develop trust with them as a co-investor before they will be willing to show equal trust in you. As you get to know the top investors, you will also get a better idea of the opportunities you want to take and the ones that they are avoiding for very good reasons. A solid relationship with other investors can help stop you from making dangerous mistakes along the way. For those already at a big company that has a CVC arm, that company's reputation will only do so much. You need to earn your own street cred. Reach out to me for strategies on how to do precisely that.
Do you have a strong track record and credibility with existing and successful entrepreneurs? You aren't going to be able to do it all on your own. A close connection with other entrepreneurs can significantly improve your odds of success. Not only will they provide you with opportunities, but they will also offer insight into other opportunities.
Do you know the best sources for finding good startups? You don't want connections with random startups. Rather, you want connections with the ones that are most likely to go the extra mile. Pay attention to the top events in your field, where you're most likely to find entrepreneurs on the verge of starting a new business or new startups that are looking for just the type of support you can provide. Learn which local universities have the best reputation for putting out successful startups. Pay attention to the key locations for these startups. Over time, you will find that this can substantially improve your ability to find and select ideal startups.
2. Refining and Selecting
Having the right connections is a great start, but it isn't everything. You also need to be able to navigate the market. Do you have a good "nose" for deals?
I offer a key challenge to many individuals: from a selection of five, can you choose the best company in which to invest?
If you can't choose the top company out of the bunch, you may find that it's even more difficult to choose the right companies to invest in when you're looking at the market as a whole. To have top-notch refining and selecting skills, you must:
Have a solid understanding of value and price.
You need strong financial acumen; however, you also need to understand the difference between value and price and how it applies to startups. I think there are a few good books on this topic to set/align your fundamental understanding. And if you really want to set yourself apart, read The Intelligent Investor (a Warren Buffett must read): a few key points from the book that seem obvious but you will learn are not always observed:
- Know the Business You're Investing In (amazing how many people claim to be experts, be careful and review Cleantech 1.0)
- Know Who Runs the Business
- Invest for Profits Over Time, Not for Quick Buy-and-Sell Transactions (an easy trap)
- Have Confidence in Your Own Reasoning
- Choose Investments for Their Fundamental Value, not for Their Popularity (only the best investors understand this)
- Always Invest with a Margin-of-Safety (almost ignored in venture capital investing, but shouldn't)
Have the skills to create a strong investment strategy.
Your investment strategy doesn't just need to align with your financial goals. It also needs to align with the company's plan and fit its needs.
Develop strong relationships with subject matter experts.
You need to be able to gain the trust of subject matter experts within your own company that will stick their neck out for your investment. They will give you a better look at the technology used by the company and how it has the potential to impact the market in the coming years. This can help you better decide whether — and how — you want to support the company. Can you convince your subject matter experts and business leaders that this idea has merits even against the dominant paradigm?
Leverage the experience of other customers.
If you're the type who has to learn from your own mistakes, rather than benefiting from the experience of others, you may find that this is not the right field for you.
3. Negotiating and Closing
Once you've made the right connections and learned how to make key deals, you need to be able to negotiate and close those deals. Can you:
- Understand key economics and control provisions of term sheets and how to best benchmark your deal vs. others?
- Use your understanding of how key terms are applied in our industry?
- Negotiate a deal that is a win for both your company and the entrepreneur?
- Display reasonable financial acumen?
- Win the trust of the key executive team and experts that will be critical for success?
A few of my favorite resources for doing this include going back to Venture Deals (to ground your understanding of economics and control) as well as reference Cooley's trends to get a high-level benchmark of other deals (however you also need to compare to other deals in your space).
4. Executing Deals
Some teams have a dedicated deployment team to help once an investment has been made. Let's be clear: entrepreneurs expect and need your help convincing your company to become a customer. While I have been critical of Fred Wilson's rebuke of CVC overall, he does make a good point: your corporate venture capital arm must help its startups gain customers, starting with you! As a result, you may need to:
- Define the right mature deployment opportunities and gain the trust of engineers and leaders.
- Be the marketing and sales engine for the startup inside your company.
- Report on the status of deployment and learning so that executive leadership will continue to support your venture.
- Provide implementation-related feedback to entrepreneurs so that they can pivot or manage the company effectively.
5. Governing and Exiting
In addition to the other vital skills displayed throughout the industry, you need the skill to manage as a board member. That means knowing what you are good at and staying quiet and learning about areas you have no experience in. Entrepreneurs will eat you alive for telling them how to run a business when you have no expertise. Also, be clear that, as a board member, you now work for the best interest of the startup, not your employer. This is a key issue throughout the industry and requires a certain type of personality and skill in order to manage effectively. You need the skills to help steer the company to optimal growth and a successful exit.
If you are serious about this, go seek out training to help you understand and excel at becoming a good board member. I have taken multiple courses on this topic and recommend checking out the IOD (Institute of Directors) training courses.
Part 2: Then Go Beyond Technical Skills
Technical skills are critical for your place in the industry. At the same time, however, you need to have the ability to fill a number of other important roles. Make sure that you can:
1. Operate as the Key Face and Voice of the Company
Entrepreneurs, customers, investors, employees, and other key individuals will all be looking to you. So comport yourself as a key influencer and leader. You must be comfortable in the public eye and also able to provide key information such as:
- The company's perceived innovation,
- The company's environmental status, and
- The company's stance on hiring future talent.
This means staying informed about the company's stance and knowing how to share that information.
2. Excel in Recruitment and Leadership
Having all of these keys yourself is a critical part of becoming a CVC in the energy sector — or any other, for that matter. But it's not enough to have those skills on your own. The only way to grow is to identify them in others. You will need to seek out those individuals, recruit them to your company, and provide the leadership they need in order to become effective members of the venture capital team.
3. Start Building Trust ("Executive Presence")
Trust between the members of the executive team is critical. Do you handle yourself well amongst executive leaders in large companies? Do you already have the trust and mandate of senior leadership? If you do not already have that trust, do you have the skills and personality necessary to build it? Knowing how to build trust is every bit as important as already having it. Once you have it, be prepared to do what it takes to never lose it.
4. Be the Right Cultural Fit
In order to be an effective CVC, you must fit within the existing company culture. At the same time, however, you must push against the company's cautiousness to create effective change. Push the envelope of innovation and help drive creation processes while simultaneously working within the existing company culture. That's far more persuasive than sending out strategies that are too "out there" or that don't fit with the needs of the company as a whole.
5. Keep Driving Results
Results don't fall out of the sky, not even in clean energy. To become a successful CVC, everything is about driving a positive financial return and a positive deployment value within the company's operations. You want to have a positive impact on its environmental goals. But you don't want to start shaking things up so much that the company fails to respect its leader and original mission. You need the skills to work from the inside to drive those results so that the company feels as though those goals have been accomplished naturally and organically.
A five-legged goat might be easier to find than an individual with all the skills necessary to become a successful CVC. But you might just be that five-legged goat. Do you have the necessary skills or the ability to learn and acquire them? Have you built an effective network, including all of the connections I mentioned above? If so, you might just be ready to embark on this professional choice. Start building your work-in-progress skills by going to my home page and subscribing to get regular doses of industry news and tips.
Whew...that was not too bad. Go get a refill and turn off that NFL game, and get to LinkedIn or Twitter...time to start your #ratio of this article. Happy Thanksgiving, y'all!