There is more than just venture capital

Riddle me this: Why isn’t Corporate Venture Capital (CVC) a more prominent part of the Cypriot startup and investment ecosystem? If your immediate reaction is that “we are too small for that stuff”, I beg to differ! Everything, including size, is relative. Other, not considered large, markets have successfully leveraged CVC in their ecosystems, such as Estonia, Ireland, Luxembourg, Denmark, Singapore and of course Israel. Why not Cyprus?

As a matter of fact, CVC can [and should] play a significant role in smaller emerging startup ecosystems by providing a combination of capital, subject matter expertise, commercial market access, and opportunities for strategic partnership and collaborations.

CVCs activities date back to the USA of the 1960's with companies like IBM and Xerox pioneering the concept of “internal research centres”. But the true surge in CVC was in the late 1990’s, again in the USA, with the dot-com startup wave where corporations were looking for ways to be part of the tech revolution by investing directly into startups and emerging companies. Now, CVC is becoming increasingly popular across the globe. It presents itself as a perfect catalyst for creating dynamic and integrated ecosystems that benefit corporate investors, startups and ultimately help create new and revive legacy sectors and industries for evolving economies.

Unlike passive funding from traditional Venture Capital, CVC is grounded in the active participation by a corporation, its senior management, and cross-disciplinary teams. This type of relationship between “investor” and “investee” is massively more valuable than mere capital injection. The corporation [investor] stays at the forefront of industry trends, has direct access to new technologies, and can potentially influence the development of innovations that align with the corporation’s future competitiveness and relevancy. CVC done right, leverages industry experience, expert resources, and commercial networks to support and guide the growth of startups and possibly help create new and optimise existing business for the corporations.

For startups, CVC provides not only financial backing but also strategic guidance, industry insights, senior management expertise, and valuable commercialisation connections which immediately increases their probability of success. CVC is usually early-stage money, pre-seed or seed. But, for a startup that aligns with the right corporation operating on a well-founded CVC strategy and an infrastructure to support it, the capital they receive pales to the value they can draw from the experience and expertise. Some of the responsibility for creating, cultivating, expanding, and leveraging CVC falls square on the shoulders of the startups, their advisers, mentors, incubators and accelerators. They need to be proactive and creative in identifying, developing, and pitching directly to corporations “The Why” they must invest and partner up with them. How you develop a narrative and a pitch to a VC or a private investor, is “night and day” different from pitching a CVC opportunity. In my opinion, the right strategic CVC relationship will do wonders to a startup’s valuation multiples and probability of success.

There is another, usually overlooked, super valuable CVC benefit. It can be an incredible corporate recruiting and retention tool. Not every smart, visionary, innovative, creative, disruptive person is an entrepreneur. There are a lot of these folks in corporations, and a CVC strategy with the right infrastructure offers these extremely valuable corporate resources the opportunity to become “entrepreneurs” within a corporation by creating the right infrastructure to enable interaction, collaboration, experimenting and sharing with startups in the CVC portfolio. The way I see it it’s a win-win all around.

So, with all this great history behind CVC and its global expansion, why don’t we see more examples here in the Cypriot ecosystem?

We have an evolving startup ecosystem, we aspire to be a tech – innovation island, we are very proud of our “centres of excellence” and EU innovation rankings. So, what is keeping our ecosystem from seeing a well-deserved increase in strategic CVC growth? Well, I have my own theories and since you asked, I will share.

Truth be told, most of the CY ecosystem, outside of some brave startup entrepreneurs and a few corporate exceptions, is driven by short-sighted, risk averse, “play-only-within your comfort-zone”, corporate cultures. But, to the defence of the accused, there is a shortage of risk taking, visionary, senior resources and this contributes to being stuck in legacy business strategies, practices, and visions. It is unfortunately the old story of “you don’t know what you don’t know”.

Nevertheless, there is light down the tunnel.

Very recently, some CY government Ministries, and industry associations were reinvigorated under new leadership. Leadership with, I believe, the right business experience, long term vision, battle-tested commercial strategy skills and renewed energy to keep pushing the ecosystem towards new and exciting destinations. CVC is a powerful tool and if the Ministry of Finance, Deputy Ministry of Research, Innovation and Digital Policy, Research and Innovation foundation, Cyprus Chamber of Commerce and Industry and Cyprus Investment Funds Association work on aligning, integrating, and coordinating some key initiatives between them, they will stimulate and accelerate yet another critical part of the CY ecosystem. I also feel that Cyprus is making significant strides in identifying, spotlighting, pushing, and supporting more startups in sectors that are CVC- relevant and ready to be cultivated. There are biotech / life science / health-tech, alternative energy, fintech, experiential-tech, startups that should be very attractive to local and regional established corporations. I feel that a couple of years ago this opinion piece wouldn’t be as relevant as it is today.

What are some of these integrated initiates you ask? Well here are some thought starters:

Educational & industry events and relevant content to explain, expand and promote the benefits of CVC. Additional, deeper, and broader regulatory reform and Government incentives specific to corporate investing in startups. CY “Centers of Excellence”, internal innovation labs, incubators & accelerators etc., need specific KPIs that must include more structured platforms and formats for corporate engagement, education, and commercially focused networking. There needs to be more industry specific matchmaking tight to specific incentives for commercial partnerships between corporations, priority industries, and CY startup innovation. Corporations with CVC activity should have access to customised innovation grands and more CVC investment matching programs. If the organisations mentioned above align strategies and tactics, the possibilities behind CVC initiatives are endless. Significant by-products of a well-organised CVC infrastructure are other fantastic ecosystem boosting activities, such as M&As and JVs to further stimulate and evolve sectors and industries.

There are plenty of opportunities but only a few CVC good examples in your own backyard.

If this piece sparked even the slightest of curious interest, just follow some CY-based corporates that cracked the CVC code and are just cherry-picking local and regional innovation deals. Follow, for example, ASBIS, an IT-giant based in Limassol with a senior leadership team that “got it” years ago, or the Fameline Group, also based in Limassol, a Maritime Shipping company that certainly leverages every aspect of CVC, JVs, and M&As. I know there are others, but unfortunately you can count them on two hands. We shouldn’t accept the opinion that “Cyprus is too small for this stuff”, especially in industries that Cyprus is or seeks to become a global player. Unfortunately, that is the exact mentality that will keep us behind in several areas that I am confident we could absolutely lead and excel.

I will end this opinion piece with an example of a CVC move that I am waiting to see who will wake up and snatch it. In full disclosure, I am going to use an example of a company that is part of the KV Fund I portfolio, only because I have thought of their possibilities in a space that I ‘ve been very involved for years here in the USA: “The evolution of smart personal spaces”. For our homes and workspaces, AI powered - IoT (Internet Of Things) innovation will keep delivering mind-blowing, smarter, interconnected, adaptable, customisable, efficient technology applications. The common thread in this huge on-going evolution is really one thing: connectivity, the internet/network. So, companies such as cable, satellite, IoT- manufacturers, security services that compete for commercial access into homes and workspaces should be looking for creative ways to become the backbone and key enablers of the ultimate smarter, customisable, personalised living and working space of the future. If I was a leader in one of these CY companies, I would be all over companies like EMBIO Diagnostics and their AirBeld indoor environment monitoring smart technology [devises] which in essence is one part of the smart home / office revolution. I would want to be a vested partner and study, learn, understand smart home devices and user interaction. I would want to participate in optimising features and be part of the value chain since ultimately, we target the same customers.

There are many smart, innovative, forward-thinking, and disruptive CY startups similar to EMBIO Diagnostics out there that should be explored and partnered with by those corporate entities that are interested in remaining relevant… because the world is moving forward very quickly with or without them.