Open Innovation is a concept that encourages the use of external resources during a creative and innovative process, usually with the aim of creating a product or service. The objective of these Open Innovation strategies is to open up to innovative initiatives in the company's field through various actors: startups, partner companies, institutions, etc. These Open Innovation actions can take several forms: collaboration, investment, or the development of an ecosystem.
Definition of Corporate Venture Capital
To understand the investment process, we must first talk about corporate venture capital (CVC). It is an investment company owned by a large group and wishing to invest in innovative companies. CVC funds operate in a similar way to independent venture capital funds and often initiate partnerships with their portfolio companies.
Some examples of CVCs from all sectors: Allianz, Arkea, Total, Sanofi, Michelin, Thales, Orange, Vinci...
The investment process consists of 4 steps:
1) Sourcing and dealflow analysis
VC/CVC funds identify investment opportunities in two main ways:
Proactive sourcing of startups via databases or media monitoring.
Analysis of the incoming dealflow: this is the pitch deck flow sent by startups to investors. Typically, investment funds analyse ~50 to 100 opportunities per week, and meet with 10 to 20 entrepreneurs.
2) Due diligence
Due diligence corresponds to the set of information gathering measures allowing the capital investor to analyse in detail the activity, the financial situation, the development prospects and the organisation of the company. Due diligence can be financial, strategic, legal or environmental. Beyond Series A, audit firms are mandated to carry out due diligence.
3) Negotiation and closing
Once the due diligence has been validated, the legal and financial clauses of the investment are negotiated. Generally, investors appoint a lead investor to negotiate with the startup. The main elements of discussion are the valuation and the governance arrangements.
4) Follow-up of the investment
After the investment, investors have the opportunity to monitor and participate in key strategic decisions of the startup. Investors usually meet once a quarter, at the startup's board meeting. Financial and non-financial metrics of the company are analysed. Generally, VC funds stay in the capital between 3 and 4 years, and CVCs 5 to 6 years.
Investing in Open Innovation means creating a real ecosystem that integrates startups and large companies by drawing on the expertise of each player. This collaboration multiplies the benefits and opportunities.
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