WI Corporate Venture Funds Say They Bring Startups More Than Money
For a tech startup seeking to raise venture capital, there can be benefits to accepting an investment from the VC arm of a large corporation, rather than a traditional, standalone venture firm. For example, doing so might allow the startup to tap into the larger organization, whose employees and customers could use the technology and help improve it.
That was one theme of a discussion held on Tuesday in Madison, WI, that featured leaders of venture funds housed within two Wisconsin-based companies. Statements from the funds, CMFG Ventures—part of CUNA Mutual Group—and Northwestern Mutual Future Ventures, about their investment plans have made both more visible in the past six months. The recent publicity has caught the eye of many startups, says Brian Kaas, managing director of CMFG Ventures.
“When we made a public announcement about our ventures fund, [interest] went up significantly, almost overnight, as word got out there that we’re investing in startups,” Kaas said.
His fund, which exited stealth mode in October, has invested about $40 million to date, and plans to put another $25 million into five to seven startups this year, he said. One company in CMFG Ventures’ portfolio is Irvine, CA-based SpringboardAuto.com, which has developed Web-based software for finding auto loans. Kaas says that if the startup is able to get more users to search for car loans using its website, that will likely be good for CUNA Mutual’s member organizations, many of which are credit unions.
The growth of SpringboardAuto.com would enable credit unions “to initiate more auto loans, which in turn is good for car business,” Kaas said. “We kind of view it as everybody comes away a winner, including the consumer, because they’re really getting a [user] experience that they have come to expect.”
Craig Schedler, one of two venture partners at Northwestern Mutual Future Ventures, echoed that sentiment. He said one reason that Milwaukee-based Northwestern Mutual, the top seller of life insurance in the U.S., has done more investing in startups in the past several years is that people today don’t just appreciate a simple customer experience from organizations they give their business to—they demand it.
“Consumers are increasingly comparing their experience with companies like Amazon, Zappos, Apple, and Southwest Airlines,” Schedler said. “[They’re] saying, ‘Why doesn’t my financial services institution work that way?’”
Schedler said that Northwestern Mutual has been an “active early-stage investor going back to 2013,” but that it was only in recent months that the insurer created a more formal framework around venture investing.
Given its deep pockets— Northwestern Mutual’s “general account” was valued at about $200 billion as of last June, according to the company’s website—it has the ability not just to take equity stakes in emerging companies, but to buy them outright. Two years ago, it acquired the New York-based fintech startup LearnVest, and later named that company’s CEO as vice president of client experience at Northwestern Mutual.
The four focus areas of the insurer’s VC fund are digital health, data analytics, client experience, and the changing preferences of consumers, as Rebecca Porter, who chairs the fund’s investment committee, discussed with Xconomy earlier this year.
All four companies in the fund’s portfolio are on the coasts, though it’s currently finalizing an investment in an Austin, TX-based startup, which Schedler did not name. He said that he and his colleagues have been keeping an eye on what some see as an emerging healthtech cluster in Madison, WI—he mentioned Redox, which raised a $9 million Series B financing round in January—but that the fund is still “looking for the right opportunity in the Midwest.”
“I keep joking that I want to do a deal where I don’t get on an airplane,” Schedler said.
He added that over the last couple years, entrepreneurs have begun to view corporate venture funds differently. In the past, he said, these groups were seen as taking a somewhat heavy-handed approach to startups. They also had a reputation for trying to work “draconian provisions,” such as rights of first refusal, into deals, Schedler said.
“It’s not quite so much like that today,” he said. “There’s more willingness to partner and work with your peers and others to ultimately ensure a successful investment.”
And from a startup’s perspective, it’s not always an “either-or” proposition in terms of working with standalone venture firms versus corporate (or “strategic”) ones.
CMFG Ventures, for one, “likes to co-invest with traditional VCs and other strategic VCs,” Kaas said.
Another well-known Wisconsin business with a corporate venture arm is American Family Insurance. One company in American Family Ventures’ portfolio that illustrates the potential upside of working with this type of fund is Santa Monica, CA-based Ring, whose flagship product is an Internet-connected doorbell with a built-in camera.
In late 2015, American Family—the larger insurance company, not its investing arm—announced a partnership with Ring intended to encourage policyholders to install smart doorbells outside their homes. Under the program, eligible AmFam customers can get a 15 percent discount off the price of a Ring video doorbell, which lists for $199.
This two-pronged approach, where a large company invests in a startup, and also leverages its reach and resources to get the startup’s products into more customers’ hands, could be seen as an advantage corporate VCs have when competing for deals.
Dan Reed, managing director of American Family Ventures, said in an e-mail that offering more than capital is one of the ways corporate investors seek to differentiate themselves.
“We very much appreciate the partnership we get from many areas of our company,” Reed said. “The benefit we get as an enterprise is an early look and small equity position in some very promising companies.”