Creative Ways to Score Corporate Funding

Someone I respect suggested that I approach corporations at the same time I approach venture funds for money. Is this a good idea or bad idea? Do corporations look for the same things as VCs do when making investments in young companies? How should I approach a corporation for funding? What's realistic?

Ah the 'R' word! Entrepreneurs are coached quite often to 'be realistic.' However there is a very fine line between impractical dreamers and entrepreneurial visionaries. What seems completely realistic to a cutting edge entrepreneur may be beyond the imagination of less creative thinkers.

I find the reality of venture funding is very much like the reality show American Idol. The odds of winning big seem about the same too. Think about it. The competition begins with thousands of ambitious contestants. But with each passing week of critique the field narrows to the most appealing contestants who hold the most commercial promise.

In the venture game, of the thousands of executive summaries and business plans presented to well-established US venture funds each year, less than 1,000 new companies will win the funding prize. So the grim reality for most business builders is they will have to find funding elsewhere. And they can.

Because corporations need strategic access to new technologies, and are willing to pay for this advantage, it is definitely worthwhile to include them in your funding drive.

There are several ways corporations invest in growth companies. As a starting point, some corporations have organized their own venture funds to keep tabs on advancing technologies. Cargill, Novartis, Disney, Procter & Gamble, Tribune, SAIC, T-Mobile/Deutsche Telekom, Motorola, Siemens, SAP, Samsung, Nokia, BASF, Applied Materials, Johnson & Johnson, Dow Chemical, Comcast, Chevron-Texaco, Intel, and Ericsson are just a few names of active corporate venture investors.

Another way corporations invest in young companies is by 'participating' in a venture fund 'syndicate.' Here, corporations invest in a specific company on the same terms as a 'lead' venture fund.

Entrepreneurs can also solicit divisions of large corporations for a 'strategic' investment. Unlike venture funds which are bound by fairly restrictive investment criteria, corporations have greater flexibility. They can invest cash or provide other valuable non-cash support in the form of office or warehouse space, equipment use, technology access, etc.

Another way to secure funds for a specific new product development project or expansion effort is through a joint venture ('JV') partnership or company. In the same way that Cingular Wireless was originally formed as a joint venture between BellSouth and SBC Communications, you too can form a new company with shared ownership.

There are a number of ways to structure these tactical collaborations. Sometimes the larger corporation contributes cash, while the entrepreneurial company contributes technology and operating management. JV companies can be an excellent solution in cases where a small business owner doesn't want to give up an equity stake in an existing business or there is extreme disagreement over the valuation of an existing business, but both partners still wish to pursue a specific development project together.

Joint ventures can also be a convenient business structure for corporations that want to play a more active role in the day-to-day management decisions of their business collaboration. Typically, JV companies are managed by a board of directors and executive committee that includes representatives from both companies. This differs from traditional, non-seed stage venture fund investments in which investors prefer to keep their voice at the board level.

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