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Tapping the benefits of Venture Capital-as-a-Service

Presented by Pegasus Tech Ventures

There have never been more sources of funding for startups than there are today. The best entrepreneurs have many options when it comes to financing their business — whether it’s angel funding, crowdfunding, accelerator funding, or venture funding. Traditional venture capital firms typically write the biggest checks and they have significant resources to support startups in their networks. Still, traditional venture capital firms may or may not have the knowledge and expertise to negotiate strategic corporate partnerships.

If startups are mainly focused on how they can scale their business, then they can look to local and multinational corporations for funding and partnership opportunities. Some of these corporations such as Intel or Google have their own corporate venture capital funds for this purpose. The benefit of this option is that startups can usually secure both partnership and the capital they are looking for.

However, there may be a downside if this relationship limits your flexibility to partner with other companies. Some startups look at these partnerships as a potential exit strategy in the future, while corporations may look at minority investments as a test for future majority ownership stakes.

As a way to address this new market dynamic for startups and corporations, a new venture capital business model has emerged. This model, known as Venture Capital-as-a-Service (VCaaS), provides an optimal mix of capital and business value to startups through corporate fund networks. Firms including Touchdown Ventures and Pegasus Tech Ventures are providing startups with both flexible check sizes and business engagements with strategic corporate partners. Touchdown has partnered with corporations such as Aramark and 20th Century Fox. Pegasus has partnered with corporations including ASUS and SEGA.

One case study which outlines the mutual benefits derived from the VCaaS model is the partnership between Japan-based Innotech Corporation and San Francisco-based Osaro. Innotech is a publicly listed systems integrator with customers in the advanced electronics manufacturing industries. Osaro is a fast-growing startup that is using artificial intelligence reinforcement learning technology for robotics applications in industrial environments. In 2015, Innotech invested in Osaro through a Pegasus Tech Ventures fund and began proof-of-concept testing for various pick-and-place applications. Their partnership has expanded ever since, with Osaro opening an office in Japan and Innotech building a new business division to support Osaro.

“Partnering with Innotech Corporation and Pegasus Tech Ventures has been critical for our international business expansion as well as for funding across multiple rounds of financing,” said Derik Pridmore, CEO of Osaro. “We look forward to continuing our growth together and highly recommend that fellow entrepreneurs establish similar win-win relationships between investors and corporations.”

Another example is the partnership between Japan-based CAC Holdings and Boston-based Affectiva. CAC Holdings is another publicly traded systems integrator with customers in the financial services, technology, and pharmaceutical industries. CAC Holdings also has a corporate fund with Pegasus Tech Ventures, through which they invested in Affectiva. Affectiva is a market leader in the development of emotion recognition artificial intelligence technologies for consumer and automotive industries. CAC and Affectiva successfully partnered to bring an emotional recognition solution to customers in Asia.

“Working with Pegasus enabled us to work with CAC and be introduced to a variety of their corporate partners throughout Asia,” said Rana el Kaliouby, CEO of Affectiva. “We continue to work closely with Pegasus as we work to implement our solution in the automotive industry.”

These examples illustrate the potential for the VCaaS to enable win-win solutions for startups, corporations, and venture capital firms. As our world becomes more connected than ever, it has become easier for startups to expand their businesses into fast-growing markets abroad. Yet, in many circumstances they still need the right partner in order to do so.

The VCaaS model particularly lends itself well to startups who are looking to enter new markets in Asia such as Japan, Indonesia, Vietnam, China, and India. Established corporations in these markets make strong partners for startups to localize and implement their solutions. This model is also good for emerging market startups who want to associate with an international venture capital firm for future funding and exit opportunities. We anticipate more innovation in the near future for innovative venture capital business models such as this.

There is also an emerging trend in organizing events that are geared towards connecting startups and corporate investors. Startup World Cup is one of these events and is one of the world’s largest and richest startup competitions, held in 50+ regional locations across six continents. The regional competitions lead to a grand finale in San Francisco each year where the winner is awarded a $1,000,000 investment prize.

Previous winners have benefited from receiving the investment prize and the global exposure that results. The 2017 winner, for example — Unifa from Japan — raised a $45 million subsequent financing and is planning to go public in the next couple of years. There are also several examples of regional participants that connected to the corporations in attendance, leading to partnerships and investments. Adding to the energy and excitement of these events are keynote addresses by tech luminaries such as Steve Wozniak, Reid Hoffman, John Chambers, and Marc Randolph.

Corporations, startups, and venture capital investors need each other. These new models of collaboration and outreach benefit everyone in the innovation ecosystem.

Anis Uzzaman, Ph.D. is the CEO and General Partner of Pegasus Tech Ventures, overlooking overall management, investments,  and operations. Located in Silicon Valley, Pegasus Tech Ventures has $1.5 Billion Dollars AUM and provides early stage to final round funding. Anis has invested in over 170 startups in the United States, Japan, and Southeast Asia. Anis is also the Chairman of Startup World Cup, a global startup pitch competition with 50+ regional events across the 6 continents, leading up to $1,000,000 in investment prize.

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