In recent years, Venture Capital-as-a-Service (VCaaS) has become more predominant since it offers more flexibility than the traditional VC model. It is designed perfectly for corporations, family offices, and sovereign wealth funds that want to engage in startup investment without managing a full-fledged VC team. Let’s understand the mechanics behind VCaaS and why corporations are embracing it.
What is VCaaS?
As an innovative, effective model, VCaaS is designed with an established VC firm which works for a corporation or institutional client to invest on its behalf. By using this model, the corporation or client benefits from startup innovation, access to deals, and active portfolio engagement, while avoiding the cost and trouble of setting up its own VC organization.
There are a number of unique ways VCaaS works to benefit corporations and startups. Corporations typically want to become more innovative and this model makes this happen.
Unique Fund Structure: VCaaS uses a co-investment or Limited Partner focus. By doing so, the corporation involved can set its own priorities, including sectors of investment, technology focus, and area of the world to invest in. This provides a great deal of flexibility to the investing corporation.
Dedicated Team (without the hiring headache): A team of experienced investors from the experienced VCaaS firm acts on behalf of the corporate client. By working with such seasoned investors, the corporation benefits from a well-established organization with experts who are looking out for their priorities.
Diligence and Deal Sourcing: Since the VC firm involved has strong experience, they can sort out startups based on the corporation’s goals, deliver strong deal flow, and run due diligence—making sure all of this goes smoothly. Because VC investors work with startups continuously, they can quickly and effectively find the best fit.
Process of Decision-Making Process: This unique model lets corporations make as many—or as few—decisions as they want to. Some are involved throughout the startup selection process, while others simply want to sign off on final investment decisions.
Corporations participate in the process as they want to, without compromise.
Management of the Portfolio: Once investments are made, the VC firm makes life easy for the corporation by managing the startup portfolio on a continual basis. They will check on how the startups are doing financially, keep in touch with them, and give the corporation regular updates. This allows for high transparency and flexibility based on how the corporation wants to work.
Why VCaaS is Gaining Ground
Corporate and institutional investors are increasingly turning to VCaaS because they see its financial and business upside. Investing in startups is an increasingly important practice that is critical for corporations to become more innovative. Corporations count on VCaaS as an effective, reliable, flexible, and affordable model. They appreciate the following benefits:
- Fast speed to market since there is no need to build an internal VC organization nor hire internal investors
- Substantial global deal access via the experience VC firm that invests on behalf of the corporation
- Strong strategic alignment between corporate investment and business priorities
- High level of operational efficiency with minimal internal cost or burden
- Brand benefit from being seen as an innovation player—without the risk of a mismanaged internal venture effort
VCaaS Case Studies
Several case studies come to mind that demonstrate the effectiveness of the VCaaS model. These show how corporations can become more innovative by relying on a trusted VC partner.
Sunny Health: A diversified Japanese corporation, Sunny Health partnered with Pegasus Tech Ventures to build a ¥350 billion ($2.4 trillion) innovation fund focused on AI, health technology, renewable energy, and deep tech. By partnering, the company avoided building its own internal VC organization from scratch.
Aisin: As a global supplier of car components and systems, Aisin is known for its innovation as an automotive leader. The company relied on VCaaS to invest in electronics and mobility startups while staying aligned with its own R&D. By investing, Aisin accelerates the development of future mobility technologies, allowing the company to grow more quickly and surpass competition.
Alchemist Accelerator and Siemens: Working together, Siemens enhanced its startup investment program by working with Alchemist Accelerator using the VCaaS model. Together they focus on startups in the industrial Internet of Things and Artificial Intelligence sectors. One example of success is Rigado, a smart city connectivity-focused startup driving unique solutions.
Qualcomm Ventures and Tech Mahindra: Indian consulting and IT firm Tech Mahindra worked with Qualcomm Ventures—using the VCaaS model—to invest in telecom and 5G startups. Together they invested in Pensa Systems, a standout in the drone and AI industry.
What’s Next in VCaaS
The recent growth of Venture Capital-as-a-Service is due to its effectiveness and flexibility for corporations seeking to become more innovative. By using this model, companies experience transparency and benefit from an investment model that aligns with their strategic goals, technical priorities, and timeline, without unnecessary overhead.