Analyste VC

A view on the Web3 ecosystem

Mandalore Partners shares its view on Web3 and blockchain dynamics in 2022, focusing on mapping decentralized applications. The geographical scope is mainly Europe, North America and Asia.

Economy of Web3

Mandalore holds that the industry of Web3 will transform all economic sectors on a global scale. As a component of Web3, blockchains have the potential to have a greater impact on how we interact with the internet on how many software applications are currently operating their backends. The way we produce and transmit value online is particularly relevant from an economic standpoint. With the chance to have more power and individuality than ever before, creators are in charge right now.

As it can be seen on the following graph, web3 was a subject of growing interest during the 2 last years.

Search Volume Web3 - Mandalore Partners

2023 is likely to see other countries moving to position themselves as Web3-friendly – often through the use of central bank digital currencies – such as India's forthcoming e-rupee and China's Digital Yuan. This dynamics is all the more important as it accompanies the development of artificial intelligence, cloud computing, and metaverse – all technologies which are closely related to new developments in Web3. This represents a very opportunity market for a venture capital firm. However for now, the relative cost of transactions is still prohibitive to many. Web3 is less likely to be utilized in less-wealthy, developing nations due to high transaction fees.

What is Web3 ? A decentralized web

Web3 is a decentralized, trustful, and private internet that makes use of blockchain technology. Web3 refers to the next generation of internet technology, which is based on a decentralized infrastructure. This means that no central authority controls or regulates the internet, and users have more control over their data and privacy: we talk about decentralized web. It has several key characteristics that differentiate it from the current internet:

Decentralized

The biggest difference between web3 and the current internet is that web3 is decentralized, whereas the current internet is centralized with still some static websites. This means that there is no central authority controlling or regulating web3, and users have more control over their data and privacy. It remplaces the ancient web by the ability to create open protocols and decentralized, community-run networks, combining the open infrastructure of web1 with the public participation of web2. One of the goals of the Web3 movement is to create a decentralized social networks.

Secure

One of the advantages of decentralization is that it makes the web3 more secure. Since there is no central server or database, it is much harder for hackers to access user data. Also, each user's data is stored on their own computer, so even if a hacker were to gain access to a database, they could only access the data of one person at a time.

Private

Another advantage of decentralization is that it makes the web3 more private. Since there is no central server or database, companies cannot track users' online activity. In addition, each user's data is stored on their own computer, so companies cannot access it without the user's permission.

Permissionless

Everyone has equal access to participate in Web3, and no one gets excluded.

Web3 and Blockchain

The Web3 is built on the blockchain which gives the precedent advantages. This technology is not only used for cryptocurrencies, it is also used to conclude contracts or to control the functioning of applications thanks to smart contracts.

As a reminder, it is a kind of registry that contains a list of all exchanges made between users. This register is decentralized - i.e. stored on the servers of its users - and very secure because it relies on a cryptographic system of validation by the users for each transaction. Hence the name "blockchain". It uses smart contracts that are algorithms that operates on the blockchain. You can find a definition of smart contracts on Binance Academy website: https://academy.binance.com/en/glossary/smart-contract.

In the case of decentralized web, this allows the creation of financial assets, in the form of tokens for example, to ensure the internal functioning of each service. The platforms is therefore operated, owned and improved by communities of users. The idea behind Web3 is that technologies like blockchain , cryptocurrencies, non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs) give us the tools we need to create online spaces that we truly own, and even to implement digital democracies.

Each user has his digital identity, creating a record on the blockchain of all their activities. And, for example, each time they post a message, they can earn a token for their contribution, giving them both a way to participate within the platform and a financial asset.

A Web3 Map

Venture Map of Web3 - Mandalore Partners

Venture Map of Web3

Here is a commentary about the different categories presented.

I. Infrastructure

Developer tools: Developer tools are pieces of decentralized blockchains software like protocols, Layer X solutions, APIs, and SDKs that make it easier for blockchains to communicate with one another and perform more robustly.

Data analytics: Startups in this category provides blockchain data and analytics solutions to their customers.

Security & Privacy: Startups in this category are developing security and privacy solutions on top of existing blockchains

Reg Tech: Companies that provides various regulatory and compliance solutions to the blockchain ecosystem in areas such as tax compliance and anti-money laundering

Entreprise: Startups working on blockchain-based solutions for healthcare institutions across several fields, including life sciences and clinical trials. Some companies offer blockchain-based supply chain solutions to address issues like agricultural traceability and help them with better vision. Some companies provide a range of blockchain technologies geared toward business use cases.

II. Fintech - Decentralized finance

Currencies: Currencies that run on different blockchains. Created largely with the intention of developing better currency for various use cases, these projects represent either a store of value, a medium of exchange, or a unit of account.

Payment: Startups that provide payment services and support cryptocurrency transactions by developing and running cryptocurrency exchanges or by creating cryptocurrency trading applications.

Insurance: Types of Company that provide insurance technology solutions on the promise of innovation. These projects protect against the vulnerabilities of smart contracts or price volatility by raising public funds to use as hedges.

Wallet services: Startups in this category are developing and operating
crypto wallets. It develops of digital asset security infrastructure helping crypto-native and financial institutions to create digital wallets.

III. NFTs

Most people have probably heard of NFTs, it is a transaction stored on the blockchain which corresponds to non fungible tokens, and therefore completely unique. The idea is to be able to use it as a certificate of authenticity associated with a digital or physical object. Each token is unique but obviously players can have ownership of tokens on different platforms. Among these projects, different types of tokens exist, such as governance tokens, equity tokens, security tokens, or utility tokens.

Gaming: NFT technology is being incorporated into video games by startups in this sector, opening up new business models like play-to-earn. The main contribution of the blockchain for users and players is the "play to earn": each player can play and indulge his passion by earning crypto-currencies. This model appeared with the birth of NFT, these certificates that allow to attest the authenticity of a digital object and therefore to own them, then to resell them. The decentralization brought by the blockchain (no central regulating entity) causes a potential paradigm shift: players no longer pay a license or subscription to play, but invest in the game to obtain tokens and develop, and then earn money from these benefits. Purchased NFTs bring decision-making power, which can take many forms and is independent of the publisher, and bring a gain.

Marketplace: Types of company that are developing and operating exchanges meant to help mint and trade NFTs on different platforms, for very various way of use (art, music,...)

Community: Examples of social media platforms designed for team collaboration, program management and member tracking. Interact with fans on a whole new level through easy to access channels where they can post commentary, fan art,...

Metaverse: The metaverse (contraction of "meta" and "universe", i.e. meta-universe) is a network of always-on virtual environments in which many people can interact with each other and with these digital objects while operating virtual representations - or avatars - of themselves. Corporations in this category are developing NFT experiences
related to the evolving metaverse.

Please find below the different maps on the web3 market that helped us build ours:

Web3 market map from TechCrunch

Tech Crunch Web3 Map

TechCrunch Web3 Map

Web3 market map from Coinbase

Coinbase Web3 Map

Coinbase Web3 Map

Web3 market map from Crunchbase

Crunchbase Web3 Map

Crunchbase Web3 Map

Web3 market map from SPEEDINVEST

Speedinvest Web3 Map

Speedinvest Web3 Map

You can find more information on our commitment to Web3 activities on our website: https://www.mandalorepartners.com/web3surance

Feel free to contact us to discuss a partnership or for more information about this article.

Minh Q. Tran, minh@mandalorepartners.com

Insurance Trends in Asia: A Bright Future For Insurtechs? #VC

Insurance in Asia has extremely high growth potential…

Insurtech and insurance in general has extremely high growth prospects in the region, much more so than in other more mature markets like Europe. 

Over 40% of the middle class population in Southeast Asia is uninsured: the scope of penetration for digitally charged insurance businesses through technology mediums like smartphones is huge. As standards of living rise and health concerns (for example linked to the pandemic) remain a preponderant issue, we expect demand for insurance products to increase. Penetration rates for Asia-Pacific stood at 3.8% for life insurance and 2.1% for non-life insurance in 2018, considerably lower than in the UK and the US that reported rates of over 10%. Insurance company Swiss Re estimates that by 2029, 42% of gross insurance premiums would originate from Asia-Pacific, with China accounting for 20% of this. Asian consumers are increasingly looking at insurance not just as a protection but also as an investment option.

This is likely to lead to significant revenue growth for actors in this industry, as shown above by the projection of the evolution of premiums in the coming years. 

….providing a unique opportunity for the development of insurtechs…

According to McKinsey, insurance companies in Asia are therefore very aggressive in terms of growth prospects, and insurtech can be a key way to rapidly reach under-served consumers.

The key point is that while there is a very large potential for growth, it may not be best served by traditional insurers. As shown above, customers now prefer digital solutions.  This is where insurtechs can play a major role. 

Indeed, VC funding in the sector has reached large levels in recent years. Venture capital has also recognized the potential profits to be made from digitally disrupting insurance. According to a paper by Bain,  in the past five years, venture capital firms have invested about $3.8 billion in Asia-Pacific insurtechs, including online sites that sell directly to the public, online brokers and advisers, and aggregators or digital marketplaces.

According to the report, in fast-growing markets such as mainland China, India and Indonesia, insurtechs can “leapfrog” incumbents and gain market share. Digital marketplaces, which allow customers to easily compare and select policies from competing carriers, may be able to conquer a significant share of the insurance profit pool. In major markets around the world, a majority of retail insurance customers—especially young, digitally active ones—are open to switching to another provider, including companies from outside the industry, such as retailers, automakers or tech firms, according to Bain & Company’s fourth global survey of more than 174,000 customers in 18 countries (“Customer Behavior and Loyalty in Insurance: Global Edition 2018”). Asia-Pacific insurance consumers are very receptive to new ideas and new players. In Thailand, Indonesia, mainland China and Malaysia, for example, more than 85% are open to buying from new entrants, according to Bain’s survey.

…which for now remain concentrated in mainland China, Hong Kong and other East Asian countries. However a key trend for coming years will be the emergence of new markets

Banks in financial hubs of SouthAsia, Singapore, and Hong Kong have already received significant investments in Insurtech: For example, DBS bank from Manulife of 1.2 Billion dollars, Citibank from AIA group 800 Million dollars and Standard Charted from Prudential 1.25 Billion dollars.

Singapore and Hongkong are providing a wide range of development and growth options like incubators, insurance labs and more for startups in the insurtech sector.

Asian Insurtechs startups and CVC

Examples of insurtech startups from around the region

As shown above, a number of high potential ventures have developed around the region. For instance, China is also seeking to build up big online platforms to provide various insurance options personal, medical, auto online. Malaysia has already started reaping the benefits of such platforms by slowly reducing the need for live agents.

Nonetheless, other markets are also seeing the development of insurtechs. For example, insurtech funding in India has increased from only 11 million USD in 2016 to 287 million in 2020, with startups such as Turtlemint which raised 30 million in late 2020. 

Insurtech can help the sector remove obstacles to growth…

According to McKinsey, Asian insurers currently tend to suffer from three main weaknesses: 

Sales force professionalization. The entire US insurance industry, as one example, has a few hundred thousand agents. Agency forces in Asia are significantly larger—China alone has roughly eight million insurance agents. However, the level of professionalization in Asia lags behind the developed world. Part-time and poorly trained agents are the norm in much of Asia. As customers continue to grow more sophisticated, Asian carriers will have to upgrade their agency forces. They can learn much from the West in terms of recruiting, capability building, and ongoing performance- and compliance-management. Western carriers are now helping agents migrate from product sellers to holistic advisors which provides a blueprint for Asia.

Analytics-driven decision making. The West is increasingly applying data and analytics in all elements of the business to improve the quality and consistency of decision making. In some cases, this has progressed to rely extensively on third-party data. In Asia, the use of data and analytics is less mature. Carriers need to invest in their internal data assets (i.e., capturing and storing more useful data), external third-party data integration, advanced analytics capabilities, and “last mile” adoption of analytics solutions. There is tremendous opportunity for carriers in all elements of the value chain, including pricing and underwriting, sales force effectiveness, customer servicing, and claims. Given the distributed nature of insurance operations in Asia and the talent gap, this is an even bigger opportunity.

Operational discipline and efficiency. Asian carriers can learn from the operational discipline of insurers in developed markets. Faced with the prospect of slower growth, Western insurers have long focused on improving efficiency through more optimized operations. Asian executives have underinvested in operational discipline and efficiency. It is not uncommon to find dozens of branches or field offices with widely varying operating practices. This increases costs, delivers suboptimal customer experience, and introduces significant compliance risk. Asian carriers will have to focus more time and investment on these issues in the near future. They can benefit from the new toolbox that has emerged which combines digital, analytics, robotics, and NLP to re-invent customer and back office journeys.

… and artificial intelligence is a key driver of change

The advancement of Artificial Intelligence (A.I) allows for much faster understanding of this data. This empowers intermediaries and underwriters to engage clients knowledgeable with data driven policy advice in real time.

Customers want to connect with insurers from virtually anywhere and at any time. The employment of AI processing will soon permeate almost every facet of the insurance business. For example, the insurer QBE Asia has “started seeing benefits from integrated AI systems that streamline and automate our claims workflow and reduce costs by consolidating the underwriting processes on a centralized platform”. They also deploy Robotic Process Automation to save significant costs on repetitive non-value adding tasks and have started to actively integrate connected devices (Internet of Things, IoT) into their insurance processes.

Finally, public authorities are likely to modify and adapt regulations in reaction to the development of digital insurance and insurtechs

According to Bain, “digital disruption is getting a push from regulators. In Singapore, Hong Kong and, more recently, Indonesia, authorities are actively promoting digital innovation and have established government funded incubators, known locally as sandboxes, to encourage insurers to experiment with new technologies”. Singapore and Hong Kong are emerging as hubs for telematics and insurtechs, and consumer use of digital channels in those markets is growing rapidly. This means new regulations are likely to be put in place, and insurtechs should prepare for this risk.

Le Corporate Venture Capital dans la bancassurance #VC

La bancassurance est parmi les secteurs les plus actifs dans le CVC au niveau mondial…

Alors que le Corporate Venture Capital (CVC) est en plein développement à l’échelle mondiale, comme indiqué par le dernier rapport CB Insights sur le sujet, le secteur de la bancassurance se confirme comme une des références, dans le monde comme en France.

En effet, si on examine les principaux investisseurs CVC dans le monde, on remarque la présence de nombreux acteurs des industries financières, comme Goldman Sachs et Fidelity, tandis que des entreprises étrangères dans ce secteur, comme SoftBank et Alibaba, investissent des montants considérables dans les services financiers.

…. et impliquant principalement des investissement en fintech ou insurtech, tout en s'intéressant également à des secteurs non financiers

Les fintechs et autres startups liées à la finance restent une priorité pour la plus grande partie des banques. Comme l'indique le graphique ci-dessous, les principales institutions financières américaines ont grandement augmenté le nombre d'investissements dans des start up dans les innovations financières. Néanmoins, des organisations financières comme Goldman Sachs ou des AM comme Fidelity n'hésitent pas à investir dans des startups diverses, allant de la santé aux médias. Par exemple, en 2020 Citi Ventures a mis en place un fonds d'investissement de 150 millions de dollars dédié à l'impact investing.

Cela est également visible en France, avec une transition graduelle vers des portefeuilles de plus en plus généralistes, même si la stratégie pour la plupart des acteurs semble toujours clairement ancrée sur leurs métiers historiques. Par exemple, au sein du portfolio de SG Ventures (l’entité d’investissement en capital-risque de la Société Générale), toutes les startups sont liées soit à l’assurance, soit à la banque soit à la mobilité, qui est l’une des activités de la Société Générale à travers sa filiale ALD.

En France également, les entreprises de services financiers sont les moteurs du CVC, et s’organisent selon deux modalités principales

Les acteurs de la banque et de l’assurance sont parmi les plus actifs de l'écosystème CVC en France, et représentent une proportion importante des investissements corporate dans des startups innovantes. Leurs objectifs sont à la fois stratégiques, mais aussi financiers, et leurs investissements, initialement centrés uniquement sur leur cœur de métier, ont tendance à se diversifier de plus en plus.

Les sociétés du secteur de l'assurance sont les acteurs les plus prolifiques du paysage CVC hexagonal. De même, les banques françaises sont relativement actives dans le secteur du corporate venture capital. Certaines d'entre elles sont d'ailleurs parmi les principaux investisseurs en France. Par exemple, en 2017 le Crédit Agricole était troisième, à égalité avec Partech, un des principaux fonds de venture capital en Europe. Certaines banques ont été particulièrement précoces et pro-actives dans leur stratégie de financement de l'innovation, et il existe une hétérogénéité importante dans les montants investis et la diversité des portefeuilles.

Investissements réalisés par différents groupes bancaires français (avant 2017)

Le positionnement unique de Mandalore Partners:

Venture capital as a service : a new state of play

It’s an exciting time to be a gamer, game developer, entrepreneurial gaming leader, and an investor. Over the last few years, gaming has exploded to a $152bn+ industry and is forecast to double to $300bn by 2025, growing larger than the NFL, NBA, music streaming, and worldwide box office combined. Investors have poured over $60 billion of VC funding into gaming ventures. Recent ventures that joined the unicorn club include Game 24×7, Immutable, and Tripedot.

Venture dollars have followed, especially in Europe. In the past 5 years, venture capital investment within the gaming sector in Europe has risen from $636m in 2014 to $1.3 billion in 2021. 25% to 30% of all VC investments in gaming were made in Europe.

Gaming is just one of the tech industries that have emerged with the power of digital. Consider SustainabilityTech, ImmersiveTech, and Web3.0 or cyber security platforms.

With so many new tech sectors emerging, there have never been more sources of funding for startups than there are today. The very best early-stage companies have many options when it comes to financing their business — whether it’s angel funding, crowdsourced funding, accelerator funding, or venture funding provided.

Within the venture capital industry, traditional venture capital firms typically write the biggest cheques as they hold significant resources to support start-ups within their networks. Still, traditional venture capital firms may or may not have the knowledge and expertise to bring their portfolio companies more than financing, meaning negotiating also strategic corporate partnerships to support sustainable sources of growth.

If start-ups 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 startup businesses can usually secure both strategic partnerships and the capital they seek.

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

What is Venture Capital as a Service?

New companies create constant pressure that disrupts established ways of doing business, with the average business lifespan on the S&P 500 collapsing by nearly 70% since the 1960s.

In addition, these emerging tech players also have lots of options when it comes to getting funded. I’m not saying that VC is going anywhere, but it’s important to realize that the playing field has changed. In the past, new businesses needed VCs more than VCs needed new businesses. But with the rise of corporate VCs, angels, and crowdfunding, that is no longer the case. small businesses now have more options when it comes to financing.

Consider the corporate venture capital world of today. It is the corporate venture arm of a corporation that makes equity investments in startups, usually with the intention of generating a financial return and/or achieving strategic objectives. Corporate VCs can be either internal (a division of the corporation) or external (an independent VC firm funded by the corporation).

External corporate VCs are often used as a tool to access startup innovation and to build relationships with startups that can be leveraged by the corporation. Internal corporate VCs, on the other hand, are often used as a tool to generate a financial return for the corporation.

Still, as a way to address the emerging market dynamics 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 and corporations by combining strategic alignment, goal-based sourcing, and access to networks of corporate funds.

Firms including Touchdown Ventures and Pegasus Tech Ventures are providing startups with both flexible cheque sizes and targeted business engagements with strategic corporate partners. Touchdown has partnered with corporations such as Aramark, Kelloggs, T-Mobile and 20th Century Fox. Pegasus has partnered with corporations including ASUS, acer and SEGA.

Indeed, incumbent market players can use venture capitalist thinking to plan their market disruptions, evaluate insight to draw strategies, inform corporate strategy and minimize surprises from an impact and financial returns viewpoint — turning venturing into a profit center instead of a cost center by managing, investing, and partnering with portfolio companies.

There are many benefits the venture capital as a service model can provide. First, it allows you to access leading-edge thinking and high-growth potential innovations and to build relationships with tech-led businesses that can be directly deployed by the corporation. Second, it allows you to generate a financial return for the corporation. Third, it allows you to access venture capital thinking and expertise to inform your own corporate strategy. Finally, it helps you minimize surprises from an impact and financial returns viewpoint.

There are also some risks associated with venture capital as a service. First, if you are not careful, it can lead to a conflict of interest between the corporation and the venture capital firm. Second, it can be difficult to find a venture capital firm that is a good fit for your corporation. Third, the venture capital firm may not be able to generate the expected return on investment. Finally, the venture capital firm may not be able to provide the desired level of service.

The three models of Venture Capital funding

There are a few models currently deployed by organizations when it comes to venture capital funding that also leverage a corporation.

Firstly, corporations can choose to directly manage their Corporate Venture Fund or Do It Themselves. This has been the more “traditional” strategy, initially adopted by most major actors, from Google to Axa. It entails significant commitments, in terms of both financial, human, and organizational resources: internal teams and processes have to be set up from scratch, and venture money has to be actively monitored and managed. Our Venture capitalists’ service enables our clients to tailor very specific tech investment thesis and secure their operations with minimum resource involvement to accessing qualified deal flow as well as expensive and sophisticated back-office resources.

Secondly, there is capital investment in independent venture capital funds. This more passive venture capital funding approach requires less corporate commitment and resources, but it also leads to minimal mandate control, limited co-investing opportunities, a closed-end fund structure, and no investment committee participation.

We can clearly see there are advantages and significant downsides to both of these approaches. This is why there is now a more active and strategic alternative participative funding option.

As a financially optimized model, Venture Capital as a Service (VCaaS) can be a fully outsourced service, or it can be a platform providing organizations with the opportunity to complement existing or build new, in-house venture capitalist capabilities. VCaaS delivers financial and strategic returns, as well as scale, context, and focus for corporates, government organizations & family offices.

What are good examples of venture Capital Funds? 

Multiple major corporations have put in place a comprehensive venture capital strategy in the past few years. As noted above both Touchdown Ventures and Pegasus Tech Ventures are well known in the nonfinance sector with respectively 63 and 175 portfolio companies.

The ultimate goal is to accelerate the success of portfolio companies by connecting them to networks of multinational corporate partners to create opportunities for business development, manufacturing, distribution, and global expansion. Some of the core capabilities these corporate venture capitalist arms have bespoke and industrialized for corporations include:

  • Distribution deals focus on using existing and new social channels to bring new products and services to customers.

  • Co-marketing typically involves bundling corporate and startup product messages to potential customers who would be interested in the joint offer.

  • Vendor agreement structuring where one party buys from another. Corporations can purchase products or services from startups, or startups can buy from corporations too.

  • Supply chain collaborations generally allow startups to leverage the scale, experience, and relationships of larger corporations.

  • Licensing transactions can focus on sharing technology know-how, patents, or other forms of intellectual property, including content.

The insurance industry has also been dynamic with a few leading re/insurers leading the pack. Still much more can be done in the sector.

  1. AXA Venture Partners

With $1 billion of assets under management. Axa Venture Partners has been one of the pioneers of corporate venture capital in Europe, launching AXA Venture Partners in 2015 with a focus on seed and early-stage funding opportunities in Europe, US and Canada, Israel, and the Mena region. Unicorns include Blockstream and Phenom.

  1. MunichRe Ventures

Launched in 2015, Munich Re Ventures is an extremely active and respected corporate venture fund that counts seven unicorns, 2 IPOs, and 5 acquisitions. The fund has taken a diversified portfolio approach investing in tech companies in finance, insurance, enterprise technology, transport and logistics, aerospace, and environment tech among the few.

  1. Generali and Inco Ventures:

Designed in partnership with INCO Ventures, a pioneer in impact investing, Generali launched in November 2020 the Generali Impact Investment fund. Reserved for institutional investors, this fund aims to financially support the growth of companies and organizations that contribute to improving the lives of the most vulnerable families and the professional integration of refugees. Generali France has thus taken a new step in its responsible investment strategy, in favor of more inclusive and more sustainable savings. The fund is committed for 20 years to an ambitious approach to Corporate Social Responsibility.

Most corporations do not have one single fund. To diversify portfolio strategy and ensure that they cover a variety of aspects across their value chains, they seek expertise from a variety of venture capitalists and startup commercialization experts.

Why should corporations outsource their Venture Capital arm?

In the 1980s and ’90s, many U.S.-based companies outsourced their research and development activities to Asia to reduce costs and secure the technical talent required to meet the growing demand for new digital products and services. With new remote working demands and talent scarcity, there is a need to access structure competence more readily within countries. Diversifying the talent pool has helped American companies to hedge risk and remain innovative. Overall, these U.S.-based companies performed better and drove higher profit margins, often leading the world across a variety of sectors.

The innovative models

A few VC firms have developed innovative models such as venture-capital as-a-service (VCaaS) as a way to support corporates to modernize and industrialize their innovation activities. They help corporations manage their corporate venture capital funds and find the most innovative startups to invest in, based on their interest areas. The firms also help facilitate startup relationships, developing business and technology collaboration. In many cases, corporations learn about new technology trends, new business models, and best practices from these startups–helping the corporations remain innovative. Startups in this model benefit from access to decision-makers, business guidance, and potentially a new revenue stream.

A venture capital firm: Innotech Corporation

As one of the best-funded venture-backed companies, and a smart automation provider, Osaro, successfully leveraged the opportunities offered by VCaaS and received funding from  Innotech Corporation.

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. We look forward to continuing our growth together and highly recommend that fellow entrepreneurs establish similar win-win relationships between investors and corporations.

Derik Pridmore, CEO of Osaro.

Indeed, startups often lack the scale, expertise, and experience needed to quickly grow to new markets and segments. As emphasized by Venturebeat, this makes effective partnerships with experienced corporations all the more important:

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.

Venture capitalists outsource corporate innovation

Outsourcing corporate innovation using VCaaS is a new way to address the ever-growing need of corporates to reinvent their business models. The approach relies on the expertise of angel investors, institutional investors, and corporate investors instead of relying solely on internal resources. VC firms that operate using this model are coming up with creative and flexible strategies that allow any corporation (large or small) to take advantage of corporate venturing thinking and invest in innovation. Outsourcing the investor’s expertise allows companies to run and grow their corporate venturing programs, generating top-tier results while keeping costs under control.

To sum up, both corporate firms and startups benefit from a VCaaS configuration. It’s a win-win framework for both sides as commercial engagements and decision-making are de-risked for all parties.

De-risking corporate innovation

There are two ways we look at de-risking the corporate venture capitalist conundrum.

For corporations: 

The framework allows for quick access to the VC’s network and deal-flow without having to start from scratch. It also eases access to a less expensive solution to in-house R&D to find new technologies and products. Working with the right venture capital firms, corporations benefit from an all-in-one solution with a competitive management fee–all for a fraction of the cost of typical R&D programs.

Corporates can also an innovation strategy without being hindered by the inertia and bureaucracy that is often present in very large firms.

For startups: 

The framework also facilitates easy access to long-term partnerships with established actors in their market. Indeed, the latter entails collaborations with firms that can help corporations quickly enter new markets and offers a potential new avenue to achieve a successful exit (e.g by being acquired by the corporation for instance.)

A young but growing practice

While VCaaS is a young, still fast-growing practice, several actors have already built a strong reputation and track record. As noted before, two of the well-established venture capital firms enabling corporate venturing include Pegasus Tech Ventures in Silicon Valley and Touchdown Ventures in Los Angeles. This means partnering with leading global corporations from Kellog’s to T-Mobile with clear gaps across their innovation value chain and supporting them in shaping and scaling activities enabling them to achieve their long-term goals. Similarly, Mandalore Partners, based in Paris, is working with leading insurance firms to help them put in place their venture capital investment thesis to start to benefit from the strategic and financial returns resulting from well-structured VCas a Service funds. From ideation to exits, we provide access to the resources and expertise you need to build a successful venture portfolio.

Roadmap for success

For us, success comes from quickly identifying growth ventures that fit within the strategic roadmap of corporate partners. After the VC introduces corporations to top emerging entrants, they work together to create joint development and revenue opportunities. Partnerships like this are mutually beneficial, leading to corporate innovation initiatives and helping startups scale their business faster.

VC money can drive many opportunities. What if you don’t have the time or resources to source and diligence these deals? Maybe you’re an entrepreneur who wants to raise money for your startup but doesn’t know where to start. Or maybe you’re an established business that needs access to future lens innovative thinking and wants to tap into the startup ecosystem but doesn’t have the know-how. This is where VC as a service comes in. We are a new breed of VC that provides not just capital, but also expertise, resources, and networks to help future-focused corporations and growth ventures succeed. Let’s not just write cheques. Let’s write success stories.

Don’t forget to listen to…

Sabine and I discussed VC as a Service recently on her podcast #scoutingforgrowth. You can find the discussion and episode just here.

About Minh Q. Tran

Founder & Managing Partner Mandalore Partners

Minh is the founder and managing partner of Mandalore Partners, which created an innovative framework that enables investors of early-stage companies to achieve scale by being exposed to a range of traditional, alternative, and tech venture capital assets.

In addition to his experience as one of the founding team members at AXA Strategic Ventures, Minh was also an integral part of several other VC firms, including Nokia Ventures, Bertelsmann Ventures, and Truffle Capital.

Minh is also a co-founder of Alchemy Crew where he works closely with Sabine VanderLinden to refine the corporate-startup engagement model through commercialization execution.

Twitter – Linkedin – minh@mandalorepartners.com

Photo by Jonathan Pielmayer on Unsplash

VC-as-a-Service: Benchmark of the sector & Strategic Positioning of Mandalore Partners #VC #VCaaS

Venture capital (VC) is a form of investment for early-stage, innovative businesses with strong growth potential. Often led by funds, Venture Capital investments are not for the faint of heart.

However, VC investments can be a fully outsourced service build new, in-house VC capabilities for Corporations, family offices or Business Angels. Known as VC-as-a-Service, the demand for such a service is booming.

Why ?

Corporate venture capital (CVC) is the investment of corporate funds directly in external startup companies.

CVC is beneficial for corporations for two aspects:

  • From a strategic point of view, CVC represents a true external source of innovation and enables an active monitoring of the sector’s future evolutions for corporations. CVC is also allowing corporations to attract the best profiles willing to work in a dynamic environment.

  • From a financial perspective, CVC often leads to return on investment. As for classical VC investment, CVC investments are generally characterized as very high-risk/high-return opportunities.

CVC is also a great opportunity for start-ups. More than getting only financial resources like with VC funds, they can get the optimal mix of capital and business value from the corporations. Indeed, start-ups have access to the fund’s financial expertise but also to the corporations’ knowledge about the sector.

Thus, CVC is a win-win solution for both corporations and start-ups. However, this solution is hard to implement in real life.

Indeed, VC abilities requires a lot of time, resources, contacts in the start-up ecosystem to have access to a strong deal flow, expertise for deep innovative analysis, expertise about legal aspects of VC investments. Corporations do not always have all those assets in-house.

Moreover, a misalignment of purposes can rise between the financial and strategic department of a large corporations due to the high-risk nature of VC investments. Besides, once the investment done, the gap between conservative mindsets in corporations and agile ones in start-ups may not be profit holder for both.

As CVC is very hard to implement, one may wonder on the way to deal with it.

How ?

Many actors are offering external services to enable corporations to have access to VC abilities for investments.

Each actor offers VC-as-a-Service abilities, some are pure players like Touchdown Ventures, some are bringing also a consulting expertise like McKinsey and Mandalore Partners is bringing a Digital Ecosystem along with its VC abilities.

There are three different categories of actors offering VC-as-a-Service abilities.

  • Pure players like Touchdown Ventures. Among this category, pure players are often multi-sector oriented and operate at a local scale like Techmind or at a global scale like Pegasus Ventures.

  • Consulting groups like Bain are bringing along their CVC abilities some of their consulting expertise. They operate at a global scale and on many sectors but mostly digital ones (TMT).

  • Mandalore Partners is a pure player but also brings its Digital Ecosystem along with its VC abilities. Mandalore has a global expertise and is specialized in Insurtech.

What ?

The objective of VC-as-a-Service is to bring VC abilities to corporations and start-ups:

Sourcing is one of the hardest abilities to acquire when a corporation wants to acquire VC skills. Indeed, it requires a lot of time and relations to build an efficient network. Using VC-as-a-Service gives corporations access to top-notch deals. VC-as-a-Service also quickly identify startups that fit within the strategic roadmap of the corporate partners thanks to previous deals and accumulated experiences.

More than Sourcing, VC-as-a-Service also brings a structure and a platform to rely on. Indeed, VC-as-a-Service funds have financial expertise, fine knowledge of the sector and contacts to find the best diligence as possible.

An efficient CVC investment is not finished when the start-up has received the funds from the company. VC-as-a-Service funds also follows the portfolio of the company and helps the start-up in its future milestone.

Using a VC-as-a-Service fund is in fact time saving and cost effective. It only takes few weeks to launch and to follow a CVC strategy for a corporation.

All along the investment process, decisions are made by the corporate which is enlighten by VC-as-a-Service fund. The fund is not making any investment alone.