The Right Time to Bring a CVC Into Your FOAK

Every FOAK founder I work with eventually asks the same question: Should we approach corporate venture capital (CVC)? The honest answer is — it depends entirely on when. Last week, I was on a call with a founder, discussing who we should reach out to next in our search for funding for their first-of-a-kind (FOAK) plant. We were considering reaching out to CVC, since rank-and-file VCs told us they aren’t funding hardware scale-ups and their tickets are much smaller anyway. Our product is a speciality chemical, very high up the battery value chain. All of our potential customers are large chemical conglomerates, so CVC seemed like a natural choice. Then I remembered how I first ran into CVC in 2021.

I was the CEO of RENERA, a Russian battery scale-up, 100% owned by Rosatom, a state corporation, and the sister CVC reached out to me for my expertise in batteries as they considered an investment in an early-stage battery startup. I was on full steam ahead with planning my gigafactory and, having looked at the tech, replied that the tech was fine and promising, but would have no impact on my project, as it would reach the necessary TRL/MRL in the next 5-7 years. I had an off-take in negotiations that required me to deliver over 2 GWh of cells much earlier. I gave my green light, and the CVC went on to invest something close to $2 million. My investment program aimed to secure over $200 million.

Reflecting back on my experience and reading a recent article on the Hack Summit website (they’ve interviewed many CVCs), I have to say that CVCs aren’t a good fit for FOAK for two main reasons. First of all, they can’t provide the funds you are looking for. Their tickets are the same as most VCs, so a €1-5 million check won’t get your €50 million project very far. Second, having a CVC on a captable won’t guarantee you an offtake from the parent corporation. That you’ll have to do by yourself, as the decision on offtake is always taken by a separate team with completely different KPIs. CVC teams are judged on their portfolio returns, while procurement teams are judged on prices secured, speed and the quality of goods delivered.

There is, though, a case where a CVC CAN help you with FOAK. Having a CVC as an investor BEFORE you go for FOAK (at pilot stage or earlier) will provide you with many benefits later on. First, their presence confirms the strategic value of the existing market and enhances your credibility with later investors. CVC interest signals to later investors that a serious industrial player sees strategic value in your technology.

Second, CVC can be your champion inside a corporation, as the CVC’s manager’s internal success depends on yours. That’s rare in the corporate world, which sees startups at best as a nuisance and at worst, as a threat. You can leverage that to open doors to better procurement prices, offtake negotiations and early customer feedback. Getting that MOU or term sheet on offtake from the parent corporation can hugely boost your chances of a successful funding round for your FOAK.

CVC money won’t bridge your FOAK valley of death. But they can make a good foundation for one. For the FOAK stage itself, the capital has to come from elsewhere: strategic industrials (a CVC parent might take interest), project finance, or public loan programs like the EU Innovation Fund.

If you're deciding whether CVC belongs in your FOAK funding stack, this is exactly the kind of question I help founders work through. A free call is a good place to start.