UPDATED: Rainmaking Venture Studio, the UK unit of the Danish entrepreneur network, is raising a £65m fund to co-invest in British corporare start-ups.
Rainmaker’s current investors are already committed to supporting up to £50m in co-investment capital, with the focus on corporate ventures launched in the UK.
And the £65m UK fund is in addition to a wider global £150m fund being raised to back start-ups.
London-based Rainmaking Venture Studio will use the money to back between six and eight start-ups each year.
Each start-up will be developed with a corporate partner with a view to the corporate buying out Rainmaking Venture Studio and start-up founders after five years.
Between them, Rainmaking and the corporate will invest £600,000, giving each start-up a runway of between 12 months and 15 months as proof of concept. Follow-on Series A investment will be on a case-by-case basis.
Jordan Schlipf, CEO of Rainmaker Venture Studio, expects half of the start-ups to be sold eventually to their corporate partners.
Schlipf said: “We are no longer building start-ups in the wild. We only build start-ups in partnership with corporates. We get way better results with much lower risk and the ventures scale much faster. We can blend the best of big with the best of small. You get all the advantages of a big corporate, whether it’s distribution, assets or data, and we get to leverage all that.”
To date, Rainmaking Venture Studio has developed start-ups through its co-investment model with corporates including delivery company DPD Group, life insurance group Topdanmark, as well as a mining conglomerate and a UK household name insurer.
Looking for founders
Rainmaking Venture Studio is now looking for founders and technologists to lead its creation of corporate start-ups.
Schlipf says he is looking for experienced founders who may not have achieved commercial success on their own. The Rainmaking Venture Studio model, he believes, offers founders a surer path to success.
His model is to pair a founder with a chief technology officer as a pair before parachuting them into a corporate.
Schlipf said: “When we build a start-up with a corporate, we always put in proven founders. We trust those entrepreneurs to build the business. Talent is the one driver of the success of our business model, for sure.”
Half of the corporate venture start-ups will be created internally by Rainmaker Venture Studios and the other half brought in by external founders.
Schlipf, whose career spans investment banking, entrepreneurship, education and early stage venture capital, says the current corporate venturing model is broken.
Mostly corporate venturing means large corporations sprinkling seed money around start-ups and seeing which ones take off, he says.
The reality, says Schlipf, is that corporate venture funds do not get access to the highest-quality start-ups. Ninety-five per cent of all the profit made in venture capital is delivered by the top 20 funds, he asserts.
‘75% of all the VC funds lose everything, they don’t even return money to investors’
“By setting up your corporate venture fund you’re not going to access to the profitable deal flow. Seventy-five per cent of all the VC funds lose everything, they don’t even return money to investors.
“Traditional corporate venture capital has become decoupled from the market. There’s too much money chasing too few deals. All the top-quality start-ups go to the top-quality funds, which aren’t corporate venture capital.”
Not only that but corporates struggle to incorporate their start-up investments into their corporate structure.
Schlipf cites one consumer goods giant that is now on its fourth CVC fund and after 18 years of corporate investing £800m early stakes in start-ups, it has never acquired any of the businesses it has ploughed money into.
The truth is, says Schlipf, is that many of these people leading corporate investment in start-ups see it as just a more interesting day job, and, after a while, they ditch the suit and tie and move to trendy East London to be closer to the start-up world.
Under his corporate venturing model, founders will own less in their start-up than if they had done it on their own, says Schlipf. Typically, a founder will own 30 per cent of the start-up, Rainmaking 30 per cent and the corporate, 40 per cent.
“We’re not unicorn building,” Schlipf said. “Yes, we’re capping the upside slightly, but the founders get a much greater chance of exit.”
Rainmaking began life at the end of 2007 as an entrepreneur cooperative in Denmark, founded by Carsten Kølbek and Kasper Vardrup, who, as serial entrepreneurs, shared equity between founders as a way of protecting the downside.
To date, Rainmaking has originated around 27 start-ups, profitably exiting from one third.
Schlipf joined Rainmaking in January 2015 to work on its accelerator bootcamp Startupbootcamp, the world’s largest accelerator programme, which to date has facilitated €722m in nearly 900 start-ups, creating companies worth €1.bn.
Profitable exits from companies developed through Startupbootcamp include Relayr, which was sold to Munich Re for €300m; eye tracking start-up The Eye Tribe, which was bought by Facebook’s virtual reality arm, Oculus; and Railsbank, which has just bought UK subsidiary of discredited German fintech Wirecard.
Separately, Rainmaking was developing start-ups for corporates on a fee-based consultancy basis.
Its first piece of corporate venturing was consulting for Jaguar Land Rover in 2015, showing the car manufacturer how it could move away from only building petrol cars.
Subsequently it built start-ups on a consultancy basis for Deutsche Post, Engie and HSBC.
Schlipf said: “This is a whole new path to pursue your entrepreneurial passions and dreams that didn’t exist before. It’s for those who don’t want that compromise of being an employee again. For all of those who want to stay in the start-up world, we have a new path for you that is lower risk and higher return. We can outcompete start-ups in the wild. The ventures that we create in this way scale a lot faster.”