Amplidata Corporate Venture Capital Fundraising Strategy
In 2008 Amplidata was founded by a number of seasoned entrepreneurs. Amplidata developed a Distributed Storage System (DSS) technology designed to solve the scalability and reliability problems traditional storage systems face, by taking advantage of the introduction of large capacity drives and solid state disks. Amplidata raised over USD 40 million in venture funding in four consecutive funding rounds from 2010 to 2014 from financial and corporate venture capitalists.
The Series A round was led by financial investors Hummingbird Ventures and Endeavor Vision. The Series B round was led by US-based Intel Capital and combined with a strategic Intel-Amplidata partnership agreement in a certain field of use. The Series C round was led by US-based Quantum Corporation and combined with an OEM license in a certain field of use. Western Digital led the Series D round and appointed Amplidata as co-creation partner for the HGST Active Archive platform, which aims to enable breakthrough levels of storage efficiency at an ultra-competitive total cost of ownership.
In March 2015 Western Digital Corporation (NASDAQ: WDC) announced the completion by its wholly owned subsidiary HGST of the acquisition of Amplidata. The acquisition supports the Western Digital’s strategy to expand into higher value data storage platforms and systems that deliver breakthrough value and scalability to address the massive growth in storage requirements in cloud data centers.
Amplidata thus combined two financial investors with three corporates in its fundraising strategy, together with targeted partnership agreements in specific fields of use with each of the corporates. Great care had to be placed in designing and implementing appropriate corporate venture capital mechanisms to ensure Amplidata’s freedom to operate, its ability to fundraise at the best possible terms, and to safeguard M&A opportunities at optimal valuation conditions and other deal terms.
Wim De Wispelaere, founder and CEO of Amplidata and currently VP Technology and Advanced Development at Western Digital, shared the following insights regarding corporate venture capital raising strategies:
• Strategic partnerships: it is of crucial importance to have a clear strategy for entering into strategic partnerships with corporates who also make a venture capital investment in a growth company. The strategic alliance needs to be structured at arm’s length and needs to be judged on its own merits. It is not acceptable for a corporate investor to use its financial investment to negotiate commercial deals which are off market compared to commercial deals entered into with non-investors.
• Complementary nature partnerships: when combining different corporate investors in a fundraising strategy, the scope of each alliance, as well as the tasks and responsibilities of the partners need to be carefully delineated to ensure that one partnership does not preclude the growth company from entering into other partnerships. It is thus key for such partnerships to be complementary and not mutually exclusive.
• Preferred vs exclusive nature: it is highly advisable to only grant rights of first refusal for specific collaboration opportunities and not enter into (broad) exclusivity arrangements with a single corporate. If a corporate insists on obtaining exclusivity in a certain field of use or geography during a certain period of time, performance targets need to be associated with such exclusivity arrangements. Either the corporate agrees to certain minimum royalty or other payments to “earn” the exclusivity, or it should agree to performance targets, which if unmet result in the forfeiture of any exclusivity arrangement.
• IP and co-creation: it is crucial for ownership of the intellectual property rights underpinning the products and services to remain with the growth company. Any co-creation and ownership arrangements with a corporate require extreme scrutiny and need to ensure that the start-up retains the full right to develop its own products, even if some features or aspects were developed on request and paid by the corporate. Alternatively, in case a feature would be developed exclusively for a corporate it should be kept separate carefully such that the startup can fully continue to develop its product strategy, even in eventual absence of that particular piece of IP.
• Financial vs corporate VC governance: a growth company needs to be careful in conceding veto rights to a corporate as such corporate will have mixed financial and strategic objectives, which is not the case for financial investors. Giving a corporate a veto right over important strategic transactions, such as joint ventures, mergers & acquisitions and fundraisings is a major issue, as would be giving the corporate a veto right in any matter related to the commercial relationship between the corporate and growth company.
• M&A optimization: an overriding concern of founders and financial investors will be the possibility to obtain the best possible price in an M&A transaction. If a corporate is treated in the exact same manner as the financial investors, it would be able to purchase all secondary shares that become available for sale and thus acquire “creeping” control, taking away the possibility of the non-corporate shareholders to obtain a strategic control premium in an M&A transaction. Therefore, pre-emption rights of corporates require specific structuring, allowing such corporate to make a (best and final) bid for the entire company in a short timeframe, without endangering an organized or unsolicited bid process with other potential buyers.