NEWS

Runway Launches Corporate Venture Fund With Outside Capital

This week’s fundraising news includes plans for a new $10 million fund from an unlikely source: Runway, a generative AI startup building image and video tools for content creators.

Per an SEC filing, the company has decided to launch Runway Fund 1, LP, raising outside capital for its own early-stage investments.

Originally published in the February 9th edition of Transacted.

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Runway: Rethinking Content Creation

Runway says its AI platform is now used by millions of individual creators, and has various enterprise contracts with Fortune 500 clients.

Speaking with TechCrunch last year, CEO Cris Valenzuela outlined a vision to “reimagine content creation and [build] a new type of creative suite, the generative suite.” He added, “Content creation today is very expensive and time-consuming. We want to help bring those cost and time factors as close to zero as possible.”

Runway was most recently valued at $1.5 billion in a July Series C extension, reaching a total of $237 million raised from backers including Google, NVIDIA, Salesforce, Madrona, Lux, Coatue, Felicis, and Amplify Partners.

 

Runway’s Corporate Venturing

The majority of corporate venture capital (CVC) teams invest “off the balance sheet,” taking capital from their parent company’s balance sheet instead of raising from outside limited partners (as a typical institutional venture capital firm would). Such off-balance-sheet mechanics can take the form of multi-year or annual budget commitments—avoiding the work of soliciting capital, though at the expense of a less certain pool of funding whose size can fluctuate as budgets change.

CVCs are also generally found within established, mature businesses. Early-stage startups often don’t have the cash or capacity to make the investment in such an effort. Exceptions include instances in which there’s a clear upside from supporting a nascent and growing industry—most recently seen in crypto from former heavy-weights like FTX and Binance.

Runway seems to feel there’s merit in such a strategy and is taking the unusual approach of funding its corporate venture capital activities via a standalone fund with external commitments. For the venture-backed startup, this option avoids the questionable alternative of funneling a portion of the company’s own cash straight back into new investments; likely not what Runway’s early investors had in mind when they wrote their checks.

At the same time, taking outside capital may present its own set of challenges. Even with its very small fund size, Runway is taking on the non-zero added burden of the various compliance, reporting, and operational components involved in launching its own fund. Someone also needs to dedicate the time required to actually execute the investments, including both underwriting and sourcing.

Depending on the fund’s terms, Runway may also lose out on the classically cited advantages of corporate venture capital: much longer investment time horizons and the optionality to prioritize strategic returns to the parent company over purely financial returns to limited partners.

For Runway’s own venture backers, there may be some level of apprehension with the strategy, even without their capital directly involved. Do the potential (and likely low probability) upsides of the initiative provide the same return as an equal amount of effort focused on Runway’s core business activities?

In Runway’s defense, this won’t be the first time the company has expanded beyond the core tech platform. Last year, it founded Runway Studios, an entertainment division that provides production services to enterprise clients. And, in a bit of creative marketing, launched AI Film Festival, one of the first-ever events dedicated to works produced with the help of generative AI tech.

Sam Hillier

Sam Hillier is a reporter at Transacted covering private equity and investment banking. He previously spent time as an investment professional focused on direct buyouts, as well as an earlier strategic advisory stint.