As with last year’s, the Global Corporate Venturing predictions for this year rely heavily on curating the crowd-sourced wisdom of the experts, our subscribers and readers, with a selection of the best answers in our survey on the following pages.
Our motto, courtesy of philosopher David Hume, states: “Truth springs from argument among good friends,” so please continue the debate at our LinkedIn page and by dropping me a note.
Last year’s dozen picks were broadly accurate as the global economy continued to grow despite concerns about the eurozone and slowdowns in China, India, Japan and Europe; protectionism started to increase while governments, usually, made increasing efforts to attract entrepreneurs and investors; and corporate venturing continued to explode and the role of chief innovation officer became more widespread.
Education was the sector of the day, while the US retained its innovation edge and all eyes were on its entrepreneurial success stories, including Facebook, albeit that sentiment went quickly from hype to gloom after its record flotation.
Macroeconomic
The world has broadly been a Nice – non-infationary, con-sistently expansionary – place to be over the past two decades since the end of the Soviet Union helped to push hundreds of millions of people into a more capitalist system.
While some countries, companies and individuals struggle with their debts, others will beneft from a competitive position of having cash and being able to invest in innovation to take market share from the so-called zombies living beyond their means – no reason to expect this to stop in 2013, with forecasts of reasonable economic growth for the world’s economy that is remarkably globalised and with few controls on capital.
The only question marks are whether protectionism will recur following a rise in nationalism and a youth demographic in the Middle East, Africa and south-east Asia that could foment unrest, or whether the shift to city-centred politics and solutions will create an altered polity.
Policy changes
As societies, and the people and organisations within them, think through the consequences of how investing in innovation, and the supporting bits that are required, such as infrastructure – leads to relative out or underperformance versus peers, so governments will begin a host of policy changes designed to make their region more attractive.
With corporate and other venture capital the new form of foreign direct investment, countries that build on their existing strengths to form a comprehensive package of tax, legal and other benefits will do well, with the so-called Cuurs (China, the US, the UK, Russia and Switzerland), leading the way.
Governments, and supranational bodies such as the European Investment Fund, will provide capital, directly or through tax breaks, but most importantly will help join up the ecosystem so there is greater collaboration between existing firms,entrepreneurs, service providers and all types of investors.
Organisation overhaul
With innovation, rather than just research and development (R&D), becoming as central to a company’s success as marketing and sales, corporations will continue creating chief innovation officers(CIOs) rather than leaving the role subsumed within an existing chief financial officer’s or chief technology office’s post.
Global Corporate Venturing’s pioneering research identified more than 40 such CIO roles, with about half created in the past two years. The CIO will be charged with joining up the organisation so it uses its internal ideas better through intrapreneurship as well as deciding how to open up to external innovation, with corporate venturing one tool alongside joint ventures, partnering, licensing and outsourced R&D to universities and other research institutes.
Corporate venturing explosion
With a dedicated innovation offcer, companies will decide how far along the continuum from mergers and acquisitions to minority equity investments to collaboration they want to be involved.
With cultural acceptance of open innovation having reached tipping point, understanding how and when to make minority investments through a corporate venturing programme has also been increasing.
With about three-quarters of the Fortune 1000 companies for the frst time having a dedicated corporate venturing unit or strategy, according to Global Corporate Venturing, the rest of the world’s biggest businesses will fnd a way to follow, and the tool will increasingly be used by small and medium-sized enterprises (SMEs) able to fnd entrepreneurs needing relatively little cash but struggling to gain distribution, sales and marketing and other business necessities to grow, and looking to tap into bigger corporations to do so.
This SME-scale corporate venturing will require more cornerstoning of venture capital funds to direct strategy, collaboration with non-competitive peers to create a fund, and smaller funds of between $2m and $30m.
Leading role
The continued shrinking of the independent venture capital (VC) industry in the US and Europe and now China following a collapse in fundraising last year, and reliance on portfolio company improvement to generate returns, will combine to give corporate venturing units a more leading role in an increasing number of stages and sectors.
This will lead to substantial shifts in team make-up and structure, recruit-ment and incentives, as corporate venturing units become mini-multinational corporations with a range of skill-sets in the deal and portfolio management team, legal counsel, marketing and public relations, accounting and other business support functions able to invest across borders.
Portfolio help
With greater onus put on corporate venturing to lead and decide the future of a portfolio company, and less competition from VCs, there will be a tendency to invest more in fewer or the same number of businesses, so the corporation can have the shareholding percentage it needs, and follow-on as businesses that are disruptive beyond a software programme that goes viral take more time and money to make their mark.
Opposing this, the number of new programmes still ramping up their investment portfolios will mean in aggregate corporate venturing units will probably invest more in more deals this year.
Walking the pier
The rapid growth in early-stage rounds and contraction of other forms of long-term capital – primarily institutional investors through VC funds – as well as a tendency to make bigger bets on limited numbers of companies will result in a number of bridge loans failing to develop into full funding rounds for entrepreneurs, leaving them as a pier to nowhere. The resolution will be more mergers and acquisitions and failure.
Performance
With economic growth still slow or going into reverse in parts of the developed world, and affecting faster-growth nations, there will be a greater focus on costs and how cash buffers are used.
In addition, the speed of innovation disrupting incumbents in all sectors and regions will bring vulnerability to erstwhile champions. These factors will lead to more Hail Mary passes in large takeovers in a bid to replace product lines and findgrowth through efficiency savings and goodwill write-offs, but corporate venturing units will have to show they can return more money than they invested and deliver some strategic benefits.
If they can, there is room to grow or become an evergreen – failure will see operations shut and alternative ways to open up to external innovation tried.
Most active sector
Last year, Global Corporate Venturing predicted education would be the most active area as the sector becomes disrupted by huge open online courses and changes to funding and business models.
This will continue to play out this year but the broader media sector will continue to grow and be transformed. The era of distributors reaping the rewards will not end but content will increasingly be king in the latest paradigm shift in value creation.
University venturing
With education a hot issue for entrepreneurs, the deans and presidents of universities are starting to think about the potential impact on their businesses.
Currently grappling with a de facto limit on tuition fees, declining public spending on tertiary education in many countries, and technology, the internet and social media providing greater competition, universities and research institutes are turning to how they can monetise and take equity in good ideas and the people that pass through its electronic or physical walls.
Corporate venturing units are perfect partners for them – hence why we launched a new title in this area last year.
Most active region
The US will remain the most important region for innovation and corporate venturing. This is both as a country attracting overseas investors to domestic entrepreneurs and innovators but also as a springboard by existing corporate venturing units to become more international and findideas from round the world they can back and bring to the US.
However, the so-called emerging-to-emerging formula of expanding internationally with little recourse to western business models and requirements will be increasingly lucrative.
Exits
After the fall in social network Facebook’s share price following its flotation for a record $104bn market capitalisation in May, sentiment has turned towards enterprise-focused entrepreneurs as safer and more lucrative bets.
Facebook also seems to have soured sentiment for other listings. The number of exits – including trade sales alongside initial public offerings (IPOs) – and overall valuations are still below the levels required to generate significantreturns for most venture investors or to result in a decline in aggregate portfolio holdings for the corporate venturing industry.
Mass acquisitions by the parent or mergers before or after secondary sales could be part of the solution for an industry that remains chronically dysfunctional to all but a few.