Over the past few years, analysts and commentators have described the new wave of corporate venturing (CV) activities sweeping across industrial sectors. Despite adverse macroeconomic conditions and highly volatile capital markets, the total number of CV programmes has grown dramatically from 694 in January 2010 to 865 in December last year.
Perhaps most importantly, today’s corporate venturing landscape is the first truly global one. It is a landscape characterised by the acceleration of the geographic shift of venture investment patterns and the emergence of new global innovation hotbeds. But what is the distinguishing feature of increasingly globalised corporate venturing activities?
An analysis of the data on new CV programme entrants reveals a new generation of corporate ventures – innovative and fast-growing Asian corporations. In fact, Asian-headquartered corporations launched 19 CV programmes out of a total of 52 new entrants last year, in so doing surpassing – for the first time – the US and the EU, each of which had fewer new entrants (see figures, right).
It is worth noting that Asia-based corporate investors constitute an increasingly important fraction of overall venturing activities with a total of 189 programmes (22%), debunking the myth that corporate venturing is a US phenomenon.
The rise of Asian corporate venturers urges us to reflect on the key drivers of this shift as such factors are likely fundamentally to redefine the future marketplace for technology and innovation. Here are three important – and related – developments that should not be underestimated.
1 A number of Asian corporations – for example ZTE, LG, Huawei, Samsung and Panasonic – have established themselves as serious international players and innovation leaders, adopting a different strategic approach to the resources and assets accessed through internationalisation.
Unlike their western counterparts, such companies are not primarily market and resourceseeking investors. They are innovation-driven investors in search of highly disruptive technologies and business models, and therefore interested in strategic assets and investments in know-how in global entrepreneurial hotspots.
The most recent example is the announcement of Samsung’s “global platform for disruptive innovation” last month. The platform strategy is designed to gain access to outside innovations in countries, such as the US, Israel, China and India, with external venturing and partnering initiatives – for example, a $100m catalyst fund with a focus on early stage, and the global $1bn Samsung Venture Investment Corporation – that complement the 24 corporate research and development centres with a budget of $10.8bn last year.
Interestingly, Samsung Electronics is the only South Korean company whose president and chief strategy officer is strategically based in America’s Silicon Valley. This is to ensure Samsung will invest $20bn up to 2020 in novel markets to identify and capture tomorrow’s business opportunities – wherever they can be found around the globe.
2 In China, India and other vibrant Asian high-growth markets – think Taiwan, Indonesia and Singapore – technology clusters and entrepreneurial talents are arising, putting innovative Asian start-ups on the global technology map. As the copy-cat and production-driven era fades away, a number of Asian IT, media and consumer-focused startups have begun to break through with market-leading products, often combining frugal, agile and highly scalable solutions with innovative business models. As examples, consider the mobile internet gaming sector, where Asian start-ups have fiercely challenged western market leadership, or observe how Twitter has recently started to copy various features from Weibo, a Chinese microblogging website.
Moreover, it is worth observing that recent research suggested that of all US publicly-traded internet companies only six achieved over-30% top-line growth in 2011 and 2012, and 2012 ebitda (earnings before interest, tax, depreciation and amortisation) margins of at least 30%.
That means only 5% of the current crop of public internet companies are in the top echelon in terms of profitability and growth.
Most interesting, all six companies in the top tier are not western based but from Bric nations (Brazil, Russia, India and China), such as China-based Tencent, Baidu and Qihoo 360.
As corporates have realised the innovative potential of Asian markets, they have begun to forge alliances and become strategic investors in local incubators and accelerators.
High-profile examples include Kyron, a $50m accelerator for Indian start-ups based in Bangalore, or Innovation Works based in Beijing and Shanghai, which over the last three years has incubated and invested in more than 50 local start-ups and recently closed its second fund at $275m.
3 As more western technology ventures consider Asian markets as an essential part of their expansion and commercialisation strategy, increasing numbers of Asian, especially Chinese and Indian, investors are financing US and EU-based start-ups and providing the much-needed support to break into the region. For example, research shows that nearly twice as many Chinese venture capital firms (VCs) backed US-based start-ups in 2011 compared with two years earlier. More importantly, the trend is set to continue well into the next few years, as a number of Chinese VCs are expected to raise more cross-border funds to invest in global transactions.
Beyond exporting Asian venture capital, a number of innovative start-up acceleration initiatives, such as InnoSpring, Silicon Valley’s first US-China technology incubator, are emerging and are helping to redefine the role of Asian venture investors in the entrepreneurial ecosystem. In an increasingly global venture capital landscape, corporate venturing has a unique part to play in turning the great potential offered by these transformations into value for their corporate parents.