Over the past 40 years of corporate venturing, those in the profession have looked enviously at their independent peers because they believe financial venture capitalists are paid more than those working within a corporation’s investment team.
This belief has been confirmed by the CVI2-Thelander 2013 CVC Compensation Survey to be released September 10, in which over 60 cross-sector corporations – some of the world’s largest – participated. Compensation specialists at J Thelander Consulting in partnership with the Corporate Venture and Innovation Initiative CVI2 – whose charter members are consultancy firm Bell Mason Group, Doblin, part of accountancy firm Deloitte, law firm DLA Piper, trade paper Global Corporate Venturing and Silicon Valley Bank – created the survey, with the support of trade associations the US National Venture Capital Association and the European Private Equity and Venture Capital Association, as well as the Corporate Innovators Huddle/Corporate Venturing Forum and conference organiser IBF.
Corporate venturing unit leaders on average earn $304,250 a year, with a further $164,865 as cash bonus. A similar 2012 survey by bank JPMorgan and J Thelander Consulting found the top-ranking financial venture capitalist (VC) at a firm managing less than $1bn earned $541,329 on average in the 2011-12 period with a bonus of $868,092.
Equally important for financial VCs, they also receive an average 23.9% of the profits – called carried interest – generated by their deals, subject to hurdle rates and other provisions.
However, only three of the 60 corporate venturing units included payment of carried interest as a component of compensation to its corporate venturing executives, with a further six trying to create incentives to create profits through a shadow or phantom carry component of compensation (see chart 1 in our issue pdf).
Heidi Mason, managing partner of Bell Mason Group, said: “This survey lays to rest the question of VCs carried interest relative to corporate venturing compensation – the reality is most corporations do not and will not award this. Rather, this timely survey data provides more appropriate apples-to-apples comparisons and benchmarking for corporate venturing professionals, relative to their like-kind, cross-sector peers. The need to formalise and, in many cases, course-correct corporate venturing compensation models is fast becoming critical for corporations seeking to retain the specialised teams at the heart of corporate venturing programme success.”
Alas, a majority of the respondents to the survey said their current title and compensation structure failed to reflect accurately what they did and appropriately compensate them as a corporate venturing professional. This problem is not unusual because only a quarter of corporations conducted external benchmarks to determine compensation comparables.
Half the respondents said they were also granted options or shares in their corporate parent, which provides general incentives to consider the parent company’s performance and the strategic impact they create rather than necessarily just a financial return on a particular investment.
In addition, nearly half of the factors behind the cash bonuses paid were a result of the overall parent company’s performance over the past year, with the individual or team’s contribution making up the rest.
When judging an individual’s contribution, nearly 80% said the number of deals sourced and closed was a factor considered.
Nearly half said business units also judged their “valueadd” to align their work with the current needs and strategies of the parent company. Less than a third of respondents said the exits of their investments were factored into their individual bonus award calculation (see chart 2).
Most parent companies acquire less than 10% of portfolio companies in which their venturing unit invested and few deals are of a size to require a financial statement in their accounts.
Sisyphus syndrome
However, the steady rotation of senior management, such as chief executive (CEO) and chief financial officer (CFO) – the primary reporting positions for respondents to the survey – has led to a correlation in the limited tenure of corporate venturing leaders.
Jody Thelander, founder of J Thelander Consulting, said: “If there was a change in CEO [which on average happens within five years at large US-based firms], the [corporate venturing] head was newer.”
Nearly half of respondents said there had been a CEO or CFO change, or both, in their parent company within the previous three years. The frequency of turnover in senior ranks meant every few years there was a re-evaluation of the unit and leadership and education on how it could help – what one veteran of more than 20 years with the industry described as analogous to the Sisyphus myth of having to roll a boulder uphill every day only to see it fall back every night.
Of the 40 senior corporate venturing leaders and executives who responded to the survey, nearly half (42%) had been in place less than two years and a further quarter for less than five, even though 48% of corporate venturing units have been in business more than six years, according to the survey. This relatively short tenure might also be partly a reflection of the rapid growth in the industry over the past three years.
Global Corporate Venturing has tracked more than 200 corporate venturing unit and fund launches since 2010, many of which have recruited experienced managers from other companies to complement internal executives moved to work for the nascent team.
Of the 60 participants to the survey, 57% said less than half their team were internal moves from the corporate parent. Nearly a quarter (23%) said at least three-quarters of their team came from the parent company (see chart 3).
But given the uncertainty of title and compensation structure, there remains uncertainty on the expected career path for senior corporate venturing executives beyond running corporate venturing units at other corporations.
Recently, however, the development of requirements for CEOs and CFOs to show their experience in managing change and developing growth over managing costs has led to well-regarded corporate venturing executives – such as Martin Grieve at consumer goods company Unilever and Mike Buckley from chip maker Intel – to take on senior financial roles at other large corporations – Reckitt Benckiser and Nike, respectively – according to research by Global Corporate Venturing.
This new path follows an established path for treasury and finance professionals – such as Arvind Sodhani at Intel and Woi Hong Choi at South Korea-based conglomerate Samsung – to take over their companies’ corporate venturing units.
Both Intel Capital and Samsung Venture Investment Corporation operate as separate entities with dedicated, multi-year investment funding and assets under management of more than $1bn, but this approach is the exception, according to the survey (see chart 4).
Only 11% of the 58 respondents to this question said they had separate corporate venturing entities with multiyear funding. The most common answer (35%) was to draw money from the parent company each year for a separate legal entity, while 28% were part of the corporate structure and a quarter (26%) relied on obtaining funds from the parent company on a case-by-case basis.
By analysing the answers, however, Thelander said corporate venturing teams without a dedicated unit managed a larger amount of money by being able to draw on multiple sources from different parts of the parent company.
Given the current difficulties of many financial VCs in raising money from their traditional limited partners (investors) because of perceptions of excessive charges and relatively poor returns, the lower compensation but greater chance of doing deals has started to mean becoming a corporate venturing executive is a more attractive occupation than ever before.
Next steps
This inaugural compensation survey of the corporate venturing industry has had unprecedented support and responses. Mark Radcliffe, partner at DLA Piper and founder of the firm’s corporate venture practice, said: “Most of the wide ranging opinions on topics ranging from corporate venturing gross compensation to how that compensation should be structured have been anecdotal. With this 2013 survey, the facts become clearer, and the implications for executive management and corporate boards more informed.
Respondents to the survey will receive the full analysis and copies can be bought from J Thelander Consulting.
Highlights and discussion from this survey will be held at the IBF conference in the US in February, with a follow-up study on bonuses ready for the Global Corporate Venturing Symposium in the UK in May.
A study of non-corporate venturers involved in innovation, such as commercial piloting, is also expected to be carried out next year by CVI2-JThelander Consulting.