Toby Lewis, editor of Global Corporate Venturing, invited four corporate investors to discuss the recession’s lingering effects, the industry’s state and the relationship between investment units and their parent company. The panel consisted of George Coyle, manager of energy company ConocoPhilips’s corporate venturing subsidiary Technology Ventures; Jon Lauckner, president of automotive manufacturer General Motors’ investment division GM Ventures; Ralf Schnell, CEO of Siemens Venture Capital, the electronics conglomerate’s corporate venturing unit; and Bo Ilsoe, managing partner of Nokia Growth Partners, the investment unit of the communications technology provider.
The panel broadly agreed that corporate venturing had been increasing in importance, with the global recession playing a vital role in the industry’s current enthusiasm.
As Lauckner noted, many businesses had cut down their research and development when the financial crisis hit, but once they emerged from this they realised they needed to source innovation to survive in the long run, making corporate venturing attractive.
Collaboration within the corporation
Tom Whitehouse, chairman of London Environmental Investment Forum, welcomed Issam Dairanieh, managing director of oil company BP’s investment subsidiary BP Ventures, and David Eyton, BP’s group head of technology, to discuss BP’s vision.
Eyton started with a short trip down memory lane, exploring how BP’s corporate venturing subsidiary grew out of its initial investments in alternative energy to eventually serve the company as a whole. The unit is now aligned with BP’s overall corporate strategy, seeking out investments in a range of sectors such as biotechnology, nuclear physics and geology.
BP Ventures takes a portfolio approach to its investments, and many of its decisions are made with a long-term view. Dairanieh noted that some technologies BP has backed will be game-changers only in the mid to far future, possibly within decades.
Globalisation and venture capital
Ray Haarstick, CEO of data-tracking software provider Relevant Equity Systems, discussed global strategies for corporate venturing and the opportunities presented by the sharing economy with investors across the globe.
The panel comprised Claudia Fan Munce, managing director of US-based IBM Venture Capital; Matthew Koertge, managing director of Australia-based Telstra Ventures; Charles Searle, CEO of South Africa-based Naspers subsidiary MIH Internet Listed Assets; and Anderson Thees, managing director of Brazil-based VC fund Redpoint Eventures.
Searle began his career in corporate venturing almost 20 years ago, when any investor stepping into China would have found competition scarce. However, globalisation has had a significant impact on the business environment. “Now every man and his dog, and his auntie and uncle, are chasing every opportunity,” Searle said. “The emerging markets story has disappeared.”
In particular, exit strategies had changed, “as strategics are looking at earlier-stage investments, almost angel”.
At Telstra Ventures, the corporate venturing unit of the telecoms company, Koertge deploys a two-pronged global strategy. “We are looking for opportunities to expand Telstra’s core business, predominantly into Asia,” Koertge said. “And we are trying to find the world’s best solutions to apply in Australia.”
According to Thees, the venturing approach once involved finding Brazil-based companies to expand abroad, or others to resolve problems in Brazil, typically by looking to the US. Now, a successful strategy is to look across emerging markets for inspiration, for example expanding China-based startup hub TechTemple to Brazil.
Munce explained that while IBM provides infrastructure, it is more focused on local markets and ecosystems, revealing: “Africa is one of the big markets we looking at.”
How corporates should interact with venture firms
Dermot Hill, director of recruitment firm Intramezzo, hosted a panel that considered how corporate venturing units and venture capital (VC) firms could work together successfully despite sometimes having conflicting interests.
The panel consisted of Rimas Kapeskas, managing director of logistics company UPS’s investment unit, UPS Strategic Enterprise Fund; Robert Linck, chief financial officer of oil company Shell’s corporate venturing arm, Shell Technology Ventures; Nicolas Chaudron, partner at corporate-backed private equity firm Idinvest Partners; and Antoine Garrigues, managing partner at VC firm Iris Capital.
Linck picked up on a recurring theme during this morning’s talks, stating that corporates today are much more interested in strategic value and access to markets, and not necessarily a big financial return, though money remains a factor.
Kapeskas offered a word of caution, however, adding that while there were twice as many corporate venturing units today as there were a decade ago, many jumped into the venturing world without the right expectations. A corporate investor needed to maintain a clear strategic vision as well as financial clarity.
Transforming the standing of women in venture and tech
Tracy Isacke, head of US-based Silicon Valley Bank’s corporate venture relationship group, led a discussion on tackling the disparity between the numbers of women and men at senior executive level within corporations.
The panel comprised Lisa Lambert, vice-president of Intel Capital and executive director of women’s professional support non-profit Upward (Uniting Professional Women Accelerating Relationships and Development); and Eileen Tanghal, vice-president of new business ventures for semiconductor and software producer Arm.
Tanghal spoke of the “culture of heroism” found within VC firms that is driven by the need to find deals in order to progress to partner level, and contrasted this competitive culture with that of corporations, which is “more about collaboration”. She said that as one progressed up the ranks in Silicon Valley, women were simply not there.
The absence, she suggested, was partly due to unconscious bias, noting the fact that, for example, women typically made up only 30% of crowds in Hollywood movie scenes. Tanghal favoured the use of quotas, stating: “You need a way to combat unconscious bias.”
Lambert also supported the use of quotas, saying: “Anything that helps women advance is positive.
Compensation
Megan Muir, partner at law firm DLA Piper, interviewed Jody Thelander, CEO of J Thelander Consulting, about the consultancy’s global study of base pay, bonus and equity compensation.
The Thelander-CVI2 2015 CVC Compensation survey considered unit leaders, senior investment professionals, unit portfolio managers, investment managers and analysts, comparing the results with similar positions at VC and private equity firms. Among those with whom Thelander works are Global Corporate Venturing, DLA Piper, venture finance provider Silicon Valley Bank, and private equity and VC research firm Pitchbook.
In 2014, Thelander said, the compensation for a corporate venturing unit leader varied between a median of $380,000 to a maximum of $1.5m. She noted that units tended to pay out the full bonus only if the parent company was doing well, whereas at VC firms bonuses are almost entirely discretional.
Early stage panel
Karma Samdup, partner at law firm MJ Hudson, discussed the effectiveness, and the challenges of running accelerators and identifying disruptive innovation with a panel of entrepreneurs and heads of corporate accelerators today at the Global Corporate Venturing Symposium.
The panel comprised Zack Weisfeld, general manager of Microsoft Ventures; Andy Shannon, head of global operations for accelerator Startupbootcamp; John Mcintyre, managing director of software company Citrix’s Startup Accelerator; and Peter Cowley, entrepreneur and investment director for Martlet, a corporate angel initiative run by auto parts provider Marshall of Cambridge.
Weisfeld said: “If you run an accelerator properly, you can see disruption before it happens,” adding that Microsoft Ventures receives applications from around 8,000 entrepreneurs a year, of which about 2% are accepted. “You can see signals, in terms of new business models, new areas of business and new technology.”
The combined number of applications received by Microsoft Ventures and the Citrix Startup Accelerator would be 20,000, Shannon said, stating: “You can analyse those in a smart way in order to understand how to position yourself to invest in two or three years’ time.”
Mcintyre said a new trend in corporate venturing and corporate development was to look for signals, though setting up accelerator programmes around the world could be difficult and expensive.
Finding and incentivising mentors was an issue, added Shannon, while Weisfeld said each region had its challenges, such as being able to hire quickly enough in China.
On average, Cowley said, an accelerator could improve a startup, “even if it accelerates the startup to failure, because then the entrepreneur will go on to something else”.
However, he said that valuations at the end of acceleration processes tended to be “toppy”, at least in London.
Asked how he dealt with the large number of applicants, Shannon said success for accelerators “depends on the calls they make, not take”, adding: “The days of being able to sit back and cherry-pick are over.”
Fireside chat with McLaren’s Geoff McGrath
Andrew Gaule of Global Corporate Venturing Academy interviewed Geoff McGrath, vice-president of UK-based automotive and industrial technology company McLaren’s corporate venturing arm, McLaren Ventures, about the company’s shifting focus away from racing.
McLaren is currently in the process of diversifying in a bid to grow into a global technology company, according to McGrath, who said its increasing focus on real-time data analytics had led to the company’s fastest growth period in its history, with no external investment.
McLaren also hoped to apply the data tools it had developed for motor racing to other industries, and McGrath noted that clients secured to date had all been multinational players.
Pharmaceutical company GlaxoSmithKline hired McLaren to increase performance of its robotic production lines, and worked with McLaren to understand how patients used a specific drug. As it turned out, McGrath said, they had not been using it correctly.
McGrath underlined how most industries still gathered data and analysed it retrospectively, and how there was a growing need for what he called predictive intelligence – the ability to understand the effects of any intervention in real time.
McLaren has signed a 10-year agreement with professional services provider KPMG, and will set up a predictive auditing process for the firm. It is also in the process of setting up satellite offices in Singapore and San Francisco, where it will operate accelerators to work with startups.
McGrath concluded with an example from the oil industry, which is similarly looking at data only retrospectively when drilling. He said the question “Why are you looking backwards – you are clearly drilling forwards?” could result in some animosity before the industry realised it needed to indeed change its approach.
Open innovation
John Riggs, partner at professional services firm PricewaterhouseCoopers, spoke to corporate and university innovation promoters about the advantages and challenges of creating open innovation.
The panel consisted of Timothy Barnes, director of UCL Enterprise, the technology transfer unit for University College London; Dyan Finkhousen, director of open innovation and advanced manufacturing for industrial conglomerate General Electric (GE); Jacqueline LeSage Krause, managing director of strategic corporate ventures for insurance provider Munich Re/Hartford Steam Boiler; and Robert Rosenberg, adjunct associate professor of entrepreneurship at University of Chicago Booth School of Business.
Finkhousen described how, two years ago, GE decided to scale its innovation delivery system and establish a centre of excellence, explaining: “We committed to engage the crowd, both internally and externally. The crowd for us is an extension of the team.”
One of the early challenges, Finkhousen said, had been cultural, in terms of opening up GE’s store of intellectual property. The engagement statements it had were initially constrained in terms of what was required for a commercial product.
Open innovation, LeSage Krause stated, was about being “open to the outside, and also being open about which tool to use, be it venturing, partnering, M&A, licensing or a university relationship”. She added that, from Munich Re’s experience, the firm had discovered “you need to give a little to get something back”
Convergence across health and IT
Marc Sluijs, president of Health Tech Summit, spoke to Jack Young, senior director of Qualcomm Ventures, and Marc Ceulemans, head of strategic VC and pharma equities at pharmaceutical firm Novartis, about the future of digital health and technology.
Young and Ceulemans discussed how the DRX Capital fund was forged by wireless technology producer Qualcomm and pharmaceutical firm Novartis. DRX Capital – named Fund of the Year at the Global Corporate Venturing awards – was conceived around six months ago, said Ceulemans.
Novartis wanted to pursue new applications and developments in medicine, but did not have the engineering skills. Qualcomm had been involved in digital health for 10 years and picked some early winners, such as health and fitness tracker company Fitbit, but, as Young said: “Many companies which started as consumer health have become more clinical, going more towards digital medicine.”
The collaboration with Novartis took Qualcomm in that higher direction, Young said, predicting: “It should yield some interesting investments.”
Fireside chat with Arvind Sodhani
IBM Venture Capital’s Claudia Fan Munce interviewed Arvind Sodhani, president of semiconductor company Intel’s investment subsidiary Intel Capital, about the next big thing. The unit has been one the industry’s most successful for a decade, and Munce was keen to hear about emerging trends identified by Intel Capital over the past year.
Sodhani revealed that drones had been driving Intel Capital’s investments, and are set to generate vast quantities of data, especially as cameras are upgraded to ultra-high definition. Intel’s focus, he said, had been on building the ecosystem surrounding drone technology, investing in the cloud, networking, wireless technologies and data analytics.
The internet of things was another sector where Intel Capital was expecting significant growth, and Sodhani underlined that this had the potential to be a multi trillion-dollar industry. In this, the unit is backing both mobile networks and a startup developing a wide-area network, though Sodhani said the future would probably involve a combination of both technologies.
However, disruption in this sector was difficult as it was heavily regulated. The same went for banks, Sodhani explained, where disruption seemed inevitable, but also posed a major challenge due to regulations.
On the other hand, self-driving cars remained for now in the more distant future, though Sodhani said there would be far more advanced cars within three to five years, equipped with sensors that made collisions nearly impossible.
A look at the entrepreneurial-corporate venturing partnership
Global Corporate Venturing’s Toby Lewis talked to Carsten Bether, CEO of smart grid software developer Kiwigrid, and Frank Starrmann, managing director of utility company RWE’s Innogy Venture Capital fund, to discuss their partnership.
Kiwigrid received an undisclosed amount of funding from investors including Innogy VC and corporate and state-backed VC fund High-Tech Gründerfonds in 2013. The startup hopes to facilitate the Energiewende, the policy by which Germany plans to drop nuclear power entirely and replace it with renewable energy.
Both Starrmann and Bether pointed out that the disruption startups such as Kiwigrid cause for established energy companies posed several challenges for both parties. On the one hand, RWE faced a future with thousands of smaller players challenging its business, and on the other, Kiwigrid had to communicate effectively with a corporation several times its size
To illustrate the point, Bether noted that his four-person sales team had to dedicate three people to deal with a team of 12 staff at RWE.
Both Kiwigrid and RWE shared a common goal, however – to provide the connectivity of millions of devices to balance the system effectively.
When asked by Lewis about the success of innovative startups being hindered by existing market regulation, Bether predicted that the market was likely to see significan deregulation in the next 10 years – a process he asserted had already begun.
Corporate venturing best practices
Andrew Gaule of GCV Academy hosted a panel on best practices, welcoming questions about setting up an investment vehicle and the legal implications of joining a board.
The panel featured Tony Askew, general partner at Reed Elsevier Ventures, the corporate venturing unit of the publisher; Neil Foster, partner at legal firm Baker Botts; Mark Muth, director at professional services firm PricewaterhouseCoopers; and Jonathan Tudor, venture director of Castrol Innoventures.
The panel discussed the challenges facing a corporation when it first sets up a venturing subsidiary, with Muth pointing out that the unit’s objectives needed to be clearly defined in advance.
Tudor also noted that giving a unit an annual budget would inevitably lead to difficulties, adding that follow-on investments would be hard and exits too unpredictable to foresee cashflow.
Askew picked up on the practice of writing investments off as assets, which the rest of the panel agreed could be either good or bad depending on the company. According to Askew, it was dangerous to set up a unit with that structure and it did the unit no favours, possibly preventing startups from approaching the corporate as an investor in future.
Emerging models of venturing
Scott Bowman, partner at consulting firm Clareo Partners, discussed the evolution and future direction of corporate venturing models with a panel of investors comprising Phil Giesler, group head of strategic science and technology for British American Tobacco; George Ugras, general partner and adviser at VC firm Frost Data Capital; Wal Van Lierop, co-founder and chief executive of VC firm Chrysalix EVC; and Roy Williamson, partner at Castrol Innoventures, lubricant producer Castrol’s corporate venturing unit.
Corporate venturing is now in its “fourth wave”, said Giesler. In the most recent wave immediately after the financial crisis, corporate venturers “doubled down as they realised the importance of innovation and open innovation. Corporates wanted to get strategic value and returns.” Now, he added: “There are fresh challenges, and a multiple number of ways of engaging with disruptors.”
Ugras explained his model of corporate venturing, which involved finding people with innovative ideas inside corporates, and developing those in line with corporate objectives. He described it as “another asset class, to be added to M&A and R&D.”
The globalisation of innovation
Phil Smith, chief executive of network equipment manufacturer Cisco’s UK and Ireland subsidiary, discussed how the company was adapting to a changing industry.
According to Smith, Cisco, like all traditional companies, was facing the threat of more agile startups that are highly disruptive. To stay ahead in the industry, Cisco had adopted a “build, buy, partner, integrate” model.
The company spends $5.9bn on internal research and development each year. Cisco has also made more than 160 acquisitions over the past couple of decades, which now collectively generate a third of the company’s revenue.
Smith said Cisco was keen to help create ecosystems, and had set up innovation centres around the world that focused on the strength of their respective geographies, such as agriculture in Australia and manufacturing in Germany.
Fireside chat: global innovation in financial services digital commerce
Mark Radcliffe, partner at law firm DLA Piper, spoke to Harshul Sanghi, managing partner of American Express Ventures, the investment arm of the payment services provider, about its origins, the business environment of Silicon Valley, and future trends in digital commerce and e-commerce.
“Writing a cheque is the easiest part of corporate venturing,” said Sanghi, who explained that American Express Ventures sought to add strategic value on two fronts, both to the business unit and to its portfolio companies. “We draw up a roadmap for achieving a portfolio of opportunities over a period of 12 to 24 months.”
American Express Ventures was set up by its parent in the aftermath of the financial crisis, after the company’s CEO visited Silicon Valley and saw what groups like internet company Google and computer manufacturer Apple were doing.
“American Express Ventures was set up in Silicon Valley to plug into the innovation ecosystem,” said Sanghi, who described Silicon Valley as a place with “a different culture, different people, a different currency and different language.”
Lita Nelsen keynote
Lita Nelsen, director of the technology licensing office of Massachusetts Institute of Technology, gave the final keynote address, providing an overview over what her office does and why.
“We are a small university,” Nelsen said. “The entering undergraduate class is just over 1,000. But we make a lot of noise.”
Technology transfer was not a money maker, Nelsen stated, revealing that returns were limited. Indeed, licensing had returned only $2.6bn for a research base of $63.7bn, a rate of 4.1%.
Mixing corporate venturing and M&A
Heidi Mason, managing partner of advisory service Bell Mason Group, spoke to Bill Taranto, president of Merck Global Health Innovation Fund, about his strategy-driven approach to corporate investment, together with Donato Tramuto, entrepreneur and founder of Physicians Interactive, a healthcare marketing company acquired by Merck.
Merck GHI Fund, a subsidiary of pharmaceutical company Merck, has grown in size from $125m to $500m in the past four years, has 28 portfolio companies and has completed four exits and three acquisitions. It was named Unit of the Year at the Global Corporate Venturing Awards.
The unit is described as having a “strategy-driven approach” which includes “combining emerging informational tools with existing health data, while leveraging health IT platforms”.
“We wanted to aggregate assets into a roll-up and learnt that we could not get there with venture capital alone,” explained Taranto. In addition to venture capital, Merck GHI now deploys growth equity and M&A as additional financial tools, and, said Taranto, “we may yet add incubation”.
Physicians Interactive, Taranto said, was taken through the stages of growth equity and M&A following a strict strategy. The acquired business, which has retained its independence with a separate board, was then combined with a similar but geographically diverse asset from within Merck, doubling Physicians Interactive’s top-line revenue. Merck also financed the company’s acquisition of online health community platform Med Help in July 2014.