“Nobody died” – it was perhaps an odd lesson to start the day with, but Jeffrey Hazlett, author of Think Big, Act Bigger! woke up the room with a tale of innovation in the printer ink cartridges space that proved insightful in more ways than one.
Ink, Hazlett noted, is the single most expensive liquid on the planet, more expensive than oil, champagne or penicillin. The business model of selling the printer at a loss to recoup the cash multiple times through selling ink was an infuriating, but intriguing, one to him when he worked at photo company Kodak, and so the company took a risk to sell printers at a higher cost and ink more cheaply.
The campaign that Hazlett and his team came up with was shown in the cinema, but despite double digit response rates, the campaign failed to attract customers – Kodak received two text messages to order a printer through the campaign over the first weekend. The problem, as one team member noted, was of course that audiences turn their phones off when they enter the screen.
The campaign initially lost Kodak millions of dollars, though it became successful when the company took it digitally. Hazlett reiterated his earlier statement to underline how important it is to take a chance on radical ideas: “We took a risk and it did not work out, but: nobody died. Nobody died.”
With the audience fired up from Hazlett’s tale, peppered with jokes about the current political US climate (Hazlett was a judge on Donald Trump’s reality TV show Celebrity Apprentice), Martin Haemmig, adjunct professor at Cetim, retook the stage to give more insights into his analysis of Global Corporate Venturing and Pitchbook data.
Building on his analysis from a day earlier about the US and China, Haemmig showed how investments by corporate venture capital (CVC) units between 2012 to 2016 numbered 4,289 for the US, 903 for Europe, 597 for China and 257 for India.
In the US, approximately half of corporate investors are domestic, whereas in Europe overseas corporations conduct more deals. Perhaps most intriguingly, in China the rise of the domestic corporate investment however has been dramatic – indeed, across the Asia-Pacific region, there were 607 deals with 328 conducted by domestic CVCs.
Unsurprisingly, internationally, chip makers Intel and Qualcomm, industrial conglomerate General Electric and diversified conglomerate Alphabet led the charge for the number of deals in 2015 to 2016.
Ilya Strebulaev, professor of finance at Stanford University’s Graduate School of Business, further complemented Haemmig’s numbers with an overview of his ongoing survey into how CVC units make decisions.
One of Strebulaev’s statistics – 93% of corporate venturing respondents and 92% of institutional VC respondents thought unicorns are overvalued – harkened back to Tim Draper’s comments from the first day that the industry finds itself at an inflection point where valuations will either shoot up or come crashing down. It appears that the latter may become the case.
While more conclusive data will be available in May 2017 at the Global Corporate Venturing Symposium in London, Strebulaev did offer a few more key insights from the survey to date: CVCs for one tend to interact less with portfolio startups than VCs. Meanwhile, a total of 23% corporate venturing divisions have no financial incentive program, though a majority of 66% offers bonuses and 19% have carried interest.
Nagraj Kashyap meanwhile had a non-financial reason to celebrate: January 26 marked the one year anniversary of his joining software company Microsoft’s investment division Microsoft Ventures as head.
John Riggs, principal and partner at PwC, began the interview by teasing Kashyap that “one year is a long time” and enquiring as to just how many things he has achieved already.
Kashyap countered that, although 12 months really is not a long time, he has achieved several things: Microsoft Ventures has set up operations in Israel, expanded to New York and Seattle and has plans to open offices in an unnamed country bordering Europe.
The unit has also conducted 19 to 20 investments and grown to a team that is very diverse, as noted a day earlier by Peggy Johnson, executive vice-president of business development at Microsoft.
Kashyap struck a different chord when it came to president Trump than some of other panellists, stating that entrepreneurship is truly global and good teams will always be funded. Once they are funded, they will eventually want to expand to the US because it is a really important market – a reality that Kashyap does not see changing despite the new president’s rhetoric on protectionism.
Kashyap, who announced he would stand down as co-chair of the GCVI Summit after three years and joked that sending him an email would be enough to be appointed his successor, later also joined a panel on diversity, moderated by Sue Siegel, his fellow co-chair and chief executive of GE Ventures.
Trina Van Pelt, co-lead of Intel Capital’s Diversity Fund, Lo Toney, partner at Alphabet’s GV unit, and Jessica Strauss, vice-president of development at National Venture Capital Association, also joined that discussion.
Kashyap noted that CVCs have a distinct advantage over VCs when it comes to ensuring diversity – corporates’ networks tend to be diverse already due to their multinational reach and corporate policies often help further strengthen this. By contrast, VC networks are traditionally very monogamous and new investors tend to be executives from startups with a successful exit, which again tend to be white men.
Of course, even white male investors can help ensure diversity – the crucial factor is empathy, as Toney pointed out.
Diversity should also not be considered purely on a gender or ethnic basis, with Van Pelt explaining that the Diversity Fund also supports startups led, for example, by people with disabilities. Importantly, Van Pelt also noted that Intel Capital’s drive to invest in more diverse startups has been extended to all of its 60 staff.
GV took a slightly different approach to launching a specific fund, instead seeking out other, sub-$100m funds that were led by women and minorities to get access to that deal flow.
Strauss noted that plenty of studies prove that diversity is an economic advantage, echoing Kashyap’s words that “diversity is good for you”. Siegel recalled Peggy Johnson’s earlier comments about how Microsoft started with diversity of thought and organically ended up with a diverse team, and concluded the discussion with a clear call to action to the community: “If not us, who? If not me, who? We all think our human resources departments will change things, others will change things, but the reality is that it starts with us.”
Claudia Fan Munce, advisor at NEA, Heidi Roizen, operating partner at DFJ, and Ann Winblad, general partner at Hummer Winblad, further underlined many of the views voiced by the panel on diversity.
Roizen told a particularly chilling story of how she tried to secure an investment in 1989 for her software startup – she received a great term sheet from a male investor, but he repeatedly called her “babe”, leading Roizen to instead seek an investment from Winblad.
Roizen, who noted that many men are unaware that these things happen, also said that while these moments have become rarer, they sadly still occur. Munce offered a more cheerful comment, saying that “once a man has a daughter, we do not need to teach you anymore, you will be an advocate.”
Winblad observed that the venture capital industry is still sloppy, however, as it is unregulated and will never be regulated so it gets away with a lot of bad attitudes. CVCs on the other hand tend to have policies in place to stop these things from happening.
Roizen finally made the telling suggestion that the audience in the room was at least twice as diverse as it would be at a venture capital event.
James Mawson, editor-in-chief of Global Corporate Venturing, took the opportunity to tell the approximately 500 delegates at the event about the Global Government Venturing breakout session the previous day, which featured lively discussions from some 20 government representatives hailing from countries such as Ghana, Australia, Brazil, Canada, China, Germany, Finland, Belgium, Austria, Russia, the Netherlands, US and the UK, states such as California and institutions, including the UN.
One of the key points discussed during that workshop was the creation of a Global Government Venturing Leadership Society, which will act as a vehicle to connect CVC units to contacts within governments of countries they want to invest in.
These government attendees agreed to be or try to find a government representative who could act as a point person for local and international CVCs in their country/region.
The talk gave feedback of the intention to develop this society and to ask for suggestions of who beyond the government folks present yesterday might be interested in joining. The second ask for which CVCs might want to engage with these point people to provide feedback for what might be useful for their local ecosystem.
Next update on actions on May 23 in London at GCV Symposium.
Paul Morris, corporate venture capital adviser at the UK Department for International Trade’s Venture Capital Unit, has been elected as president and will, alongside James Mawson, act as initial contact person (on Linkedin here) for people interested in joining the society.
Scott Joachim, chair of private equity group at Fenwick & West, welcomed Vanessa Colella, the recently-promoted chief innovation officer at financial services firm Citi and managing director, global head of venture investing and strategic growth initiatives at investment subsidiary Citi Ventures.
Fintech, Colella noted, was a particularly exciting space for her sector that until a few years did not exist because entrepreneurs on the US west coast did not understand the financial services industry and did not realise it was ripe for disruption. Bankers, she observed, are traditionally located on the east coast, far away from Silicon Valley.
But fintech is not the only area of interest to Colella, who also pointed to sectors such as healthcare as offering a lot of opportunities. A technology that is largely expected to cause widespread disruption to the financial industry, but may also prove a fundamental influence on other sectors, is blockchain, a technology also picked up on in a later panel led by Toby Lewis, chief executive of Novum Insights and contributing editor to Global Corporate Venturing.
Colella also picked up on a core idea repeated by several panellists throughout the two days: a corporate investor needs to primarily be strategic and financial second.
“We do not invest in entrepreneurs who we think can help Citi,” Colella said, “we invest in entrepenrues who Citi can help.”
There are of course other areas that financial industry players are interested in. Lara Druyan, head of innovation at RBC, spoke to Patty Burke, partner, innovation leadership solutions at the Center For Creative Leadership, about some of these, pointing towards big data, predictive analytics, payments and regulation technology.
RBC, however, faces the particular challenge of being one of only a handful CVC units in Canada, and that has meant that the corporate’s culture is not always receptive to innovation. While the bank’s capital markets team in New York has been very receptive, Druyan said, other business units have not been and figuring out which ones she should approach has been an important part of her duties.
That aversion to innovation was not a problem that Sandrine Gadol, chief innovation officer at beauty products manufacturer L’Oréal, has faced. She spoke to Steve Barsh, chief innovation officer at digital health accelerator Dreamit, and explained how crucial it is for a company like hers to constantly stay on top of the latest trend.
One trend that took Barsh aback was L’Oréal’s connected patch that a user puts on to collect data on how effective UV protection is. The technology, developed with the support of an unnamed startup, is, Gadol happily confirmed, one of many biotechnology partnerships the corporate holds that does not necessarily fall in its commonly perceived focus on areas such as perfumes and creams.
Ulrich Quay and Uwe Higgen, managing partners at car manufacturer BMW’s iVentures unit, on the other hand have been sticking much more closely to sectors that an outsider might expect: automotive.
Interviewed by Gregory Heibel, partner at Orrick, Quay and Higgen noted that they have grown their investments to eight different areas of focus that are all car-related.
BMW iVentures, made up of four partners, is able to close a deal within two weeks thanks to its policy of merely requiring a simple majority of votes from partners, and cares primarily about strategic value to the corporate over a financial return – though that does also matter.
The corporate venturing arm has been increasingly successful and is aiming to raise a third fund in three to four years’ time.
Similarly optimistic tones were struck by Thomas D’Halluin, head of US venture investments at airplane manufacturer Airbus, Jeff Herbst, vice-president of business development at graphics card producer Nvidia, and Ray Schuder, managing director at technology company HP Enterprise’s division HP Ventures.
Moderated by George Hoyem, managing partner at In-Q-Tel, the VC affiliate of the US intelligence community, the panel discussed mega trends, including conversational artificial intelligence (AI), deep learning and Crispr, which enables gene editing.
Herbst noted that these trends have enabled Nvidia to move towards being a company that also does automotive and deep learning, saying that AI was the biggest trend he had ever seen in technology.
The same was true for Airbus, which has become active in spaces such as drones, satellites and cyber, while Schuder noted that the sheer amount of data the world is producing will inevitably create the need for a new kind of computing – which HP is diligently working on.
Quinn Li, vice-president and global head of chip maker Qualcomm’s investment unit Qualcomm Ventures, meanwhile chatted to Jordan Herman, partner at Baker Botts, about sectors that have provided interesting opportunities for the corporate – the internet of things (IoT) and automotive, as well as virtual reality (VR).
Interestingly, Li said Qualcomm Ventures tended not to invest in startups that compete with the parent’s business, contrasting a comment made by Druyan earlier in the day, who noted it is important to “keep your friends close and your potential future enemies closer”.
The emerging importance of VR was underlined by Alvin Wang Graylin, China regional president of Vive at consumer electronics company HTC.
According to Graylin, VR and augmented reality (AR) will eventually merge into one product that will reshape many industries. Already, Graylin said, Vive has conducted studies that proved using VR in education dramatically increased students’ ability to learn – the lowest perfoming students in the group using VR devices outperformed the highest achievers in the control group, which relied on iPads and computers.
Gaming, Graylin said, was merely the first step for the technology because it was readily available but he foresees the future of VR and AR as being spread across three areas: entertainment, education and enterprise. In the latter, for example, companies such as Airbus and electric vehicle manufacturer Tesla are already developing products.
Deepak Krishnamurthy, chief strategy officer at software company SAP, and Ram Jambunathan, managing director of the SAP.io Fund, were interviewed by Hank Barry, partner at Sidley Austin, discussing the strategy behind the fund, which is active both externally and internally.
The internal operation was the one that warranted more detailing: SAP.io regularly puts out calls for project ideas from employees to solve specific problems faced by the corporate. Out of these ideas, which number around 1,000, a shortlist of 25 is created and following a pitch session, the top five teams enter a dedicated fellowship for three months.
The team members give up their regular jobs at SAP for the duration of the fellowship. After three months, their progress is evaluated and if it is deemed promising, the teams are then formally employed by SAP.io and officially leave their former positions.
They then enter an incubator and raise funding internally through to series A stage and, if they warrant further scale at that point rather than being spun into SAP, go on to raise further rounds from third parties.
SAP.io is complimentary to Sapphire Ventures, a VC firm spun out by SAP several years ago that is now entirely financially driven.
That complimentary independence was later affirmed by Steve Abbott, managing director of Sapphire Ventures, during a panel he was sitting on with Chris Landford, director of investments at Lowe’s Ventures, Luis Llovera, managing director at industrial group Robert Bosch’s CVC arm Robert Bosch Venture Capital, and Rodrigo Sanchez Servitje, managing partner at B37 Ventures.
That panel was moderated by Paul Denning, chief executive of Denning & Company, and discussed the issues and opportunities around indirect investing.
Servitje’s colleague David Hite, managing partner at B37, meanwhile led a discussion on startup and corporate partnerships, featuring Doug Coughran, CEO and founder of Foxtrot, and Bob Chernoff Sr, vice-president and chief disruption officer at bakery company Bimbo Bakeries USA.
The partnership between Foxtrot, which helps optimise delivery routes, and Bimbo Bakeries USA was enabled by B37 and has meant Bimbo has been able to significantly increase efficiency of its network. Foxtrot’s algorithm, on average, makes 50 to 60 adjustments to routes on a daily basis, taking into account a whole range of factors, including the legal requirement to only keep each driver on the road for eight hours.
Busy Burr, vice-president, innovation and head of insurance company Humana’s CVC arm Humana Health Ventures, Shankar Chandran, managing director and head of Samsung Catalyst Fund at consumer electronics company Samsung, and Mary Kay James, vice-president and general manager at food producer Tyson’s corporate venturing unit Tyson New Ventures, joined a discussion led by Kenneth Gatz, chief executive of ProSeeder.
The panel reiterated the view that a CVC unit needs to be strategic first and pursue a financial interest second. Panelists however surprised each other with different timescales, with James noting that she needed to think as far ahead as consumption trends in 2050, while Burr noted that her timeframe is a much more immediate one.
Chandran did look further ahead as well, however, projecting a future in which cars will look very different from today, thanks to AI and a proliferation of electric vehicles. Samsung is specifically seeking out those opportunities with a view of driving future decisions such as multi-billion dollar acquisitions.
Mike Jones, chief executive of incubator Science, meanwhile provided a case study into how the incubator helped create personal grooming product company Dollar Shave Club, acquired by conglomerate Unilever for $1bn. Jones noted that he intentionally keeps funding sparse for companies to provoke innovative solutions that may not occur if a company is drowning in cash and does not have to constantly think about how to creatively solve problems.
With the day’s proceedings moving towards the end, Bonny Simi, president of airline Jetblue’s unit Jetblue Ventures, Swati Dasgupta, director of venture technology at industrial group Siemens, Austin Noronha, managing director at conglomerate Sony’s division Sony Growth Ventures & Innovation, and Duncan Logan, CEO of Rocketspace, took the stage with Michael Fox, GCV’s Silicon Valley Emissary.
The panel considered the importance of business units in the decision making process. Dasgupta noted that Siemens tended to invest with a business unit’s mandate in areas where the company already is active, while other areas, such as robotics, required no such consent.
That approach was mirrored by Simi, as well as Noronha, who said that stepping on an existing business unit’s toes can get tricky.
Finally, Toby Lewis welcomed the last panel of the day to discuss the importance of metrics and data, pointing towards his company Novum Insights which is currently studying the rise of blockchain.
The panel, made up of Evangelos Simoudis, managing partner at Synapse Partners, Trevor Owens, CEO of Javelin, Phil Graves, vice-president of corporate development at Patagonia, and Tracy Isake, mnanaging director for corporate relationship management at Silicon Valley Bank, also took the opportunity to reflect on the past two days.
Most intriguingly, Isake commented that what really struck her about the conference was Sue Siegel’s declaration at her opening speech on Wednesday that “the time is now” – bringing the conference, which raised $2,700 for charity matched by GCV during Wednesday night’s gala dinner, full circle.