Symposium Day 1
Helping entrepreneurs scale up and globalise was a key element of the first day of 2017’s GCV Symposium in London last month. The first day showed that the corporate venture capital (CVC) industry has taken to heart the message of Sue Siegel of GE Ventures – who declared at the Global Corporate Venturing & Innovation Summit in January that “its time is now” – displaying its confidence and ambition to work with the broader venture community to help entrepreneurs scale up and globalise.
There was a wealth of topical insights – from Nagraj Kashyap (Microsoft Ventures), George Ugras (IBM Ventures), Tony Askew (REV Venture Partners), Andrew Hinkly (Anglo American), Jacqueline LeSage Krause (Munich Re/HSB Ventures, David Mayhew (GE Ventures), Geoff McGrath (McLaren Applied Technologies), Bill Taranto (Merck Global Health Innovation) and Ana Segurado (Telefónica, Open Future) – into the challenges of managing larger CVC units and the requirements of next-generation leadership in the industry.
Jonathan Bullock of SoftBank made his first public speech since the $93bn first close of the firm’s Vision Fund, describing how and why it was able to raise the fund, while leading Silicon Valley VCs such as Heidi Roizen of DFJ told delegates how they wanted to collaborate more with corporate partners (see unpanel section below).
Andrew Hinkly of Anglo American, the first mining company with a corporate venturing program, said he hoped to be part of a sea change in that industry’s thinking, where mining is approached with a high-risk mentality in terms of exploration but more conservatively in respect of the rest of the business. Anglo American’s approach focuses on investing in companies that increase the demand for platinum.
Hinkly said corporate venturing helped a company be more open as a partner and learn to embrace other people’s innovation, and was effective as an integrated part of overall strategy, including R&D and lobbying. He added that having CEO commitment and vision was vital, especially as Mark Cutifani, chief executive of Anglo American, had a strong social impact perspective and was looking for venturing to have a major impact on supply and demand, offer portfolio companies large-scale project opportunities, such as battery storage at mine sites, but also have a role in helping stimulate local investment through building local capability in host countries.
Most corporations have such a primarily strategic goal, according to data shared by academics Ilya Strebulaev and Will Gornall, but link with financial returns as a key performance indicator.
Askew of REV Venture Partners and Kashyap of Microsoft Ventures explained their approaches as examples of best practices. Askew said REV as a general partner was funded by RELX, an Anglo-Dutch media group with a $40bn market capitalisation. REV was “founded in 2000 with a dual mission – make money and be strategic”.
REV invests about $20m to $30m a year and pays performance bonuses – carried interest, or carry, a share of fund returns – to its team on based on profits made by its holding in portfolio companies when they are sold. The about-$1bn value of the portfolio at investment is now worth more than $20bn.
Its strategic mandate was to “help RELX Group navigate successfully through the issues and trends with a potential to disrupt its marketplaces over a three to 10-year horizon”, Askew said. REV’s investment philosophy was based on the premise that “every industry is reinventing to become an information industry”. REV, therefore, was helping RELX “reinvent itself” through investing in portfolio companies around three themes – “living” data, analytics by “thinking machines” and “supercharged humans” able to find the optimal combination with machines.
Its portfolio includes Palantir, RecordedFuture, MemSQL, Euclid, Mode, Babble, TigerText, AgWorld and YCharts.
By contrast, Kashyap said while the Microsoft Ventures name had been around for a few years it had been focused on startup engagement and so it was only last year that the software company launched a formal corporate venture fund under the brand. The startup engagement team has been rebranded Microsoft Accelerator.
He said: “Our view is outward into the market. We focus on the inorganic growth of Microsoft, looking at where we can provide a step function, versus incremental progress. Through our venture fund, we can identify and harness trends by placing both strategic and financial bets with early-stage companies.”
Its deals were designed to help Microsoft across the so-called horizons of investment – optimising the core business, growing the new core of the company, such as its Layer deal, incubating the future, for example with its AirMap investment, and investing in long-term technologies, including artificial intelligence company Element.
Cutting-edge technologies were showcased at the Future Planet Awards, chaired by architect Lord Norman Foster in partnership with Tsinghua Holdings Capital and Global University Venturing.
Meanwhile, there was a fascinating debate between Francois Auque of Airbus Ventures and Jason Ball of Qualcomm Ventures concerning whether we will see flying cars before autonomous vehicles (see sector report).
Exciting technologies and models of the future are being found across the world, such as fintech in Mexico and Brazil, artificial intelligence in the US and robotics in China and Japan, according to those on the main stage, and in the sector breakout sessions on energy, advanced manufacturing and health, sessions led by GCV contributing editor Tom Whitehouse.
The diversity within CVC was one of the strongest aspects of the community, by ethnicity and gender – our thanks to Silicon Valley Bank for organising the Women in Venture lunch – but also with regards to an openness to new approaches and collaborations with those wanting to put the customer, the entrepreneur, first.
That approach includes new business models and goals, such as the circular economy and impact venturing, which were discussed in a panel led by Charmian Love of CorporateImpactX.
Love’s panel found investors in circular economic models saw significant value in the cost and efficiency savings in product value chains, which goes beyond linear efficiencies. In addition, “substantial value can be unlocked through increased utilisation of assets” and transparency in supply chains leads to better decisions.
Her panellists, Jamie Butterworth, partner at Circularity Capital, Leslie Johnston, executive director at C&A Foundation, Joe Murphy, network manager at Ellen MacArthur Foundation, and Kresse Wesling, co-founder of Elvis & Kresse, said governments might consider taxing waste at higher levels and that “for the circular economy to blossom, government regulators will have to do their part”.
However, corporate goals, such as Unilever’s 2025 sustainability agenda, needed to be in place and would require “massive innovation, and this is a real opportunity for entrepreneurs”.
There is no shortage of entrepreneurs as demographics increasingly force governments in regions with relatively young populations to explore how they can be employed. Parminder Vir, CEO of the Tony Elumelu Foundation in Nigeria, challenged the audience to explore greater reverse innovation as the foundation seeks to take its successful model, supporting 10,000 entrepreneurs from among Africa’s 54 countries, to the rest of the world.
Vir said the foundation’s entrepreneurship program last year attracted about 45,000 applications from the 54 African countries and selected 1,000. The largest area of focus for those selected for the 12-month program was agriculture, and a third were initiatives led by women.
The first day ended with a packed gala dinner and powerful after-dinner speech by Sir George Zambellas, former First Sea Lord – the head of Britain’s Royal Navy – on the importance of learning from mistakes and trusting and working with the young.
Universities are probably those most used to dealing with the young and inspiring their research, innovation and invention, so it was a delight to hear and see so much interaction between university venturers, governments and CVCs (see Global University Venturing this month for more extensive coverage).
Unpanels
The iconic GCV Symposium “unpanel” break-out sessions on the first day provided a popular and lively forum for delegates. Expert moderators guided wide-ranging and stimulating discussions over 90 minutes at 12 roundtables, chaired by Paul Morris of the UK’s Department for International Trade venture capital unit. Three facilitators were invited on to the main stage on the second day to provide 60 seconds snapshots of the good, the bad and the ugly from their sessions. Here are some key highlights:
Corporate Venturing a career or a stepping stone? moderated by Tracy Isacke, managing director at Silicon Valley Bank. She noted that corporate VC can be “too sexy”, but did not elaborate further. Roles in the CVC unit are often regarded as highly desirable, and a rewarding career is possible, ideally if you can become the head of the unit. The group noted that other options include a move to an independent VC, or a transfer into the parent corporation. The departure of experienced CVC leaders can be disruptive for a corporate. The importance of succession planning was highlighted, and a long-term carry-like structure was felt to be helpful for CVCs in retaining key personnel.
What impact will impact investing have on corporate VCs? Charmian Love, founder of CorporateImpactX, guided a thoughtful discussion for this unpanel. Defining the word impact was seen as critical as it had different connotations for different people. Must it be explicit or is implicit impact investing acceptable? Measuring impact consistently was a further challenge for investors and corporations. The group concluded that impact investing must be clearly differentiated from corporate social responsibility initiatives, and that it must demonstrably connect to a corporation’s strategy.
Mentoring – a force for good in corporate venturing? was led by Paul Sestili, general partner at Rogers Venture Partners. He agreed that mentoring came in many shapes and sizes, including personal vs corporate, self-selected vs paired, and coaching vs mentoring. It could be effective but required clear metrics and objectives to help define success. Corporate VCs could be effective mentors in a startup environment but this should never replace strong and effective board management.
The uneasy relationship between a venturing unit and its parent company was debated at length in an unpanel moderated by Christoph Auer-Welsbach, partner at IBM Ventures. The group agreed that corporate VCs needed much greater visibility within their parent companies, so much so that they recommended that CVCs were actively involved in the strategic planning and decision-making processes within their corporations. There should be clear delineation of roles and responsibilities of the CVC unit and the commercial business units.
Can corporate VCs be true value-added investors? A packed roundtable grappled with this question in a discussion led by Francesca Wuttke, managing director at Merck Global Health Innovations. They agreed that working with a corporate VC could be a catalyst for growth for a startup. Having the corporate as a customer added value and, in many cases, a channel partner. The CVC unit could help a portfolio company secure contracts with the corporate parent, particularly through helping the startup refine its business model. Technical expertise, market-savvy and business acumen were all considered to be corporate strengths that should be shared with investee companies. The group evidently did not include many sceptics.
Can VC funds and corporate VCs live together happily ever after? A group of nirvana-seeking delegates debated this in the popular unpanel guided by Markus Moor, partner at Emerald Technology Ventures. Like a fine wine, relationships between VCs and CVCs were seen as maturing and improving, the odd US-based VC outlier excepted. The group was not sure whether this reflected an extended honeymoon period or successful marriage counselling, but there were still grumbles. VCs sometimes lacked relevant technology and market knowledge, CVCs change personnel and responsibilities too frequently. Both groups strongly recommended analysing past experiences, both good and bad, and building on best practices to ensure a happy ending.
Partnerships and business collaboration between corporates and startups create real value for both parties. Myth or reality? Participants in this unpanel, moderated by Tomasz Rudolf, CEO at the Heart, stressed the importance of managing expectations well. At the earliest opportunity, startups should do their own due diligence on CVCs, ask for the CVC’s key performance indicators, and select corporate investors that are “startup ready”. Special terms such as exclusivity should be avoided or limited. The parties should find long-term win-win relationship opportunities, accelerated market test possibilities, and agree clear metrics for success. Arranged marriages via informed intermediaries could be very rewarding. The role of the CVC unit as a conduit to business units within the corporation should not be underestimated.
Is creating strategic value really more important than generating financial returns? Joe Schorge, managing partner at Isomer Capital, guided an unpanel that addressed one of the most fundamental questions for any corporate VC. The two were not considered to be mutually exclusive and smart selection of high-quality companies should offer both financial returns and strategic benefits. Strategic value had different meanings to different corporations and was notoriously difficult to measure. Each CVC should develop its own multi-factor return-on-investment calculation. Cash equity was seen as just one way of helping create strategic value. Financial, operational and business development tools may be equally important.
How important are incubators and accelerators for corporate VCs? was a popular unpanel steered by John Riggs, partner for innovation and corporate venturing at PwC. The group saw both challenges and opportunities for corporate VCs in working with incubators and accelerators. The latter could be valuable sources of dealflow. But the landscape was cluttered and CVCs needed a method to identify those with the greatest potential fit. Incubators and accelerators offered access to technologies that may complement existing corporate businesses, or offer a hedge against disruption. Corporates had the option of developing in-house incubators or accelerators or working with established external units or both. Some participants had found incubators and accelerators to be a fruitful source of talent.
Cross-border deals and broaching new frontiers (Africa) – is it worth the risk? moderated by Parminder Vir, CEO of the Tony Elumelu Foundation, brought geographic considerations to the fore. During this session, participants were clear that local partners with strong market knowledge were essential if you were to invest in Africa. A good understanding of local political and social conditions was also a prerequisite to any investment. The ease of doing business varied considerably from country to country. Unpanel members with experience of startups in India and in Africa saw potential synergies and learning opportunities between these two groups.
Do best practices in portfolio venture management differ for a corporate VC and an independent VC? The two were again compared and contrasted in this unpanel, steered by Keith Gillard, general partner at Pangaea Ventures. Alignment, allocation of resources and operations were the three key issue discussed. Financial return and reputation were considered to be the only factors that aligned all parties. Fiduciary duty was key. Conflicts should be managed through recusals where appropriate. Synergies with business units (CVCs), limited partners (VCs) and other portfolio companies should be sought. There should be recognition of when it was time to pull the plug. CVC teams should have some venture experience. Interactions with business units and limited partners should be carefully managed by CVCs and VCs respectively. On boards, an active observer can have just as a great an impact as a director.
CVC 3.0 – is this really a game changer? Is it a threat or opportunity for VCs and corporate VCs? Moderated by Dominique Mégret, head of Swisscom Ventures, this lively discussion peered into the future of CVC. In an existentialist moment, the group declared that strategic objectives put corporates into the CVC game, but financial returns were needed to keep them in the game. CVCs must be nimble and dynamic as they lived through repeated investment cycles. A tightrope walker was an appropriate metaphor. Survivors would be experts at managing the investment ecosystem, would both lead and follow in deals, would be both strategic and financial, would source deals and IP globally, would employ artificial intelligence and data-based decision-making, and would see the relative importance of external R&D increase at the expense of internal R&D. The discussion ended on a philosophical note, quoting Voltaire – the best is the enemy of the good.
Tracy Isacke, Dominique Mégret and Francesca Wuttke shared key highlights from their unpanels on the main stage. Thanks also to Sue Lawton MBE, Skin In The Game, Martin Haemmig, Cetim and Glorad, and Emma Fadlon, Knowledge Transfer Network, for their support of the unpanels.
Symposium Day 2
On the second day of the symposium, Akira Kirton, BP Ventures’ managing director of Europe, Middle East and Africa and part of the Asia-Pacific region, took to the main stage after introductory remarks by Janice Mawson, head of the GCV Leadership Society.
BP Ventures investments revolved around both core operations and the company’s vision of a low-carbon future, Kirton said, adding that BP targeted both because: “There are going to be more and more people who are going to need more energy. The world’s population will increase to 9 billion people in the next 20 years and at the same time we really want to help the planet meet this demand.”
Kirton also mentioned mega-partnerships, including the $1bn Oil and Gas Climate Initiative as an important factor. “20% of the world’s oil and gas companies believe in climate change,” he said. “We need to make sure we are meeting society’s energy needs. You do not do venturing just to try to stay incumbent, you do it because you are trying to be an innovative entrepreneur.”
Over the past 15 months, BP has invested in seven new deals, including BiSN, which it brought along for portfolio company meetings with other CVCs as part of the GCV Leadership Society, Drover, Tricoya, a more than $20m investment for sustainable wood supply, Fulcrum Bioenergy, a $30m investment to produce low-carbon jet fuel, and Advanced BioCatalytics. It has also made 12 deployments of portfolio company tech into BP and launched a business development organisation in BP Group Technology to encourage more of these collaborations. Since 2006, BP Ventures has invested more than $325m in 41 deals covering its core business of gas and oil, mobility, bio and low-carbon products, carbon management, power and storage, and digital transformation.
Imran Kizilbash, vice-president of oil and gas company Schlumberger’s Venture Fund, spoke about the increased capital and investment mandate of the fund. Schlumberger Venture Fund had expanded into categories such as renewables, software and the internet of things under Kizilbash’s leadership and its function essentially came down to “being ready to transform if and when required”, he said.
The second day drilled down further into the changing landscape of alternative funding models and raising capital – multi-corporate, VC or direct. How to do it and what helps entrepreneurs most?
Moderator Trond Undheim, director at the MIT Startup Exchange in the US university’s office of corporate relations, pushed the panel on three concepts – structures, networks, and habits – to get at what entrepreneurs need most, how the different forms can help and what might be coming next?
Stefan Gabriel, partner at Earlybird Venture Capital, Tracy Isacke, managing director of SVB, Bruce Niven, chief investment officer at Saudi Aramco Energy Ventures, and Dan Smith, managing partner for global investments at Exponential, took up the challenge.
On structures, Undheim said: “There seems to be an emerging business model around multi-corporate CVC. How did that emerge? What happens when several isomorphic structures attempt to get synergies out of each other? Do they themselves have to change, become nimble, or can this new structure operate relatively independently of the mother ship?
Isacke said there was value in being nimble and strategic. “Taking six weeks to make a decision is not good for financial VC-led deals,” she added.
Smith said there was a need to be able to partner in the ecosystem as it would deliver financial rewards, while Gabriel said that while CVC was a “great tool to understand the upcoming technology in order to direct your company strategically for the future”, it was important to be working together.
There were few more powerful opportunities than getting an ecosystem of entrepreneurs to work with a company or for them to help each other and hence a whole region.
In his panel on how smart cities and governement support shape the environment for entrepreneurs and the innovation capital ecosystem, Yesha Sivan, head of Coller Institute of Venture, said one way governments supported initiatives was to throw a lot of money at them!
Paul Morris and Alexandra Meagher from the UK government then explained how, as a result of the UK government accepting it did not understand venture capital, it set up a specialist VC unit under what is now the Department for International Trade along with tax relief that incentivised investment in social enterprises.
Fabienne Herlaut, formerly running transport-focused multi-corporate venture fund Ecomobility Ventures, then gave a concrete example of government actions helping with mobility in Paris. From consultancy EY’s study, she said cities’ attractivity was linked with their ability to appeal to entrepreneurs, in order to speed up innovation and project the image of an innovative and dynamic smart city.
To attract entrepreneurs, therefore, Herlaut said cities should focus on four levers:
• Providing access to public data, to facilitate market studies.
• Proposing grounds for field tests or large-scale experimentation.
• Facilitating relationships involving academic R&D, corporates and startups.
• Setting up public-private incubators, accelerators and clusters of excellence.
She gave street parking as an example of “city as a service” and digital parking to improve efficiency.
Other countries are also looking to use venture to help. Brazil has probably developed fastest globally in both areas with Movile, Embraer and Stefanini clear leaders locally and the government supporting an inspiring wider innovation sharing and collaborative approach.
Marco Stefanini, founder and CEO of Brazil-based software and services company Stefanini, in an introduction to a panel led by Jayme Queiroz, investment director at government agency Apex-Brasil, explained how the company had developed a “strong innovation ecosystem” covering some of its 650 corporate customers and business partners, state agencies and universities as well as startups and VC funds and accelerators.
He said: “Stefanini’s consistent growth history has been based both on organic expansion as well as intense M&A [mergers and acquisitions].”
Stefanini developed its Open Startups initiative as a strategic partnership program with startups that had reached product-market fit levels “and that have created disruptive products and technologies synergistic with Stefanini’s offerings”.
Working with these startups allowsed Stefanini to broaden its offer, create dealflow for M&A with less risk and greater strategic fit and “refreshes Stefanini’s culture with a startup way of doing things”. Stefanini had bought 10 companies this way.
He said lessons learned included developing a more flexible M&A strategy covering control to minority positions but be ready to integrate fast and decide when to kill a startup’s culture or preserve it. In addition, understand the different venture models’ pros and cons.
Brazil has developed a somewhat unique approach to innovation ecosystem building, with Stefanini and Naspers-backed e-commerce company Movile looking to create a wider entrepreneurial network around the companies. Queiroz then opened the panel discussion to how the broader economy is becoming more entrepreneurial. With 200 million people and 250 million mobile phones, Brazil is one of the most networked countries in the world and is among the top 10 economies.
Queiroz said Apex-Brasil had tracked more than 5,000 startups and 350 incubators in the country before turning to Carlos Kokron, whom he called the Brazil’s godfather of venture capital for his work at Intel Capital initially and now Qualcomm Ventures, for how things had changed.
Kokron said: “Over the past 10 years everything has improved. Entrepreneurs who used to have to work around the infrastructure now can participate. Corporations are a large part of the change over the past two to three years. There are 250 Brazilian corporations with no startup backgrounds but keen to interact, following the work of Apex-Brasil in hosting the Corporate Venture in Brasil conference the past two years, and have the perfect time to entry given the critical mass of entrepreneurs, and assets are cheap.”
Anderson Thees, who also helped spark this transformation through his work initially at Naspers – including backing Movile – before setting up VC firm Redpoint eVentures, discussed the importance of corporate limited partners, including Cisco and Bertelsman in its first fund, as well as investing directly in startups.
Franklin Luzes, head of MSW Capital, a fund with seven corporate LPs set up by Microsoft, said despite the progress there was still a gap in Brazil for the post-seed, $500,000 to $1m, investment range.
Another doyen of the so-called Bric nations – Brazil, Russia, India and China – then provided the symposium’s final keynote and his lifetime’s lessons in startups and venture – always think outside of the box and pick the right market.
Alexander “Sasha” Galitsky, founder and managing partner at Almaz Capital, a VC firm with $300m under management and raising its third fund, talked through Russia’s technology heritage and Almaz’s 35 investments and eight exits, including Yandex (IPO), QIK (acquired by Skype), Vyatta (acquired by Brocade), NScaled (acquired by Acronis), Odin (acquired by IngroMicro), Plesk (acquired by Oakley Capital), Sensity (acquired by Verizon).
Galitsky outlined his hard-won lessons. “Put your ambitions in the right level of your comfort zone. Decide what you are ready to sacrifice in your life. Consider the scope of geography, space, location. Define your company, your strategy, your core, your vision, your identity, your culture.
“Focus solely on the result the customer will get from working with you, and concentrate on building a compelling product, hiring a great team, maximising sales and making customers happy.”
