Corporate Venturing has long been considered one of the widely used methods to implement open innovation. Open innovation simply states that, in this rapidly evolving information age, companies cannot rely solely on internal research and development (R&D) efforts. They need to collaborate with external parties to maintain competitiveness.
Any level of collaboration between an established company and a startup has always been challenging, but even more so for Asian corporations trying to collaborate with early-stage US technology startups. Many of the factors that have made the Asian corporations successful, such as top-down management and discipline, make collaboration with nimble and aggressive US startups even more difficult. Geopolitical risks and threats of trade wars and intellectual property protection are adding to the challenges.
Asian corporations have been developing their corporate venturing efforts since the late 1990s. Early entrants included the Japanese trading companies and Korean conglomerates. Those efforts were led by expatriates parachuted in from corporate HQ. Looking to partner the local VC community and startups, they would initially “commute” from HQ to Silicon Valley. Over time, they would gradually establish local offices.
However, most of these efforts were not sustained. Many expatriates who were stationed locally would be called back to HQ after three to five years, and whatever network they had built would have to be re-established by their replacement. Furthermore, many of the expatriates lacked experience in working with and investing in the US and US startups, resulting in a slow learning curve.
Samsung and SoftBank breakthrough
After 20 years, we have now seen a few cases of success from a few leading Asian corporations such as Samsung and SoftBank.
Samsung started its corporate venturing efforts in 1999, establishing Samsung Venture Investment Corporation. In 2003, the firm opened its US office in Silicon Valley, Samsung Ventures America. Since then it has launched two more early-stage funds, Samsung Catalyst and Samsung Next. Samsung Ventures is now considered one of the most active corporate venture groups globally.
SoftBank, even before creating the $100bn SoftBank Vision Fund, has been active in venture capital in the US since 1997 when it established SoftBank Venture Capital. SoftBank also created the SoftBank Asia Infrastructure Fund in collaboration with Cisco Systems and has continued to be an active investor globally. The SoftBank Vision Fund is considered a game changer for the entire industry.
These corporations have demonstrated that despite being based in Asia, their persistent presence, local adaptation and active deal-making have made them leading corporate investors globally.
Alternative approaches to consider
The reality, however, is that not every Asian corporation can operate its own team and funds locally in the US. From our experience prior to TransLink – where each of our partners led the corporate venturing activities for Samsung, SoftBank, Foxconn, Hiraki Tsushin and UMC – the effort and resources it requires to operate dedicated teams in the US is non-trivial and expensive.
Hiring experienced local talent is challenging and retaining talent is even more difficult. Most experienced investors would prefer to work in traditional venture capital firms or US-based corporate venture firms rather than the US venture arm of an Asian corporation. The cost of operating a local team in Silicon Valley is also substantially more expensive than most other locations – annual budgets for even a bare-bones team can easily exceed $1m a year.
For any Asian Corporation looking to establish corporate venturing activities in Silicon Valley, there are three alternatives to choose from:
- Build your own full team – for example Samsung, SoftBank.
- Collaborate with a local venture capital firm with your own smaller team – for example Hyundai Motors, Sompo.
- Outsource front-end sourcing to a local venture capital firm and focus your own team on backend partnership development – for example KT, Naver.
There are pros and cons to each approach. If it is not the right time for option 1, to build your own full team, options 2 and 3 are viable alternatives to consider from a focus and resource allocation perspective.
Collaboration with a local VC
If options 2 and 3 are under consideration, the key is to find the right local VC firm to partner. Most established VC firms prefer to accept capital from traditional funding sources such as pension funds, endowments and funds of funds. However, as corporate venturing has become more prevalent there has been more corporate interest in funds for predominantly strategic and occasionally financial reasons.
Traditional venture capital is optimised for generating capital gain. Thus, any strategic requests from corporates for access or dealflow is typically not a focus. Therefore, if access to the general partners’ perspectives, and sourcing relevant dealflow are the objectives, then traditional VC firms may not be the optimal partner for collaboration.
Key criteria for consideration:
- Strong reputation and stable team.
- Compatibility in stage and sector interest.
- Open access to partners and portfolio companies.
- Systematic dealflow sharing.
- Corporate investment background.
Case study: collaborative venture model with TransLink
Hyundai Motors launched Hyundai Ventures in 2011 in Silicon Valley with a small team of auto industry experts and also invested in TransLink as an IT industry-focused venture capital partner. KT invested exclusively in TransLink as their Silicon Valley partner for front-end deal-sourcing while focusing its internal resources on backend partnership development.
Both partnerships have resulted in multiple co-investments with TransLink, such as SoundHound, a voice-enabled artificial intelligence company. SoundHound has raised capital from Hyundai Motors and KT as well as numerous other strategic investors including Samsung, Nvidia, HTC, Naver, Line, Nomura, Sompo, Recruit, Tencent, Daimler, Midea and Orange.
