One advantage of being a journalist is you rarely have to come up with anything too exciting and novel, as someone brighter and more experienced has probably done it already.
Global Corporate Venturing’s dozen predictions for this year, therefore, rely heavily on curating the crowd-sourced wisdom of the experts, our subscribers and readers, with a selection of the best answers in our survey on the following pages. Our motto, courtesy of philosopher David Hume, states: "Truth springs from argument among good friends." So please continue the debate at our LinkedIn page, and by dropping me a note.
Macroeconomic
The world has broadly been a Nice (non-inflationary, consistently expansionary) place over the past two decades since the end of the Soviet Union helped inject several billion people into a more capitalist system. While some countries, companies and individuals struggle with their debts, others will benefit from the competitive position of having cash and being able to invest in innovation to take market share from the so-called zombies that lived beyond their means. There is no reason to expect this to stop in 2012, with forecasts of reasonable economic growth for a world economy that is remarkably globalised and with few controls on capital. The only question marks are whether protectionism will recur, given the perfect storm of "elections" in the US, Russia and China and a youth demographic in the Middle East, Africa and southeast Asia that could foment unrest.
Policy changes
As societies and the people and organisations within them think through the consequences of how investing in innovation – and the required supports, such as infrastructure – leads to outperformance or underperformance relative to peers, so governments will begin a host of policy changes designed to make their regions more attractive. With corporate and other venture capital as the new form of foreign direct investment, countries that build on their existing strengths to form a comprehensive package of tax, legal and other benefits will do well, with the so-called Cuurs (China, US, UK, Russia and Switzerland) leading the way. Governments and supranational bodies, such as the European Investment Fund, will provide capital, directly or through tax breaks, but most importantly will help integrate the ecosystem so there is greater collaboration between existing firms, entrepreneurs, service providers and all types of investor.
Organisation overhaul
With innovation – rather than simply research and development (R&D) – becoming as central to a company’s success as marketing and sales, corporations will create the role of chief innovation officer (CIO) rather than leaving the function subsumed within an existing chief financial officer or chief technology officer’s post. The CIO will be charged with linking elements of the organisation so it uses its internal ideas better through intrapreneurship as well as deciding how to open up to external innovation, with corporate venturing one tool alongside joint ventures, partners, licensing and outsourced R&D to universities and other research institutes.
Corporate venturing explosion
With a dedicated innovation officer, companies will decide how far along the continuum from mergers and acquisitions to minority equity investments to collaboration they want to be involved. As cultural acceptance of open innovation reaches tipping point, understanding how and when to make minority investments through a corporate venturing programme has also been increasing. More than half of Fortune 1000-sized companies now have a dedicated corporate venturing unit or strategy, according to Global
Corporate Venturing, and as the rest of the world’s biggest
businesses find a way to follow suit the tool will be used increasingly by small and medium-sized enterprises (SMEs) able to find entrepreneurs needing relatively little cash but struggling to gain the distribution, sales and marketing, and other business facilities they require to grow. This SME-scale corporate venturing will require more cornerstoning of venture capital funds to direct strategy, resulting in collaboration with non-competitive peers to create funds of between $2m and $30m.
Leading role
Continuing shrinkage of the independent venture capital industry in the US and Europe – as opposed to China, which now has more than 4,000 private equity and venture capital firms (VCs), or broadly as many as the US – and reliance on portfolio company improvement to generate returns will combine to force corporate venturing units to play a more leading role in an increasing number of stages and sectors. This will lead to substantial shifts in team composition, structure, recruitment and incentives, as corporate venturing units become mini-multinational corporations with a range of skill-sets distributed within deal and portfolio management, legal counsel, marketing and public relations, accounting and other business support functions investing across borders.
Portfolio help
With a greater onus on corporate venturing to lead and decide the future of a portfolio company, and less competition from independent VCs, there will be a tendency to invest more in fewer or the same number of businesses so the corporation can acquire the shareholding percentage it needs and follow on as businesses that are disruptive take more time and money to make their mark.
Walking the pier
The rapid growth in early-stage rounds and contraction of other forms of long-term capital – primarily institutional investors through VC funds – as well as a tendency to make bigger bets on limited numbers of companies will result in a number of bridge loans failing to develop into full funding rounds for entrepreneurs, leaving them as piers leading nowhere. The result will be further mergers and acquisitions and more failures.
Performance
With economic growth slowing or going into reverse in parts of the developed world, with an effect on fastergrowth nations, there will be a greater focus on costs and how cash buffers are used. This will lead to more "hail Mary" passes in large takeovers in a bid to replace product lines and find growth through efficiency savings and goodwill write-offs, but corporate venturing units will have to show they can return more money than they invested and deliver strategic benefits. There will be room to grow or become evergreen, but failure will result in operations being shut down and the piloting of alternative means to open up to external innovation.
Most active sector
Education will be the sector most affected by innovation and turning to venturing both to cope and to find new sources of growth. It is telling that the Founders’ Institute, which started more than 415 businesses last year, found education was the area attracting the greatest number of entrepreneurs. Universities and education providers will respond by trying to tap into the ideas of their faculty and students and begin a transformation of their operating processes due to the impact of technology.
University venturing
With education a hot issue for entrepreneurs, the deans and presidents of universities are starting to think about the potential impact on their businesses. Currently grappling with a de facto limit on tuition fees, declining public spending on tertiary education in many countries, and technology, the internet and social media providing greater competition, universities and research institutes are considering how they can monetise and take equity in good ideas and people that pass through their electronic or physical walls. Corporate venturing units are perfect partners for them – which is why we are launching a new title covering this area.
Most active region
The US will remain the most important region for innovation and corporate venturing. This is both as a country attracting overseas investors to domestic entrepreneurs and innovators and as a springboard by existing corporate venturing units to seek ideas from round the world they can support and bring back to the US.
Flotations and IPOs
The biggest venture-backed flotation story of the decade is expected to be social network Facebook’s initial public offering (IPO) in the spring, following corporate backing from software provider Microsoft, advertiser Interpublic and Goldman Sachs-backed Digital Sky Technologies. The biggest question will be whether investment bank Goldman Sachs ends up an underwriter of its one-step-removed portfolio company. Whether Goldman’s investment via DST was a way to get round restrictions will be one of many talking points. The IPO will either catalyse a number of other flotations or suck money from the others, but will create more than a thousand millionaires wanting to do angel investing and could launch a huge corporate venturing giant on to the scene.