IBM Ventures was set up in 2001, making it one of the elder statesmen of the corporate venturing world. Its function is strategic, or as Wendy Lung puts it, “our mission is to provide ‘headlights’ for IBM’s business units by understanding various disruptions in the market – from there we engage with the best startups to help solve the business problems of both IBM and our enterprise customers”.
Lung is the managing director of the unit, and has been since 2008, and she said the unit tries to orient its “approach with startups from the beginning. From there we can determine the best path forward. Whether that is through a partnership, direct investment, acquisition or something else.”
IBM Ventures’ interactions with IBM’s other business units is characterised by depth. When trying to understand a business unit’s current needs and future wants, Lung said IBM Ventures essentially becomes “a member of the business unit teams”.
“Technology and market demands regularly shift, so our focus continually adapts over time in favour of the highest growth areas of opportunities for IBM. We get intimately involved with the business units to fill gaps in the portfolio or roadmap, and help build an ecosystem around our platforms to keep them abreast of the newest disruptions.”
Corporate venturing occasionally appears to have two binary visions: strategic units versus financial units. What is refreshing about Lung’s approach is that although she identifies IBM as strategic, she pointed out that “we begin with the strategic fit and then create the model – not the other way around. The model can be determined in tandem with our business units after the strategic fit has been established.”
Driving growth is not dictated by a singular venture capital model. As Lung said: “This might take different forms, like establishing a partnership with a startup to attack a new market, leading a subsequent direct investment or identifying a potential acquisition to support a strategic initiative.”
IBM Ventures’ flexibility extends to the stages it invests at as well, with Lung saying that the unit is happy to go early or late, depending on the opportunity.
“We invest in companies based on the maturity of the market opportunity and the business synergy. For example, we invested in Digital Asset Holdings early to jointly develop distributed ledger technologies to help our clients transform their business with blockchain.
“Examples of later stage investments include Apptus, Lightbend and IFTTT. The investment in Apttus extended an existing partnership to deliver AI [artificial intelligence] solutions to enterprises for revenue generation and management of commercial relationships. The investment in Lightbend was built upon the long history of IBM supporting the millions of developers in the Java and Scala communities and the strategic collaboration to create new code, tools and documentation to help those developers build applications on the Lightbend platform. The IFTT investment leveraged AI and together provided IoT [internet of things] end users with more unique and personalises experiences.”
Such a tailored approach also offers a firewall against competition. Lung said competition was “fiercer than ever before” but the fundamentals of IBM’s business ensured IBM Ventures keeps its competitive edge.
“For us, it goes back to the fact that IBM’s strategy is wholly focused on the needs of our enterprise clients. These are leaders in their industries – and 95% of Fortune 500 companies – rely on us to handle their data. We are uniquely suited to help enterprise startup thanks to our relationships with the largest enterprises in the world, in-depth knowledge of industries and processes and the trust of these client as they go through digital reinvention.
“It is not just about access, but also about genuinely helping startups. We help fine-tune their solution, attract early enterprise clients or become part of a platform or solution that will provide greater reach than they could by themselves.”
Lung added: “IBM is a technology company, but it is first and foremost an enterprise company.”
IBM is associated with IT, and this interview appears in the IT sector report of GCV’s magazine, but IBM Ventures’ portfolio goes beyond traditional IT. Is this because IT has become a horizontal, rather than a vertical? Where does IBM Ventures go next?
“Ultimately, it comes down to solving enterprise business problems. This is the reason why we are very focused on the challenges of digital re-invention that every enterprise is going through right now.
“There is definitely a broad strategy that involves a deep understanding of new technologies and how they will shape the enterprise. These include categories like artificial intelligence, hybrid cloud, blockchain, cybersecurity and others.
“Cloud, for example, is ubiquitous, but in reality, only 20% of enterprise workloads today have moved to the cloud at this time. We believe that the remaining 80% is what will provide real value opportunity for businesses as they transform mission-critical workloads and applications for cloud usage. But the other key reality is that most enterprises today have unique regulatory or data requirements, and anywhere from five to 15 clouds across multiple providers.
“We call this ‘Chapter 2’ and it will require a new, hybrid cloud approach. Companies will need to have the freedom and flexibility to move their data easily, while implementing and scaling AI and other applications. This requires deep knowledge of on-premises IT in tandem with private or multiple public clouds. They will need consistent management and security and leverage open source technology to avoid vendor lock in.”
Turning to other technologies, when asked about what excites her most technologically, Lung is clear: “Quantum computing. Quantum will add new computational power to solve some of today’s most unsolvable problems that are the result of computational capacity. That is exciting!
“Commercialisation may be a way out, but we are working with dozens of other corporations, academic institutions and national research labs in the IBM Q Network to pursue practical quantum applications. Early examples include chemistry, optimisation and machine learning. The limitless possibilities are mind-blowing as we see in our early partners like Zapata Computing and others.
“That said, the broader tech industry must avoid the ‘grow at all costs’ model. This has worked well for many, but it is concerning and unclear where it all ends up. As an example, fintech has come on strong in the past seven years and experienced some decent early returns. Today, with the exception of blockchain and various AI initiatives, the current environment feels somewhat overhyped with an abundance of consumer-focused solutions that feel more incremental than transformative.”
Exciting technology is one thing, but excitement is not equal across technology sectors. Which areas does Lung think are underserved by current CVC investment? Lung’s answer is revealing, as she points, not to technology, but rather to purpose.
“There is a renewed interest and focus on impact investment. There is tremendous opportunity for companies who already heavily invest in corporate citizenship and responsibility to create a tighter relationship with their venture arms.
“One of our key initiatives right now is Call for Code, which aims to engage developers to create solutions that significantly improves preparedness for natural disasters and accelerate relief when they hit. We are currently building a networks of seed stage, impact investors to join us in supporting this effort.
“The ultimate success is to create both financial and social value. I am hopeful that the next wave of corporate venturing will increasingly centre around social impact – the premise that social good and financial return do not need to be exclusive of each other. I am inspired by the work that GCV is doing in launching Global Impact Venturing to further develop this community.”
IBM is active in 175 countries, meaning that IBM Ventures has to offer real breadth to its parent. Lung’s team get involved in an array of different ways: “We are fortunate to be able to discover great startups in virtually every country. These involve collaboration with our local teams, global networks of investors and countless partners across local innovation ecosystems. In many countries, we extend our reach, particularly in growth markets, via local incubation and accelerator investments. We also leverage our program called Startup with IBM, in which we offer free technology and resources to startups that are developing product, in many cases pre-revenue”.
Lung is in a remarkable position, having been at IBM for her entire professional career. She speaks of working with IBM’s business units, the same business units in which she used to work. She is, in many ways, her own competitive advantage, given IBM Ventures’ strategic ambitions.
“Having had executive roles across various business units in IBM over that time, I have a deep understanding of the priorities of the business units and can position the value of corporate venture and open innovation based on those needs. A robust internal network is a critical success factor.
“But the real strength is in the team as whole and the different strengths that each member brings. Our team consists of partners who have decades of experience in corporate venture, entrepreneurship and expertise across various industries and geographies.
“Stanford’s study by Ilya Strebulaev concluded that the best corporate venture teams are made up of both internal and external skills. The premise has proven well for our team and I look forward to further adding diverse people and skills to the team.”
Lung knows her team at IBM well, but she also speaks reflectively about the broader corporate venturing ecosystem.
“It has been absolutely fascinating to watch this industry change in the 10 years that I have been involved. There is no specific curriculum or set of skills that can be taught in a classroom for this job. Most of us have and will continue to learn as we go. One of the best things about the CVC community is that we genuinely learn from each other. I have experienced nothing but openness and honesty in sharing best practices and not-so best practices with others so we can help each other succeed in an often times challenging role. Exciting times ahead and I hope IBM Ventures can continue to play a role in the evolution of this industry.”