David Willetts, UK Minister for Universities and Science, said the UK was looking to "create a market corporates feel comfortable investing in".
The role of government was important for stimulating venture capital funding, Willetts said, speaking on behalf of the UK’s Department of Business at the opening of the Global Corporate Venturing Symposium in London.
Willetts said UK government policies and investment schemes, such as the research and development tax credit and the smart awards, which provide small companies with money for research and innovative techology, were helping create a better investment environment.
Justin Adams, ex-head of emerging business and ventures at BP, keynote:
Eight key lessons from BP, having founded its ventures team in 2006, but, overall, the core value for most corporate venturing teams is to complement broader technology and new product development strategy. But in my view, this drives increasing convergence with core business. It is more difficult to build radical new businesses while embedded.
As to corporate venturing’s expected evolution, it is worth thinking about the following.
How can corporate venturing help solve tomorrow’s big problems?
How can corporate venturing help access new emerging markets?
How can corporate venturing help accelerate market deployment given that many technologies are already proven and economic and bring "big capital" to the table?
How can corporate venturing help bring the different solutions together to create new systems?
These are some the answers.
Several corporates partnering in joint corporate venturing funds, such as at a nexus where many industries come together
Corporates partnering private equity firms to scale up strategic start-ups.
Corporates partnering incubators, seed-funds and boot camps, such as Castrol with Start-Up Bootcamp
Stephen Ziff, partner at Coller Capital, panel:
Why firms are raising so many funds, and so many are outside of the US.
In 2000 there were approximately 500 to 520 corporate venture investors, and approximately $22bn was invested in corporate venture capital. Last year, close to 600 deals were funded and more than 650 firms were doing corporate venturing. The figure that was invested in corporate venturing was pretty similar, around $22bn. Now more than half of Fortune 1000 size companies have a corporate venturing activity, and it is a truly global business. The traditional areas of venture capital – the US’s east and west coastand perhaps parts of Israel – are now giving way to new regions such as Qatar,
China and South Korea. Why is that?
Martin Grieve, head of Unilever Corporate Ventures:
Unilever started its venturing programme in Europe and North America in 2001. Many of the big corporates are not that dissimilar. The obvious areas where people are looking to expand are China and India, but probably the next area that will take off is the rest of southeast Asia. Unilever has 56% of turnover in emerging markets. Therefore, realigning our portfolio and setting up in Asia, which is what we did last year, is critical to the strategic relevance of corporate venturing units. We are also seeing the need to be on the ground in those markets because there are trends and different business models developing across Asia that are not being originated in the west. One thing helping western companies set up in Asia is derisking with the establishment of the venture capital industry there.
Shellie Davis, director of mergers and acquisitions at Coca-Cola:
Much of what is stimulating our corporate venturing is our need to innovate. Our supply chain is one of the broadest, longest and deepest supply chains you can imagine and we care as much about growing mangos in Kenya as we do about someone interacting with our newest fountain machine called Freestyle. We look at specific zones that are further advanced in work that matches some of our innovation goals or some of our business goals. We use a lot of water, which is not a big surprise, and one of our sustainability goals is to become water-neutral, and,so look at Israel, which is one of the most forward-thinking and innovative countries when it comes to the use of water and water replenishment.
But we also have a lot of issues with funding all this research through our income statement. Therefore we are very interested in trying to take a balance sheet approach, as a capital investment rather than a research investment. In addition, corporate venturing in a broader way is helping us to move our partnering forward, making people more aware of our willingness to partner and bringing more people to us.
Dominique Mégret, head of Swisscom Ventures:
We have to focus on what we do best and not try to do what independent venture capital firms (VCs) do best. What we can do best is about business development inside the organisation and bridging between the venture-backed companies and the corporate. internally. It is also about bridging with the other telecom companies worldwide and the innovation ecosystem internationally.
Fabienne Herlaut, head of Ecomobilite Ventures:
We have the power as a large corporation, if we invest in a start-up, to make it a success if we are really committed to grow and develop it. We can open doors, we can identify the right person to talk to in order for the start-up to sell its service, to start marketing its service or product.
Andrew Gaule, founder of Corven Networks, panel:
Ran a panel asking how firms can deal with a globally-distributed, cross-sectoral innovation landscape:
Nagraj Kashyap, head of Qualcomm Ventures:
We started in the US in 2000 and expanded fairly rapidly, we went to China in 2003, established operations in Europe in 2006, in India in 2008 and in Israel and Korea in 2009, and we have recently opened corporate venturing operations in Brazil. We are very comfortable working in the early stages and, as a corporation, we do seed investments. When we looked at these regions, we wanted to be earlier than our business units with established operations.
Chris Haase, chief adviser to Shell’s chief technology officer:
Innovation channels vary in different parts of the world. As a result, we customise our approach. Direct investments tend to be managed out of the Netherlands and Houston. However, we hold multiple limited partner (LP – investor) interests in several funds that work particularly in the emerging space and in future energies.
In April, we launched our projects and technologies office in Beijing that provides an effective outreach both with the Chinese Academy of Science and the University of Sichuan in China that tap into the natural innovation channels in China.
The big challenge from a corporate venturing and corporate management perspective is that to extract the most value from the technology and to apply it and deploy it fastest in the field sometimes requires losing control, not taking a controlling position but taking a minority stake. Therefore, corporate venturing is sometimes a struggle for seasoned technology managers to accept that to get the most out of the technology sometimes you have to lose some control.
Mark Felix, Europe head of Dow Venture Capital:
"In respect of the cross-sectoral issue, Dow’s international company has operations, expertise and insight into things happening in other parts of the world, which we believe is something we can bring to our investment companies, helping them to explore some of these areas."
Michael Boshammer, fund manager at T-Venture:
It is great to have access to chief officers but at Deutsche Telekom, with roughly 250,000 employees, it works if you also have access to the workforce. Coming back to research and development (R&D) and external innovation, we have established T-labs responsible for all R&D activities at Deutsche Telekom, based in Berlin, and from this department or unit we get a lot of spinoffs in which we are investing. We also compare innovations with the external market, making sure there is not a “not invented here” syndrome. In addition, we have expanded our focus and are not just doing minority investments in the expansion or start-up phase. We are doing seed investments as well as later stage investments.
Gary Dushnitsky, associate professor of strategic and international management and entrepreneurship at London Business School, keynote:
"There has been a relatively steady 15% of corporate investors within the venture capital market apart from late 1990s boom and bust period. But how long did the average corporate venturing fund survive in the 1990s and how long did it survive in the 2000s? During the 1990s, the vast majority of corporate venturing programmes were around for a year, perhaps two years. Now, over 40% of them have been in play continuously for four years or longer. In terms of geographical footprint, from 1987 to 2010, there has been a clear North American play. What we are seeing now is that global reach is becoming extremely important. One of the interesting points to think of is how corporates, with their global footprint, are equipped to manage the more geographically dispersed set of investment opportunities vis-à-vis perhaps some of the other investment vehicles out there. It is also worth looking at the impact of corporate venture capital, not from the fund perspective, but from the viewpoint of the parent corporation and the start-up. Corporate venturing firms seem to experience higher market-to-book value and overall patenting yield compared with their industry peers, albeitcertain sectors seem to be consistent winners in terms of benefiting from corporate venturing, such as the medical devices industries. We find that having corporate investors is associated with a fundamentally different innovative trajectory for their backed start-ups in the pharmaceutical industry and specifically it seems that those start-ups experience a higher level of innovative output, especially in terms of their basic research.
Erik Vermeulen, professor at Tilburg University, panel:
found both corporations and governments could have diverse aims, which makes finding congruency important, if a challenge.
David Lawson, open innovation manager at Procter & Gamble, keynote:
"We started Connect and Develop, our app for open innovation, with the concept that there are more clever people outside Procter & Gamble than there are inside. The concept we are exploring is what happens if we take a few people from Procter & Gamble who really know our needs and put them in hotbeds of innovation around the world. Silicon Valley is one of these hotbeds, as well as Boston, New York, Tel Aviv and now hopefully the UK.
Erik Sebusch, partner at CMEA Capital, panel:
Ran a panel on how to manage different types of syndicate member. Syndicates will get even trickier now that you have sovereign wealth funds and public pension plans getting involved. Besides angels there are super-angels, micro-VCs, VCs, corporates and multi-family offices with individuals managing their direct investments. This will continue to complicate syndicates and you will have multiple agency risks when a deal goes bad.
Matthew Mead, head of Nesta Investments:
"Mixed syndicates are really interesting and they work really well when things are going well. When they hit roadblocks – and some involve universities as well – the alignment of different
interests is very hard to maintain.
Tony Stanco, chief executive of NCET2:
The universities are in two parts in the venture industry. One is in creating the start-ups. Obviously Stanford and MIT have been doing it a lot longer, but the rest, the whole 200-plus research
universities, have been trying to create start-ups only since 2000. Just this past year or two, universities have tried to create accelerator or venture funds based on the Y Combinator and TechStart model. It is only a few million dollars at a university, sometimes more, sometimes less, and they put in $50,000 just to get the team moving, get them out looking for customers of the lead start-up model and they want a partner.
Peter Cowley, head of Martlet:
Angels are looking for a bit of excitement. They are not just looking for a punt – some are, but most are not – they are looking to get involved somehow and add value. Generally angels go in, possibly
with seed funds, and the corporate venturers get in later. Marshall, however, set up Martlet as a corporate angel – money coming from the holding company,
not the family office, to invest alongside individual angels.
Cédriane de Boucaud, partner at Disruptive Capital:
Why have we set up a pledge fund? A pledge fund is effectively money that corporates and family offices of pension funds will commit but we invest on a deal-by-deal basis and the structure for us is we get a carry (share of profits) and investment management fee based on what we invest in that one deal. It is not a pooled fund. Why do we do that? First, my incentive is I do not want to wait 10 years to have my carry and second a lot of these investors have been really frustrated in thepast few years paying 2% management fees and 20% carry. Also, what we are trying to do now is take the companies we have had in our
first fund and just put a hell of a lot of money into those winners. The only way we can do that in terms of governance and so on is by having a pledge fund.
Jon Moulton, founder and chairman of Better Capital, keynote:
The UK economy is weak on demand. The banks are not stopping lending – they are finding it genuinely hard to find reasonable propositions to lend to because the
economy is weak. In terms of raising demand for venture and growth-type investment, you have to go all the way back into education as your first placement. We need to have more people in science, probably fewer people through ordinary universities, more people doing technical-type subjects.
We need to reward entrepreneurs more obviously than we have done historically.
We have honoured bankers such as Sir Fred Goodwin in a way we just have not done for any significant quantity of entrepreneurs and technological people.
We need to release as much regulation as we possibly can to make it easier for small companies to get going. We need to make sure the government provides support and oversees markets. We need low taxes.
We need to make this economy entrepreneurial, otherwise it is not going to go very far.
There was a keynote Q&A with Bill Taranto, head of Merck’s Global Health Innovation Fund, and Tom Thornton, head of innovation alliances at Cleveland Clinic – see healthcare feature.
A presentation by Mark Radcliffe, partner at DLA Piper, on intellectual property will be covered in depth in the July issue.
Corporate war stories, in which venturers and entrepreneurs shared perspectives on the same deal
Jules Kortenhorst, of Topell: “Great expertise, great support, but none of the overhang of a large corporate and really quick decision-making is a
really good combination.” In a presentation with Crispin Leick, of Innogy Ventures
Vol Pigrukh, Profitero: “We concentrated on getting clients before potential partners in IBM – as the chief executive of the company I just connected on LinkedIn with some senior level people at Tesco, Argos, Marks & Spencer, and sent them little screenshots of their products being more expensive than their competitors. Typically, we woulreceive a mail back within a few days, signed by the senior person with their head of pricing data or head of marketing copied in, with a request for them to ‘meet with these guys and find out what they are all about’.” In a presentation with Martin Kelly, of IBM