Global Corporate Venturing talks to and analyses more than 550 corporate venturing units round the world and this privileged position throws up a number of similarities about the groups that have been successful.
Above the people, the organisation and even the aims of the corporate venturing unit is whether the culture at the parent is receptive to the ideas and deals that will be brought back through interactions with external entrepreneurs.
The corporate venturing unit, therefore, can act either as a catalyst for change in the wider company or is a projection of the organisation’s openness to new ideas and change and works as a conduit into the parent.
Many of the best and most successful companies over a long period of time have the ability to work as the human body does – they retain their DNA but the cells are renewed every seven years or so. There is a process of growth, adaptation and shedding.
Some corporations, such as Johnson & Johnson, Procter & Gamble and General Electric, are effectively conglomerates that buy in, develop, partner or sell on a regular basis as a form of Brownian motion to drive earnings.
The genius of private equity as a business model is these limited liability partnerships act in the same way as listed conglomerates but charge their limited partners (investors) management and performance fees for the privilege of doing something that shareholders can effectively get with lower transaction and friction costs from public companies.
There is a reason why the conglomerate Virgin Group calls itself a branded venture capital firm – it is one, just with fewer trade bodies campaigning for its rights to tax breaks and other incentives.
However, both private equity (venture capital and leveraged buyouts) firms and the broader mergers and acquisitions (M&A) market for companies are broadly as incompetent as each other – an estimated 70% of fund managers fail to hit their performance targets while about 70% to 80% of company M&As fail to achieve their goals.
Corporate venturing is equally difficult – taking minority stakes can maintain entrepreneurial enthusiasm and bring scale and distribution and outsourced research and development but with fewer levers of control. Sometimes this is a good thing, sometimes not.
But when firms are able to show both entrepreneurial vision to expand and create more value for customers and the business it is worth following the momentum until hubris or exhaustion sets in.
Europe’s largest charitable endowment and quasi-corporate venturing unit, Wellcome Trust, has followed this logic.
It has increased to 19% the venture and growth capital part of its £13.6bn ($18bn) portfolio and will look to increase the proportion it holds when private companies go public.
As Danny Truell, chief investment officer at Wellcome and last year’s keynote speaker at the Global Corporate Venturing Symposium, told news provider Financial Times: "We are likely to invest more directly … we are looking at add-on investments as private companies become public ones, particularly venture capital-backed companies."
He might have had in mind the impending flotation of social network Facebook (see case study), in which Wellcome is a relatively large indirect shareholder, but could have looked at businesses that have maintained strong growth rates after moving from private to public status, such as search engine Google or software-as-a-service provider Salesforce (see profile).
Salesforce in some ways typifies the new breed of conglomerate – its chief executive, Marc Benioff, is an active angel investor and is well networked with the broader innovation and entrepreneurial landscape. And Salesforce itself is an acquisitive company and active corporate venturer in fields often related to Benioff’s personal investments as it taps up talent and ideas to fuel its fast revenue growth.
By itself, corporate venturing would struggle to have impact at a Salesforce-sized company, but combined into a broader open innovation ecosystem at a business that is looking for the best people and ideas round the world it becomes a vital tool.
Even firms that have recently shut a corporate venturing unit, such as drugs group Biogen Idec, realise the clock cannot be turned back. In an interview with news provider Xconomy, Steve Holtzman, head of dealmaking at Biogen, said it wanted to in-license early-stage prospects and would still take minority equity stakes – corporate venturing without the committed capital.
These ideas will be just part of the discussion at the second annual Global Corporate Venturing Symposium and Awards gala on May 14 and 15 in London, UK. I look forward to seeing you there but please let me know your ideas and ways we can help beforehand.