Welcome to the 12th issue of Global Corporate Venturing, and 12 months of covering the industry.
Having handed in my notice and given up the safe, well-paid job as an editor at Dow Jones in May last year in order to set up my publishing company, it seemed a good opportunity to use this issue to take stock.
There has certainly been plenty to write about – contrary to the fears of some people before Global Corporate Venturing launched.
The industry has entered its golden age – having money at a time of rising demand from entrepreneurs and as rival sources of capital are more constrained due to liquidity issues and poor returns on average.
Rival sources of long-term capital are becoming increasingly constrained, as identifid by Switzerland-based non-profit organisation World Economic Forum in last month’s issue (and in a keynote speech at the Global Corporate Venturing Symposium in London on May 18), just at a time when the supply of entrepreneurs is at unprecedented levels.
Business start-ups usually peak at the end of an economic recession but the credit crunch has coincided with a unique period of globalisation and economic liberalism where the opportunities and potential to set up a business have never been greater.
Given capital is fungible and the ultimate commodity, having money is not enough to warrant a golden age for the industry. The second, crucial requirement is the added value corporate venturing can bring to its portfolio companies and the innovation ecosystem.
Here, the lessons have been learned from previous eras of rising interest in corporate venturing from the 1960s onward. Those previous times, notably around the millennium, were characterised by programmes being set up at the end of the economic cycle and invested at a period of highest prices with little regard as to what the impact on the parent’s business would be or how to deliver added value to the portfolio company.
Now, corporate venturing’s position in a company’s business development and innovation toolkit can be more clearly defined.That a company such as telecoms equipment maker Motorola can split rather than close its highly-regarded corporate venturing unit when the parent separates into two businesses is testament to the strategic importance of understanding what entrepreneurs are doing (see profile of Motorola Solutions Venture Capital).
Corporate venturing as an investment concept is flexible enough to be used to help incubate internal ideas, commit to the best third-party venture fund managers and invest directly in business tangential or relatively close to existing core operations. Investing well and finding the strategic links is still difficult to do and takes time to show in results.
One of the greatest challenges the industry still faces, therefore, is maintaining support from executives in the parent business, who often change roles more frequently than a portfolio company is held and strategy is set.
This challenge could also become harder. Just as the World Economic Forum identifid an expected fall in traditional sources of long-term capital over the next few decades, the implication is that listed businesses will come under increasing pressure from short-term shareholders to cut expensive investment programmes in favour of greater distributions now.
The combination of hedge funds and activist shareholders, encouraged by management consultants and investment banks paid to promote transactions and change and with the ear of senior managers, with willing buyers of assets in leveraged buyout firmssupplied by debt given unfair tax breaks when compared with equity means longer-term decision-making could end up in shorter supply in the future.
If the industry is to capitalise on this golden age, corporate venturing units will be required to spend increasing amounts of time and effort showing their achievements and their potential – both in creating opportunities for the parent and as a risk management tool delivering awareness of competitive threats forming.
It is for this reason that Global Corporate Venturing is hosting its inaugural symposium and at the evening banquet, identifying best practices and presenting awards to showcase the achievements of people whose talents and importance to society have been hidden too long.The second half of the May issue, a supplement on these best practices, will be out on the 18th.