BlueRun Ventures, formerly a corporate venturing unit of handset maker Nokia, is one of the best-known spin-outs to go on to be a successful independent venture firm. This is no mean achievement given corporate venturing units generally outperform independent peers.
Yet an article this week by news provider Thomson Reuters’ Private Equity Hub titled “BlueRun-ning Out of LPs and Personnel” suggested it is running into fundraising difficulties and has had a number of staff departures.
The story is likely to send shivers down the spines of the many corporate venturing executives who have fantasised about using their strong track record to go it alone in the venture market, rather than remain part of their corporate parent.
Of course the temptations of going for independence are many – executives can go from being generally well-paid employees to owners of a richly-remunerated asset manager, and also control their own destiny. The danger is that without a new fund raised every three to five years, private equity firms slowly die out.
Corporate venturing units also generate stronger returns to independent venture firms, according to academic research by the London School of Economics’ Gary Dushnitsky and the Stern School of Business’s Zur Shapira in 2010.This track record can be used to create a first independent fund but then market conditions and performance will dictate success.
It may be foolhardy in a difficult fundraising environment – the independent industry continues to shrink as traditional institutional limited partners choose other investment areas – for corporate venturing units to go it alone, as differentiating your firm from the competition will be tricky, especially if the reason you have a good track record is the support of your corporate parent. How do you know it isn’t?
In BlueRun’s case, the jury is out on their fate. The PE Hub article says BlueRun is being rebuffed by investors including AlpInvest Partners, a large fund of funds that is part of private equity firm Carlyle Group, and its former parent Nokia. BlueRun declined to comment on its investors’ intentions, while AlpInvest also declined to comment.
Yet the actions of these two investors may be more a reflection of the institutions’ strategies themselves than market sentiment towards BlueRun. AlpInvest is less interested in early venture at the moment, said two sources familiar with the fund of funds, one of which said they had heard an AlpInvest executive say this in public at a conference.
Nokia, meanwhile, is more concentrated on how it deploys resources in its attempt alongside software provider Microsoft to catch-up with Apple’s iPhone and smartphones using Google’s Android technology, which have dented the Finnish company’s once powerful role as the biggest volume producer in the handset sector. It is fair to say, the fate of the Finnish company’s former corporate venturing unit’s next fund is unlikely to be top of its priorities as it struggles with a well-publicised “burning platform”.
Cheryl Cheng, an operating partner at BlueRun, said: “Fund five is on the horizon, given when we raised our last fund [2008]. How we work with our existing and potentially new limited partners is still an open dialogue and we are still engaging with LPs.
“They recognise the differentiated approach of what we are doing. Part of the strategy will be taking what we learned in fund four, which seems to be working [Cheng says it is a top decile fund, based on its 34% internal rate of return], and refining it. We will be taking that story out to other value-added partners we can work with on fund five and we feel good about what we have done.”
There has also been significant churn in BlueRun’s team, as noted by PEHub’s article. The company has seen departures, but some of these went to BlueRun portfolio companies,such as Vineet Buch who went to Like.com, and Andrew Chen, who went to BlueRun’s Chinese portfolio company Beijing Innofidei as chief operating officer.
BlueRun continues to think it has made the right move by going for independence. Cheng said: “We are really proud about being a corporate venture group which has spun out, after having been started 14 years ago and found our niche market. We have continued to build and thrive and I don’t know how many groups have done that.“
How it handles this current moment, when a respected media publication is raising fears about its future, should be watched not only by observers of the firm or Nokia, but also the wider corporate venturing market. Should BlueRun have difficulties that could make it harder for other corporate venturing groups looking to spin out.
It is worthwhile listening out for more news, as things might not be as bleak as the PE Hub report suggests.