The corporate venturing space could end up looking increasingly polarised as parent companies weigh their balance sheets against strategic innovation during the Covid-19 pandemic, Swisscom Ventures’ Dominque Mégret told Global Corporate Venturing.
A gap is likely to open up, with some corporate players folding as boardrooms cut back on risk they do not view as integral to core profitability, according to Mégret, head of Swisscom Ventures, the corporate venturing arm of Switzerland-based telecommunications firm Swisscom.
“I can definitely see to some extent that the board of the parent company could indicate they want to postpone corporate activities for the moment, which is [essentially] the same as stopping [given the challenges of resuming deals],” Mégret said.
“It has been a problem in the past and is sure to return, especially where the parent has liquidity issues to consider.”
With enough liquidity, however, it was equally conceivable that many corporate venturing units would survive as a lever for long-term strategic gain.
Bargains might arise for those who hang tough as venture capital markets tighten, and adequately funded units could fuel success for their parent once the crisis has ended.
However, the typical capitalisation requirement for investments is likely to grow as startups faced unprecedented conditions and fewer avenues to secure funding, Mégret argued.
Swisscom Ventures invests from multiple funds including a $199m vehicle called Digital Transformation Trust it closed with backing from external limited partners in mid-2018. It invests approximately $50m each year on average to fund roughly 10 startups, according to Mégret.
The unit now plans to invest slightly more per transaction. Its core trajectory remains unchanged, though travel restrictions have limited its deal activity to its home country for now.
Silicon Valley had provided the basis for much of Swisscom Ventures’ overseas deal pipeline. In contrast to its Swiss investments, the criteria for US deals was purely strategic and centred solely on telecoms-related areas.
Mégret is nevertheless confident that enough opportunity lies in its home market, given the likelihood of reduced competition from international investors who are now also realistically limited to their own countries.
“The home country companies will have less access to international investors so there are more opportunities – it will go both ways,” he said.
Switzerland has taken no chances with its workforce, telling employees – including Mégret – to work from home, and it banned all gatherings of more than five people last week.
Mégret believes the step could precede fully digital working practices becoming the standard fall-back position for economies during times of distress.
“In future I can imagine that in any viral circumstance you would have alarms similar to military alarms, not unlike in the old days how people had to return to the bunker,” he said.
“I think that next time we will better organised, better prepared, and hopefully we can handle the crisis in a professional way without stopping the whole economy.”