A conference hall, awash in sunlight and with a majestic view of midtown Manhattan, hosted the third edition of the GCV Synergize conference on September 25. The venue brought together corporate venturers, traditional VCs and other investors to look for synergies.
Christina Riboldi, the program director of Global Corporate Venturing, began the conference by stressing the importance of fostering rich and meaningful dialogue and connections among the participants. She described the third edition of GCV Synergize in New York City as “a booster” to the GCVI Summit, the major conference organised by GCV, which takes place at the end of January in Monterey, California.
The conference was co-chaired by David Horowitz, founder and managing director of Touchdown Ventures, and Darcy Frisch, managing director and vice-president of Hearst Ventures, the venturing subsidiary of media company Hearst, which generously hosted the conference on the 44th floor of the Hearst building in Manhattan.
The pair, who had started their investing careers at roughly the same time, spoke to James Mawson, the editor-in-chief of GCV.
Frisch reminisced about Hearst’s first venture investment in Netscape 25 years ago and said: “If we fast- forward to today, Hearst continues to lean into new opportunities and grow.” She added Hearst is now also focused on areas like B2B software, health and transportation, which represent 30-40% of corporate profits. Frisch also pointed to the international orientation of her investment mandate by saying: “Hearst Ventures is as strong as ever, investing not only in the US but also in Europe, Israel and China.” Diversity and inclusion were among the major themes of the event and Frisch highlighted the Hearst Lab initiative, which helps female founders.
Horowitz, in turn, highlighted the staggering growth of the corporate venturing industry. “Over the past five years, the number of corporations getting into venture capital has grown over 300%,” he said, referring to GCV Analytics data. He added the growth in number of corporate venturers has been accompanied by a corresponding growth in dollars, citing a PitchBook finding that that “52% of venture capital deployed in 2018 was deployed by corporates”.
Horowitz also told the audience about a recent analysis run by Touchdown Ventures, which sought to find the correlation between using corporate venturing and the stock performance of the corporation using it. According to the analysis, encompassing the top 100 corporations, the median stock price of corporations that are involved in venturing appreciated 21% more than the price of their listing index peers, measured from the time of the CVC unit launch until the end of 2019.
However, he did not spare criticism either. He listed reasons why CVCs fail.
“The average CVC program has a tenure of four years. How do we make those four years 10 years? Or 20 years? To me, it is about professionalism,” he said. And professionalism in corporate venture capital has grown. Frisch noted: “I do not see a lot of deals in the market that are excluding corporates today,” which demonstrates this professionalism.
Frisch and Horowitz offered the audience their takes on how to deal with economic downturns, as they have decades of experience in industry. Frisch stated that “some of the best investments were made during a downturn, so having lived one through helps you brace yourself for the cycle change that is coming”. Horowitz added that it is not only general economic downturns but internal corporate shifts that affect a venturing arm: “Every time there is a new executive, the strategy gets adjusted. Continuous review process is the key.”
The co-chairs also touched on a pain point for corporate venture funds – recruiting talent as corporate VCs are different from a financially-oriented VCs and may not always have the proper incentive structure or wherewithal to retain investment talent.
Financial vs strategic
Jaidev Shergill, head of Capital One Growth Venture (C1GV) was interviewed by Ken Gatz, CEO of service provider ProSeeder, one of the event’s sponsors.
Shergill spoke of Capital One Venture Capital and its role as an innovation and intelligence gathering tool: “We view our role as different from venture capital. Our primary objective is not to deploy capital but to help Capital One to take advantage of the external innovation that is happening. We started four and half years ago with the idea to be the eyes and ears of the company in Silicon Valley and beyond.”
In discussing the dichotomy between financial and strategic returns, Shergill noted the limited potential of financial returns to make a real difference on the corporate balance sheet: “The financial returns figure potentially never amounts to a big number and never catches the CEO’s attention unless it is negative.”
In terms of the tricky issue of measuring strategic value, Shergill explained that C1GV started without worrying about either financial or strategic measures. Gauging the “strategic” value added stemmed from a simple question: “Are we working with the startup or not? And then we start building up the KPIs based on this in terms of cost efficiencies, revenue produced, et cetera.”
He defined the relationship with the corporate parent as a process of giving investors value, which boils down to the question: “Why are we a must-have rather than a nice-to-have?” To him, the value given to the parent company lies in “the ability to have an input on the company’s roadmap”.
Similarly, he described the relationship with portfolio companies as providing vendor relationship value. When deciding to build these relationships, he emphasised, there is a “need to envision something with a larger impact across the [corporate] organisation rather than a narrow application”.
Finally, Shergill also mentioned his success in setting up a “venture development team” – people who connect startups with relevant business units from the corporate parent and make sure both parties are sufficiently engaged in a win-win relationship.
Gil Beyda, managing director of Comcast Ventures, the venturing unit of the media company, was interviewed on stage by Evan Bienstock, partner at law firm Fenwick & West, another conference sponsor.
An entrepreneur-turned-investor, Beyda said he believes Comcast Ventures is a must-have and not a nice-to-have. He explained that the unit is treated almost as an independent entity. It makes both early and late stage investments, focused mostly on the US. The evergreen fund has the benefit of being a patient investor. It supports startups in follow-on rounds and does not face some of the hurdles other corporates encounter.
Beyda described the orientation of the venturing arm: “Comcast Ventures is a financially motivated fund. It is our first and foremost reason. Once we make an investment, we take board seats and we are compensated when companies grow big and exit.” However, he noted he uses the advantage of a corporate venturer like Comcast in his pitch to startups: “We are a VC plus – with networks, capital and the ‘plus’ part no VC could bring – potential partnerships with Comcast and Universal.”
Despite the clear financial orientation, Beyda admitted the true value given to the corporate parents lies beyond the monetary return: “Even though we are financially driven, if we have a billion dollar exit, it might not even make the quarterly earnings call but… we would like to think the venture group is the expedition force that looks beyond the next seven years – markets and technologies that do not even necessarily exist yet, so we can help understand what the future looks like.”
He added: “We do not announce our returns. We judge ourselves first and foremost financially. We benchmark ourselves with other VCs but internally senior management has to believe we are building value for the mothership.” He offered an example by explaining he made an investment in quantum computing recently, as no one else in the corporation is charged with looking into this technology to provide intelligence, despite its immense potential impact in the future.
Beyda also touched on the issue of talent retention and compensation:
“If you want to hire the best investors, you have to incentivise them properly. Have a traditional carry structure.” He also explained that in Comcast Ventures, there is a solution to avoid pain in employee turnover, with a partner leading a given deal and a “co-sponsor” that helps and who can take over if the partner leaves the team.
Esther Dyson, executive founder of Wellville, a 10-year non-profit project dedicated to demonstrating the value of investing in health, and Susan Lyne, president and managing partner at BBG Ventures, a VC firm which counts telecoms firm Verizon and clothing brand Nordstrom as limited partners (LPs), were interviewed by Ian Goldstein, partner at Fenwick & West.
Dyson and Lyne talked about how corporate venturers can add value to their portfolio companies and highlighted the difficulty of doing business with a corporate for startups that have matured sufficiently. They concurred that one of the ways to tackle this problem is to be transparent in early discussions with potential investees.
Dyson spoke of potential communication pitfalls and the disappointments that may stem from them, while taking into consideration the advantages of corporate investors: “It is always enticing to work with a CVC as you can become their partner and supplier but there are often mismatched expectations. What are CVCs looking to get? Do they want to acquire?” Lyne seconded Dyson’s comment and stressed how early stage venturing arms obtain intelligence on new generations of consumers.
Lyne said that “helping with potential acquirers would make CVCs even more enticing to portfolio companies”, encouraging corporates to be “very transparent and clear on intent” and also pointing to an example of how she has co-invested several times with Comcast Ventures, which has been “very valuable in making introductions”. Dyson also touched on the “superpowers” of corporate investors: “Corporations have structures and know-how that young startups completely lack” so she encouraged them to “build a reserve of personal relationships and knowledge”.
Lyne and Dyson also touched on diversity and inclusion – a recurring theme at GCV events. Lyne briefly spoke about her experience in helping the first generation of female founders in the greater New York City area, which she identified as an opportunity at the time: “There is a competitive advantage for a consumer company if it has a female founder. Women are the dominant consumers.”
“There are many women first founders building companies right now. We have seen over 5,000 such companies in the past few years. Diverse founders are growing in numbers monthly. You could be investing more in such companies that meet your strategic goals,” she urged.
She also cited data that suggest CVCs have a better track record than traditional VCs in terms of committing capital to companies with female founders and advised corporate venturers to consider having their strong female executives join the boards of later stage companies. Dyson added there was a need for more diversity among startup founders in general and not just women.
Mindfulness in Manhattan
Bimal Mehta, vice-president and startups partner of innovation at industrial firm Schneider Electric, told the audience about his journey setting SE Ventures, the venturing subsidiary of the corporation. Mehta brought mindfulness to the room by asking everyone in the audience to stand up and take two deep breaths before his presentation and then joked he had read making one’s audience move increases the likelihood of a better public speaking outcome.
Mehta described the vehicle as a $565m dollar fund with a stage-agnostic investment mandate at the cross-section of energy and digital technology, actively taking LP stakes in other funds and making direct investments. The unit’s core beliefs blend strategic objectives with financial returns, which Mehta humorously dubbed “active mothership distance management”. He explained that the procurement and setup of joint ventures was also under SE Ventures’ umbrella.
He summed up the beginning of the journey, which from the outset concentrated on both external as well as internal innovation: “We started off as a venture investment vehicle doing both direct and indirect investments, and also as a business incubation team, trying to drive innovation on the inside of the corporation. We launched three business incubation projects combining entrepreneurs and experts from Schneider Electric.” His team has also participated in external incubation schemes.
When asked about the value startups can derive from Schneider, he explained that there are “over 30 lines of business at the corporate parent that are talking to the startups”. SE Ventures, in turn, measures the value startups bring in by the number of projects from scout to scale stage (that is, commercial agreement with the lines of business).
Jenny Fielding, another entrepreneur-turned-investor and managing director at startup accelerator TechStars, told the audience about her experience working with corporate investors.
“TechStars is running 50 accelerators, most of which are corporate-backed in some way,” she stressed.
She shared stories of success and failure. She told a story about a startup founded in 2014, when data analytics technology on blockchain cryptocurrencies was beginning to take off. The company in question wanted to work with governments but first needed to build reputation by working with large institutions and ended up working successfully with UK-based bank Barclays.
Fielding also told the audience the story of a hardware company that was struggling with a corporation, which it hoped to partner with. The corporation, along with other industrial companies, had backed a TechStars accelerator scheme focused on the internet of things. However, it had not done the work to convince business units to work with startups, so the startup encountered much “friction and misalignment”.
Teddy Himler, vice-president of Softbank International, a venturing subsidiary of telecoms firm SoftBank, spoke about routines for success when he was interviewed by David Horowitz. Formerly with Comcast Ventures, Himler said he had helped set up the New York venturing office of SoftBank a year and half ago.
Outlining his approach to venturing, he explained that there are three basic steps – sourcing, evaluation and value creation. “After an investment, we think about commercial initiatives,” he clarified. He also said that SoftBank is focused on eight sectors, which it knows well (connectivity, satellites, AI, IoT, fintech, robotics and so on) and is currently looking at investments that complement those sectors.
Horowitz raised the question of SoftBank’s impact on industries via the massive Vision Funds, citing famed venture investor Bill Gurley who had commented on how SoftBank poses a big threat to Fortune 100 companies. The funding it provides to potential disruptors could serve “as a drawbridge against the moats of incumbent corporations”, as Horowitz put it. Himler agreed mega-funds are potentially capable of removing these competitive advantages.
Himler also spoke about bringing third-party investors into a CVC fund, as he has done. He said their presence provides further accountability, as the fund needs to generate financial returns, not merely strategic returns. “If you bring in outside capital, it creates stronger incentives to grow the fund in size.”
Mawson provided a brief data overview on the corporate venturing realm, emphasising why corporate venturing is helpful and where it may be heading. He explained the raison d’etre of Global Corporate Venturing as an organisation revolves around two fundamental questions: who does corporate venturing? And what do they do?
Mawson went over some of the most impressive data points on corporate venturing, citing GCV Analytics and other sources such as PitchBook. He cited data from the latter which showed the aggregate amount of capital deployed in venture rounds was over $1 trillion during the past decade, “more than in all other decades combined”. He also noted that, though GCV Analytics has tracked a rise in the number of corporates taking minority stakes in emerging businesses, there is a 80-20 relationship, in which around 20% of corporate venturers make nearly 80% of the investments reported, which implies that “the majority of corporates are probably not engaging in the most optimal way with startups”. He also pointed out that the majority of corporates investing in startups have come primarily from the US, Europe and the Asia-Pacific region. The US leads the way and is dominant because of its deeper involvement, including in larger rounds over $100m in size.
Mawson explained corporate venturing is a process of understanding the pain points of investors and entrepreneurs and connecting them. He listed the five major pain points for entrepreneurs who are seeking to understand “how to raise capital to expand their business, how to get customers, how to do product development, how to hire more people and eventually, [achieve] some form of exit”. Mawson expressed his deep conviction that corporate investors are “uniquely positioned” to help them do that and, thus, corporate venturing is a “powerful way to make the world a better place”.
Universities
Orin Herskowitz, senior vice-president of intellectual property and tech transfer at Columbia University urged the corporate investors in the room to consider committing capital to startups spun out of universities in earlier rounds (seed and series A). He suggested that corporate venturers engage with them at the series B stage, when valuations are already high.
Herskowitz cited data that revealed in 2018 alone, $900bn in federal funding for universities had translated into 11,000 startups and 81,000 patents. He also said that academia is a rich source of applied innovation, pointing out that almost all patents for the best inventions have “historically come from universities into startups and then to corporations”.
He also suggested possible points of engagement where corporates can reach out to universities for innovation sourcing, including academic research centres, startup accelerators on college campuses. He encouraged corporate investors from the audience to consider becoming mentors, advisors or judges in innovation-fostering initiatives.
Brad Steele, managing director of global startup and venture capital business development at AWS, the cloud computing subsidiary of e-commerce firm Amazon, spoke about AWS’s unique approach to corporate venturing, which excludes direct equity investing in startups.
Steele explained AWS helps emerging businesses by aiming to discover them at a very early stage. It provides them with business enablement and technical expertise through elaborate mechanisms and training programs, and even includes cloud engineers to help them scale correctly. He outlined the numerous initiatives aimed at promising startups, from networking events to get exposure to customers through platforms to test and deploy their solutions to providing free publicity, opportunities to engage with business units and access to training and education.
Diversity and inclusion
Gus Warren, managing director at Samsung Next Ventures, one of the venturing arms of electronics manufacturer Samsung, and Tracy Isacke, head of Corporate Relationships at Silicon Valley Bank spoke about various issues related to diversity and inclusion and how corporates are supporting these initiatives. They concurred that CVCs are positioned to lead a positive change. To raise awareness on the severity of the problem, they cited pertinent data – women constitute 50.8% of the population of the US, yet they receive only three percent of all VC funding. Similarly, women and minorities constitute 70% of the US population but receive less than five percent of all venture dollars.
Through the GCV Leadership Society, both Warren and Isacke have supported the idea of promoting diversity and inclusion within the industry. Warren said Samsung Next has been “working with several groups of experts on D&I”. He strongly encouraged generating guidelines on how to move forward and to establish baselines to improve on.
Both speakers also mentioned that there is strong evidence from studies conducted by Harvard Business School, which suggest that diverse teams perform better. To corporate venture investors, this means having both diverse talent in their teams and diverse founders among their portfolio companies is critical. Warren noted that he has been “trying to figure out to leverage the existing team, even if it is not diverse, to proactively manage relationships with diverse partners”.
Two other team members of Samsung Next, Brandon Hoffman and Antonio Key, offered the audience a presentation on diversity and inclusion, exploring the initiatives planned and put into play by Samsung Next on the D&I front. Both Hoffman and Key outline why diverse founders can unlock large untapped business opportunities financially and strategically to Samsung.
The final interview on stage at GCV Synergize featured Lutz Stoeber, investment director at Evonik Venture Capital, the venturing unit of chemical producer Evonik Industries, and Stephen Socolof, general partner at venture firm NJ Tech Council Ventures. The discussion was moderated by Justin Watkins, partner at law firm Drinker Biddle & Reath.
The talk focused on corporate venturers making indirect investments by participating as limited partners in traditional venture funds. Evonik Venture Capital does direct and indirect investments and has been drawn to the latter because funds offered it access to investment in strategically important areas and they actively engage with Evonik as a co-investor and partner, Stoeber explained.
In explaining what was attractive about having Evonik as an LP, Socolof in turn noted that he saw an “overlap of opportunities and interests” and “tremendous opportunity to develop innovation in materials, pharma, CPG [consumer packaged goods] and other areas”. Stoeber said that to Evonik, this indirect investment was “an extension of direct investments but also creating a large global network of critical importance to the stakeholders”, pointing to business lines that are locally present in the US.
Both Stoeber and Socolof gave advice on how look for an investment partner. Stoeber commented that when looking for a venture fund to invest in, it is “very critical to examine the GP [general partner] very closely and make sure you have partners you can talk to on regular basis”. However, he warned against unnecessary meddling with the fund manager: “Do not interfere with the GP and their job.” When asked about co-investments between Evonik Venture Capital and NJ Tech Council Ventures, Stoeber said: “Co-investing is not a priority but great if it happens.”
Socolof also offered advice on how to look for corporate LPs. He recommended venture funds start “talking and getting to know them” but also warned them to be “careful about promises being made if you have a small team”.
