In the first panel of the 2017 GCV Symposium, George Ugras, managing director at computing company IBM’s investment subsidiary IBM Ventures, and Ilya Strebulaev, professor at Stanford Graduate School of Business, talked through the differences of traditional venture capital and corporate venturing.
Ugras and Strebulaev were joined on stage by Will Gornall, assistant professor at University of British Columbia’s Sauder School of Business; Kenneth Gatz, founder and chief executive of deals database ProSeeder; and James Mawson, editor-in-chief of Global Corporate Venturing.
Strebulaev picked up on the emerging importance of corporate VC for future entrepreneurs, pointing out that in 2016, for the first time, he organised a module on corporate venturing for PhD candidates hoping to launch a company following their dissertation.
Strebulaev also picked up on his study into the performance of corporate venturing units, previously mentioned at the GCVI Summit in January 2017. While the final results are not available yet, Strebulaev and Ugras talked through a graph on incentive pay, observing that funds offering carried interest outdo those that do not.
However, while traditional VC firms are interested only in financial returns, corporate VCs also usually need to align with business units. Corporates largely get what they pay for: those with a strategic mission make gains in that area, while those with a financial target succeed in generating returns.
In fact, the panel agreed, the companies that have had a massive impact are those that have developed an innovative business model rather than new technology, and Mawson noted that some of the most disruptive companies in recent years, such as ride hailing platform Uber, are “very asset-light”.
Steve Jobs, Ugras added, was a genius not because he created some fund in China, but because he came up with iTunes – he figured out that you want to carry music in your pocket and that you are willing to pay $0.99 per song for the privilege.
Ugras said corporate venturing divisions, above all, must not remain static for long – venture capitalists tend to have a 10-year horizon, but in the CVC model the investment unit needs to evolve with the corporate.
Mawson pointed out that, indeed, Global Corporate Venturing could not identify a single CVC unit that was pursuing exactly the same strategy as it had 10 years ago.
What happens once a startup is acquired by a large corporate, Gatz asked, wondering how the agility of a team can be maintained as it is aligned with other business units.
Ugras said that, internally, he uses the phrase “the golden thread” (admitting he did not coin it): find an engagement for the team that is single-threaded and where you can easily see a path to success. If you keep it broad, you will fail.
Finally, Ugras joked, “if I find myself in a room with more than five or six people, I leave – and I highly recommend that” – provoking laughter from the audience.