For many of the attendees at the Global Corporate Venturing and Innovation Summit 2021 held late last month in Monterey, California, the conference was their first in-real life (IRL) event since the pandemic effectively stopped them in the first quarter last year after the previous summit.
With sun and blue skies gracing the outdoor, socially-distanced event and a sold-out capacity audience of 300 corporate venturers and others in the ecosystem, it marked a welcome return to networking and sharing insights.
Lisa Lambert, chief technology and innovation officer at UK-listed utility National Grid and founder and president of its National Grid Partners corporate venturing unit, said in the welcome address: “It is an honour to be here today and I would like to welcome all of my corporate VC peers back to the GCVI Summit!
“This event is long overdue and for those attending, thank you for being here in Monterey for the first IRL conference since the pandemic began.
“I am honoured to stand here as chairman of the GCVI Summit and look forward to future engagement with many of my colleagues here in the audience.
“As we all know, CVCs are in the driver’s seat as generators of innovation.
“For CVC community members – both new and established – we have a real opportunity to professionalise this industry to ensure the success of CVC.”
The audience was particularly interested in catching up with peers and seeing how to respond to the changing environment for investors and entrepreneurs as a result of the pandemic.
Whereas at the start of the coronavirus outbreak the expectation has been for potentially sharp reduction in deal volumes and values, the reality had seen a record inflow of money and activity.
GCV Analytics had tracked a record number of corporations doing their first venture deal in each of the past five quarters, while overall deal volumes held up (see quarterly report pages 56-71 and help us update our analysis through our annual survey).
But the wall of money entering the venture ecosystem has dwarfed even the increased contributions from CVCs.
As at the end of June, data provider PitchBook alongside GCV Analytics tracked a falling percentage share of all venture deals by value involving CVCs over the past two and a half years from just above 50% in 2018 to 38.4% last year.
This creates two related challenges, attendees said. First, the 1,000-plus new corporate entrants to dealmaking created a risk of unsophisticated investors creating so-called noise in the market and a reputation for being dumb money.
This was something the CVC industry has spent much of the past decade tackling as hundreds of CVCs now have more than 10 years’ track record, according to GCV Analytics, and a better exit rate and returns than most VCs, according to Pitchbook.
Churn by CVCs remains an issue with up to half of investors last year failing to return this year, according to GCV Analytics.
Second, competition for assets has increased. At the later stage, from series C and beyond rounds, hedge funds have gone from investing in few private companies a few years ago to $153bn – about 27% of total VC amounts – in 770 deals so far this year, according to Kristin Kramer at Goldman Sachs in its podcast.
At the earliest stages for entrepreneurs the quality of pre- and seed investors from angels, family offices and micro-VCs has increased. Corporations risked being squeezed into paying heavily to access B and later rounds, attendees said, although the majority of their activity by deal volume is still at these early rounds, they said.
Armed with the data, attendees then discussed how to win and work with the right partners. The GCV Institute has been providing actionable professional development and certification, rigorous research and community building through the pandemic alongside the GCV Leadership Society representing many of the top investors doing the majority of deals and hence able to benchmark themselves to management and entrepreneurs.
Amy Burr, head of JetBlue Tech Ventures, and Austin Noronha, managing director at Sony Innovation Fund, ran the benchmark roundtable, which recommended “one big survey that everyone participates in – otherwise you are splitting the group of respondents, making the data less valuable, and then it becomes harder to make it truly anonymous”.
This would expand GCV’s annual survey with partnerships to cover financial versus strategic information, fund type, systems and tools used, team structure, size and compensation and all with case studies.
Richard Kramer, CEO of Goodyear, a US-based tyre maker, in discussion with Paul Holland, co-founder and partner at Mach49, a corporate innovation consultancy owned by UK-listed Next Fifteen Communications that acts, in his phrase, as the Y-Combinator for the global 1,000 corporations, said engaging with investors and entrepreneurs in Silicon Valley was a “super energising part of my job”.
Goodyear was a startup in the prior new era for innovation in mobility about 123 years ago when transport was moving from horse-drawn carriages to the internal combustion engine-powered cars. Kramer said: “Tyres will not go anywhere but if we do not do anything we will play in a smaller profits pool. So, what is next for Goodyear?
“Corporate venturing helps frame the art of the possible and takes and connects dots.”
Kramer added that Goodyear has to examine customer needs and the investment committee look at autonomous driving, transport-as-a-service and robotics and look for business model innovations.
Similar disruption is being seen in other industries, according to the global sector councils run or being set up by GCV for energy, healthcare, industry 4.0, consumer, finance, AI and deeptech and mobility among others.
Heriberto Diarte, head of SE Ventures, the corporate venturing unit of France-listed industrial group Schneider Electric, and a member of the Global Energy Council chaired by Lisa Lambert, ran a roundtable looking at how CVCs can help on climate change and sustainability.
He summarised the need as “enormous”. The need, according to IPC, is trillions of dollars. We need carbon pricing, otherwise we will not reach our goals.
“In the next 30 years we will need a combination of energy sources. We will not all go 100% renewable. Therefore, another trend is to lower the carbon emissions and footprint from hydrocarbon production. It would be good to have evergreen funds that can stand the time for technologies like hydrogen to fulfil their potential.”
Linda Yates, co-founder and CEO of Mach49, told the ESG: Sustainability Investing in 2021 and Beyond panel moderated by Ashley Walter, a partner at law firm Orrick: “The nature of their [CVCs’] investments and the themes they are investing in are ESG [environmental, social and governance-]related, without specifically focusing on ESG. [The topic is] moving into the mainstream of businesses. ESG investing through venture building is a great way for the mothership to get them there faster without having to change their entire traditional business lines.
“Options are build, buy, partner, invest. Leverage all the tools to figure out how to grow and how to convert companies into operationally sustainable entities.”
Ultimately, as Nicolas Sauvage, president of TDK Ventures, the corporate venturing unit for Japan-listed materials group TDK, told the Constant Craving: CVC Acceleration workshop, it was about looking for the “King of the Hill” – companies that are going to win when the market becomes massive in five years.
And, to entrepreneurs, CVCs have an advantage in this dynamic marketplace because of their strategic partnership potential if they remember to keep terms on a level with their financial VC peers.
Jake Kaldenbaugh, managing director for global venture investments at consulting firm Accenture, told the Recipes For Returns: Emerging Fund Structures & Trends For Future Investment panel moderated by Jim Fischer, partner at law firm Faegre Drinker: “View each investment as unique and think carefully about attaching the right assets.
“Accenture has breadth and scope across the market, so they have someone with expertise [from their] 624,000 people that Accenture employs and can tap into for their portfolio companies. Commit to founders that they will be involved at a very high level.”
And the combination of strategic value-add allied to financial discipline and focus from more independent private capital providers is a potentially winning hybrid.
Brian Schettler, partner at AEI Horizon X, told the same panel how it had spun out of aircraft maker Boeing the month before after five years as a CVC funded with $250m straight off the balance sheet.
The trigger at Boeing was a change in CEO and the pandemic, which affected the company’s revenues and weighed on its $60bn in debt.
Schettler said: “Hybrid solution solved Boeing’s issues, that is its financial pains, but also keep delivering strategic value.
[HorizonX] decided to go with an existing private equity firm [AE Industries] and added a venture layer as a platform to bring new opportunities and strategic partnerships. Spun off [and] recapitalised with new [limited partners] and funding [of] $300m to $500m in a new fund to restart activities. [AEI Horizon X has] kept a strategic tether to Boeing to call on the expertise and regulatory contacts but also has independents. It is a private equity fusion.”
The evolution and change seen so often by the entrepreneurs in how their business models and technologies develop is now starting to be reflected by their investors.
The GCV Leadership Society will reflect this need for understanding of how public and private capital markets are evolving, as well as the networking, information, professional development and benchmarking, under its new chairwoman, Jacqueline LeSage, head of Munich Re Ventures.
LeSage takes office in the new year at the next GCVI Summit after the two-year term ends for Young Sohn, chairman of the board for electronics manufacturer Samsung’s Harman International subsidiary.
