There remains continued growth of corporate venturing as it enters mainstream acceptance by companies around the world as a tool to help their innovation framework.
One of the clearest examples that corporate venturing is in its golden age was the buoyant numbers of delegates at the 14th Annual Corporate Venturing and Innovation Partnering conference presented by the International Business Forum in the US last month.
The organisers had twice as many attendees than expected for the firstday’s corporate venturing workshops organised by Andrew Gaule, founder of consultancy Corven Networks.
These workshops followed an opening discussion presented by Gaule and Robert Ackerman, founder and managing director of venture capital firm Allegis Capital, which specialises in working with corporations, about how to build a sustainable corporate venturing programme.
This topic was picked up through the three-day event as the speakers looked at how to build in greater stability to an industry that Ackerman described as "volatile" over the previous 40 years.
Ackerman said: "The pace of innovation has accelerated and become more global while the pressure to achieve more with less has only intensified and there has been a significant shift in value creation from large to small companies.
"Small companies now make up 24% of research and development dollars compared with 4% in 1981, while large companies’ share has fallen from 70% to 37.6%.
"The challenge large companies have in working with young companies is a cultural mismatch, and for corporate venturing to help with this impedance is mainly an issue of people – how to find, hold on to and compensate the best corporate venturers with support from the C-level of senior executives [such as chief executives (CEOs), chief innovation officers and chief financial officers (CFOs)]."
Ackerman described the CFO as "one enemy" of corporate venturing because the unit’s returns were volatile and lacked predictability. As a result, he said corporate venturing units needed to spend time working on how to manage risks by getting more leverage and commitment from the corporation to the venturing unit and its investee companies and using portfolio theory to limit valuation volatility.
Ackerman said one extra way of building "significant competitive advantage" for the parent beyond committing to venture capital funds or direct investing in entrepreneurs was to use the knowledge gained to help the internal mergers and acquisitions team buy and integrate deals.
Gerald Brady, a managing director within US-based Silicon Valley Bank responsible for leading its entrepreneur services group and work with corporate venture and corporate development units, said another factor behind the recent trend towards corporate venturing was stock market pressure on CEOs to deliver top-line revenue growth.
He added that analysts were increasingly asking whether a company’s products were less than three years old as a gauge to whether they could be disrupted, as there was an "exponential increase in innovation" as the cost of starting a company falls.
As a result, said Brady, CEOs’ openness to open innovation had changed and they realised they would fail to keep up without it. Global Corporate Venturing has tracked more than 140 fund and corporate venturing programme launches over the past 18 months and feedback has shown boards buy in to the "fear" argument – that by using corporate ventur-ing they can see potentially disruptive market dynamics and use the unit as a scout, or eyes and ears, for trends.
Patty Burke, a partner at consultancy Bell Mason Group, agreed with Ackerman that market dynamics were "driving innovation urgency" and hence making corporate venturing more attractive.
She said: "If this is the golden age for corporate venturing, now is the time to deliver." This meant looking at the corporate venturing unit’s impact if it hit the required strategic and financialmetrics set for it and attaching a dollar amount to it, Burke added.
Later in the conference, Adam Caper, founder of consultants Synchrony Venture Management, talked alongside his client, Iain Cooper from oil services company Schlumberger, about how to screen, select and measure strategic investments using an empirical framework to identify the most value.
Burke called on examples from the floor about what this meant in practice, including Ray Schuder, head of chip maker AMD’s Strategic Venture fund, about how corporate venturing could be used to highlight its parent’s products rather than compete with portfolio companies – a policy that has allowed the unit to thrive in its first year despite the departures of senior staff, including the chief executive.
David Stephenson, investment principal at US-based drugs maker Merck’s $250m Global Health Innovations fund, said its approach was to ask: "How can I accelerate the sales and products of the entrepreneur by using the resources of a global pharmaceutical company operating in 140 countries?"
He added: "For the entrepreneur, going through the corporate venturing unit brings access to Merck’s product line and research and development and we try to link to portfolio companies together and engage with the venture capital community so early-stage companies can work with ours."
This approach of thinking how the corporation can work for the entrepreneurs and venture capital firms rather than assume they would want to engage with the large incumbent is a shift in attitude for the current generation of cor-porate venturers who are acting with more humility.
Majid Mufti, head of corporate venturing and strategic investments at oil and chemicals group Saudi Aramco, said it would be launching its unit in the third quarter (see news report). He added: "We might be dumb money today but we are fast learners."
While Aramco effectively acts as a steward for Saudi Arabia’s petroleum resources, Mufti said the state-backed company was moving to think of its job as providing energy, whether from hydrocarbons or clean energy. Other corporations to have redefinedtheir role in similar ways to broaden their remit include Switzerland-based chocolate company Nestlé, which has used corporate venturing to move from calorie production to include illness prevention.
Mufti said small companies delivered better results than research and development. They knew the challenges but needed funding support.
And corporate venturing was a relatively efficient process for large corporations. Dominique Mégret, head of Switzerland-based phone operator Swisscom’s venturing unit, said corporate venturing could process a deal in two to four weeks compared with two to six months for a merger or acquisition and requiring far fewer senior management.
Mégret said the most productive source of deals were leads from its business units. Seventeen of 50 leads from Swisscom’s divisions had resulted in deals, compared with fiveof 150 from venture capital suggestions and none from 750 unsolicited ideas.
To make Swisscom Ventures’ team more efficien tahead of potential fundraising from third parties (see news report), Mégret has also carried out a time and motion study of their working day to increase the emphasis on productive roles, such as helping investee companies and due diligence on deals.
US-listed chip maker Intel’s corporate venturing unit has built its team to a size where there can be greater specialisation. Intel Capital has about 200 people, half of whom invest while the other half support the portfolio and opera-tions.
Intel Capital hosts 60 to 70 technology days each year so portfolio companies can meet the world’s biggest companies.Arvind Sodhani, president of Intel Capital, said these events had sprung out of the group asking itself what its "unique value proposition" is and deciding the answer was that its Intel salesforce was a trusted partner that knew just about everyone on the planet.
As a result, he said the days, organised by Lee Sessions, were a "phenomenal success" for entrepreneurs to access customers, for the large companies to see new ideas and for Intel Capital, which is increasingly looking at how its deals help its par-ent strategically (see news report).