There is a dry line in reporter Kaloyan Andonov’s interview with Rich Osborn, head of Telus Ventures, that it can feel obligatory as a venture investor to mention blockchain and artificial intelligence. Given, however, the rate of innovation in practically all areas of technology and the economy, it can feel necessary to talk about anything from flying cars to autonomous vehicles – a debate at our Global Corporate Venturing Symposium in London in May – and quantum computing – a roundtable discussion held late last month and a report due next month – to human-machine interfaces and genomics in healthcare, demonetarisation and fintech, sustainability and advanced manufacturing.
In fact, all these are topics up for discussion at this month’s GCV Asia Congress in Hong Kong, where local corporate venturers, including leaders from Tencent, Alibaba, Meituan, JD, Xiaomi, 58, Samsung, NCSoft, Hyundai, HTC, Yamaha, Sompo, Rakuten, Line, Reliance, Telstra, IDG, Sberbank, Chokhani, OPT, IAG, STC, PLDT and Westpac, are flying in to meet peers from the US and Europe.
Certainly looking at the level of investment and exits over the past two months, there is no shortage of activity, according to our data review. This issue we go a bit further and take up VC Albert Wenger’s comment for greater innovation in the industry itself with a focus on exits through initial public and coin offerings, corporations with both social and financial missions, and on to patient capital to provide the long-term funding entrepreneurs so often want (see spotlight on exits).
Getting new ideas to flourish often requires new ways to approach an issue and bringing in people with different perspectives and backgrounds – whether as obvious as gender and ethnicity – and giving them the support to flourish.
It can also require going back to first principles and asking whether innovation capital providers as a service industry spend enough time thinking about the recipients of the money as well as the sources of the money and what they receive in return.
This question is becoming more topical and complex as entrepreneurs move beyond being satisfied simply with capital and instead ask for the other four main levers to help their business – gaining customers and marketing help, hiring and managing people, technology research and suppliers, and exits.
These are all points CVCs could help with, and to their favour in founder-friendly environments, but entrepreneurs are increasingly aware of their fundraising options – initial coin offerings (ICOs) and so on – and the challenge of building a business, and the exit limitations of IPOs or trade sales if too much is raised.
This should be pushing corporations towards earlier offers of help and funding for those able to take off. It is noteworthy to see how Intel Capital, perhaps the largest and most successful CVC in the US and the world over the past two decades, has shifted towards an earlier stage of investment. About 70% of Intel Capital’s deals are now being located there, even if it is still investing about $400m a year in about 35 new deals plus follow-ons to its 400-strong portfolio.
Under its luminary thought leader, Wendell Brooks, the investment strategy has shifted but has also been combined with strategic thinking about how to decide when to invest or buy, and how to support portfolio companies better.
Similar thinking is evident on the other side of the ocean, particularly in China. The results of leading corporations investing large amounts in large numbers of deals in the past five or six years has been nothing short of awe-inspiring. GCV will be presenting unique analysis on the involvement of these corporations in the 125 or so Chinese unicorns – companies worth at least $1bn – at the Asia Congress.
Alibaba and Tencent in particular reported record quarterly earnings, driven though their innovation investments, prompting the New York Times to point out that the two companies now rank alongside Apple, Google, Facebook, Microsoft and Amazon as the world’s highest-valued companies at about $400bn each.
In a competitive world for the best deals, structuring the right term sheets is important. Neil Foster and Tim Davison of Baker Botts take us through the options (see comment), but it was fascinating to read Axios’s scoop on a proposed term sheet offered up by WeWork for a $40m series B investment in a fellow New York-based startup, albeit a much younger one, which has not yet agreed to the transaction.
Axios said: “What is particularly remarkable here is that WeWork is offering each of the two founders a $10m secondary – only $20m is primary – at a substantial valuation boost, but then topping off founder equity to pre-deal levels, and offering each of the founders a $250,000 adviser cash award. Both clauses are highly unusual, and suggest that investors will still bend their terms over backwards to get the deals they want.”
Getting out of these deals successfully might be harder than finding something to invest in, but this competition seems to be increasing given the deluge of ICOs for entrepreneurs. Having dinner last month with one superstar entrepreneur, Eric Ly at Presdo, as he prepared a nine-figure ICO, showed how quickly innovation can disrupt the incumbents.