Fashion and transport have been hard-hit, of course, with top quartile healthcare, technology and consumer staples businesses seeing improved performance, according to the Economist’s forthcoming magazine lead story this week.
These corporate pressures are, in turn, leading to four broad types of responses for corporate venturing and open innovation teams. First group are the corporations closing, such as DuPont, their ventures units.
Second, groups that are perhaps furloughing, such as Lufthansa, their innovation hubs or limiting venture investments from new deals and triaging portfolio companies for needs and survival chances.
Third, groups, such as Tencent, that seem to be able to invest more in a downturn as valuations improve and competition is lessened.
Fourth, corporations opening up to third-party capital as a way to leverage unit economics.
Most are exploring whether or how to use government support nets, with VC Brad Feld posting a handy paycheck protection program loan estimator online and sound advice on whether to apply at all, or think about secondaries deals.
The economic and human shock of the coronavirus is relatively extreme so it can also be useful to check how firms think about these decisions in less strained times – Song Ma’s paper at Yale is good in this respect. Corporations broadly open up to external innovation when they feel the internal culture and research is lacking but can close when it has worked.
InterDigital’s experience in using corporate venturing through its $100m NexStar Partners, to explore 5G-related wireless trends a few years ago was a good example. After four or so years of smart investing by Ketan Patel and the team, NexStar was closed after the 5G technology standards matured and so the parent was able to focus more on effective commercialisation of patents rather than using CVC.
The question, therefore, is do many corporations feel technology, digitalisation and innovation rates around the world will similarly slow and their internal innovation capacities keep up? If not, then leaning in to options three and four seem the better ones to look at.
Final note, I recently joined ‘The Road Untraveled’ podcast to chat with Brian Hollins, a previous GCV Rising Stars winner during his time at Goldman Sachs, on the impact of Covid-19 on the venture ecosystem. Sharing a link to my episode below, feel free to take a listen, then subscribe on Spotify or Apple Podcast: Jim Mawson – The Road Untraveled Podcast
