The pace of change in corporate venture investing has been blistering. The puzzling thing corporate venturing investment leaders are battling with is the sudden development of new groups. At Mobile World Congress in Barcelona, Taiwan-based semiconductor Mediatek unveiled a $300m corporate venturing fund, the latest big strategic bet by a well-capitalised new entrant, to turn heads. Tales abound from corporate venturing veterans of large investments being made by new entrants, making big late stage bets in venturing deals.
Such bold investing fits in with a wider mood of technology industry bravura. Mobile World itself seemed bigger and brasher than ever, which is saying something, perhaps capped off by the high-energy appearance of Facebook’s Mark Zuckerberg who strutted the stage. Conference delegates chatted about how groups which had spent $15m on advertising, were feeling outgunned by competitors.
More experienced market participants are starting to get unnerved by how quickly the new corporate venturing groups are putting money to work. Partly this is concern for how quickly such risk-taking can turn into losses, but at the same time the executives are commenting that if they do not respond by upping the ante they could also be outflanked in new strategic areas. A well-capitalised Mediatek Ventures or another of the more determined new entrants could carve out key dealflow in attractive new sectors.
Global Corporate Venturing spent much of Mobile World quizzing market participants on what is needed from a potential data product, and we were told we could provide real thought leadership by keeping better track of how groups are investing in new technology trends and partnering with startups making waves. The feedback at Mobile World was that while everyone is talking about wearables and internet of things for example, what will be truly valuable is a better understanding of how corporations are betting on what niches of these topics are likely to win out.
Also, corporate venturing units are hoping we will be able to provide them with insights as to which sector trends are the next to bet on. Given how fast technology trends are moving, new topics will quickly move to the centre of attention. We will attempt to provide a barometer of where investment and partnership is happening in all sub-sectors to be able to identify this.
Last month also saw many executives gather in Newport Beach for the IBF’s Corporate Venturing and Innovation Partnering [CVIP] conference. Nagraj Kashyap, head of Qualcomm Ventures, warned of high valuations for startups, with $10bn becoming $1bn, drawing a lot of newcomers into the sector. He said: “Don’t use this as a justification for getting into the market. That is what happened last time around [in the dot.com era]. Many folks saw [high valuations] and convinced their corporates this is a great way to make money, then after two years everybody was out. If you are in stay in, but if you are new take your time, don’t rush in.” Yet as is inevitable in this kind of buoyant environment, many groups are making the calculation that rushing in smartly could be valuable.
Arvind Sodhani, who was interviewed for the Question Time column by Andrew Gaule, of the GCV Academy, on the sidelines of CVIP for this issue, was asked during his appearance at the conference whether he thought increased corporate activity generally was a cause for concern. He said: “Not necessarily. The value proposition from corporations can be unique. Corporations can bring a lot to the table in a startup. The question is are they organised, do they have the motivation, do they have the structure, and do they have the resources to do that?”
The trick for corporations is to hone down their approach. Sodhani added: “Corporations can bring a lot to the table and it is to be seen whether they can practice that and execute on that. Traditional VC has certain skill-sets which are very valuable to startup companies, and corporations have complementary skillsets. It didn’t make sense for us initially to compete head on with VCs, although we are now competing head-on, but early on we decided our value proposition will come with a very different proposition, very different value-add, which has served us very well.”
As the ante goes up for groups to be making bigger bets as the technology boom gathers pace, corporations must maintain strong discipline. The key is to be able to seize large strategic opportunities at the same time as ensuring big losses are not racked up by being over-enthusiastic as early entrants into venturing. Older heads are saying newer groups might do better to place smaller early stage bets or simply find ways to observe from the sidelines, by backing venture firms or taking a partnering approach. That said betting big is a way to move into an activity fast and get noticed, but may be a dangerous strategy.