The departure of Ken Elefant from the venture capital (VC) firm he helped found to Intel Capital is the latest in what is expected to be an increasing shift from independent towards corporate venturing teams.
News provider PEhub ran a great comment piece tracking Elefant’s migration from Opus Capital to Intel Capital piecing together different reports from within News Corp’s stable of media titles. Opus had reportedly had difficulty in trying to raise its sixth fund during the past few years’ credit crunch affecting commitments from limited partners.
This is a concern affecting a number of other firms. John Holloway, director of private equity investments at the European Investment Fund, at last month’s European Venture Club (EVC) meeting said it was "back to basics" to build anything in venture. After a "moribund" 2009 for fundraising, Holloway said last year was better and this year an improvement again but public rather than private investors were the main sources of capital for European VC firms.
But to put the onus only on the difficult fundraising conditions is to underplay the advantages that corporate venturing units potentially have. Other recent recruits from independent VCs to corporate venturing units have included Wayne Shiong from WI Harper to Bertelsmann Asia Investments, John Hull from OVP Venture Partners to Nike and Alexandre Villela from Stratus also to Intel Capital.
Outside of the top tier VC firms that have raised large funds and diversified internationally, one advantage of corporate venturing is the range and global scope of their operations.
Rudolf Ohnesorge, partner at Siemens Venture Capital, at the EVC meeting said VCs remained focused on looking for portfolio companies with "low capital intensity", ie requiring less money, and "high scalability" whereas corporate venturing units were "trying to find ways to add value and integrate investments" with the parent and were able to do more capital-intensive projects.
Janke Dittmer, head of strategy and new business development at the 130 person Philips Healthcare Incubator, at the same meeting said in the past five years corporate venturing had come through the credit crisis "pretty well much unscathed". Denis Champenois, chief executive of France Telecom’s Innovacom unit since 1993, said it was the first wave of corporate venturing not linked to the economic cycle but instead part of a "paradigm shift" to open innovation by every corporation.
Corporations are increasingly collaborating with VCs as the two groups become increasingly inter-depedant for exits, investments and within syndicates. Dittmer, for example, spent 12 months helping Netherlands-based VC firm Gilde on its latest fundraising after Philips committed to the fund.
Sequoia, a VC firm that invested in search engine Google, has also this month committed to Innovation Works, a China-based incubator set up by Kai-fu Lee, the ex-regional head of Google, alongside other corporations, such as Bertelsmann and Tencent. Sequoia can then invest in the Innovation Works incubees after their graduation. Sequoia and Google Ventures have also coinvested in deals, including HubSpot’s $30m round in March and in Comsenz, which they both sold to Tencent last year.
As the fundraising and investment landscape continues shifting, a clearer division between investment firms in earlier-stage deals is becoming more about the value they add, and successful investments, rather than divisions on ownership structure and source of capital (though the two can be related). As the venture industry continues to mature – at 65 years old in the US one topic at the EVC meeting was whether it should be retired, and more firms graduate as successful businesses from being a portfolio company and then set up a corporate venturing unit it could be these ties are the next generation of networking connections rather than MBA university among investment managers.
And, certainly, venturing groups appear to have greater interests together than, say, between VCs and leveraged buyout firms.