"Structure is critical to how venture capital funds build and sustain successful partnerships over long periods of time that support entrepreneurial innovation," according to John Ball, founder and managing director of Steamboat Ventures, one of the media sector’s largest and most sophisticated venture investors.
Compared with independent VCs that tend to use the same terms, structure and fees, corporations have wider number of approaches to venture investing, such as an in-house team, independent funds or acting as a limited partner (LP, an investor in funds) or part of the entrepreneur’s broader ecosystem. Steamboat operates similarly to independent venture firms whose funds have committed capital for 10 years.
In Steamboat’s case,Walt Disney s the sole LP alongside the fund manager – called the general partner, which also makes a capital commitment to the funds. Steamboat’s investment focus is therefore strongly linked to the strategic focus of Disney’s lines of business, while also aligning with the interests of its entrepreneurs and co-investors, Ball said.
Ball founded Steamboat Ventures in 2000 after initially working at legendary venture capital firm Burr Egan Deleage in the 1980s and later moving on to head corporate development and mergers and acquisitions at Disney, the media group best known for its cartoon character Mickey Mouse. The mouse starred in the company’s 1929 film Steamboat Willie, from which the venture group derives its name.
Steamboat was set up for longevity, with committed capital, incentives for partners to avoid staff turnover and an investment period built around the innovation lifecycle, Ball said.
However, beyond its smart structuring, Steamboat’s success has come primarily from sophisticated investing.
With Steamboat being set up in 2000 at the tail of the technology, media and telecoms bubble around the millennium, Ball said it resisted making an investment for 18 months until prices had rationalised and a new wave of promising new media companies was beginning to emerge.
He said: "We are highly selective and only do deals that meet both strategic (to Disney) and financial objectives. Steamboat facilitates interaction between its portfolio companies and the different business units at Disney. Two-thirds of our investments have gone on to develop a commercial relationship with one or more of Disney’s businesses, which exceeds our initial expectations."
A good example of engagement between Steamboat’s portfolio companies and Disney was Quigo, which provided advanced technology for contextual online advertising for branded online publishers. Steamboat initially funded the company’s series A, with Quigo subsequently winning a major contract from Disney subsidiary ESPN before later being acquired by internet service provider AOL for $360m.
Ball added: "Steamboat invests at the intersection of emerging technology and media opportunities where Disney can engage and potentially develop important strategic and commercial relationships earlier than it otherwise would. However, just because a start-up receives Steamboat funding does not mean the company will automatically secure a Disney commercial relationship, although our entrepreneurs do benefit from access to different parts of Disney so a relationship can evolve if it makes sense for both parties.
"Our job at Steamboat is not to be Disney’s business development arm but rather to look three to five years out and spot emerging trends and companies that may become strategically and commercially important to Disney."
Steamboat successfully expanded into Asia and greater China in 2006, raising a $175m fund with Disney as the ,LP, and is also considering a possible expansioninto Europe.
Fact box – Steamboat
Key people:
John Ball, founder and managing director;
Dan Beldy, managing director, US;
Liping Fan, chief financial officer;
Olivier Glauser, managing director, China;
Alex Hartigan, managing director, China;
Scott Hilleboe, managing director, US;
Beau Laskey, managing director, US
Funds: US: $75m, $125m, $200m; China: $175m