Global Corporate Venturing surveyed the heads of corporate venturing units round the world as well as influential service providers and others in the ecosystem to ask: “What was the most important event or trend in 2012?” and “What will be the biggest issue you face in corporate venturing in 2013?”.
Last month we published their answers to the first question. Here are their answers to the second. This year’s concerns are about the range of issues groups have to grapple with, reflecting the challenges and complexity of corporate venturing as a profession and industry.
But the concerns have been out-weighed by expectations in the webinar poll hosted by law firm DLA Piper that dealmaking will continue or, more likely, increase in pace this year, despite the challenges of forming syndicates with venture capital firms struggling to raise funds. (Results from the survey held during the December webinar hosted by DLA Piper in conjunction with Bell Mason Group and Global Corporate Venturing. Click here to listen to the whole webinar.)
The resilience needed to be a top corporate venturer, therefore, is evidenced by the senior leaders preparing to put capital to work in more deals and, while innovation can be found globally, the US remains dominant as a source for corporations looking to find the emerging trends and entrepreneurs.
Most respondents also revealed what they hope will occur again (repeat) and what they hope to miss (avoid) in 2013 compared with 2012.
Arvind Sodhani, president, Intel Capital, speaking at its Global Summit in October: Downturns come and go but innovation never stops and investment is the mother’s milk of innovation. Speech is the next megatrend. We will see natural speech, all devices speech-enabled, leading to growth in computation from data centres and client to handle.
Jim Breyer, partner, Accel Partners: Look global, think entertainment, capitalise on the rise of a worldwide middle class and take advantage of the cloud are Accel Partners’ investment themes for the next fiveto 10 years – 50% of the capital gains generated over the next 10 years will be US-based and 50% will be China-based.
Shin Nagakura, managing director, Transcosmos Investments: [Social network] FaceBook’s IPO [initial public offering] aftermath, meaning we cannot see the next big thing in B2C [business to consumer] internet.
Repeat: e-commerce growth trend – that is record Black Friday/Cyber Monday sales.
Avoid: China-Japan [conflict] heating up. That is not good for mutual business.
Ignaas Caryn, director of innovation and venturing, Netherlands-based KLM, and its representative at Mainport Innovation Fund: Developing our second fund.
Repeat: The number of investments.
Avoid: People management issues at a portfolio company.
Randy Hawks, managing director, Claremont Creek Ventures: Co-investing syndicate strength. The existing VC [venture capital] community is under stress from LPs [their investors – limited partners]. Not much fund raising for new VC funds. The challenge will be to keep a vibrant co-investor climate. Stronger IPO perform-ance and an opening for additional IPOs will act as a lift for overall valuations and returns.
Albert Fischer, managing director, Yellow & Blue Investment Management: For clean energy investors, continued support from legislators given the financial crisis, euro crises, and shale gas growth in the US.
Repeat: Another Fukushima would be great for the renewable energy industry – sorry.
Avoid: Writedowns on energy assets.
Johan Carlsson, president, Volvo Group Venture Capital: As an opportunity, in rough times new winners emerge. Use the defensive moves by most companies to get ahead with new solutions and cherry-pick the market.
Repeat: Make new investments and accelerate growth in current portfolio companies.
Avoid: Having to run defensive financingrounds in companies instead of scaling them up.
Subra Narayan, ex-Kodak: The shutdown of our operation – Kodak.
Repeat: Nothing.
Avoid: The lack of dedicated capital.
Jonathan Tudor, partner, Castrol InnoVentures: Deal-flow sourcing.
Repeat: The willingness to stretch away from core business interests.
Avoid: Board’s lack of understanding of cash planning for the venture portfolio.
Reese Schroeder, managing director, Motorola Solutions Venture Capital: Finding deals that are highly relevant to our business and that have the right investor syndicate.
Repeat: I hope we will continue to get great support from our senior management, as well as our business and strategy leaders. I also hope we once again see fantastic exit events from our portfolio.
Avoid: I honestly believe that 2012 has been a great year where we have hit on all cylinders. I cannot think of a single thing that I would hope to avoid. I am hoping that 2013 is as good or even better.
Head of a medical corporate venturing unit: Valuation pressure in deals due to co-investor and regulatory uncertainty.
Repeat: Reliable co-investors and committed entrepreneurs using the venture model for innovation to make progress on major opportunities and unmet needs in healthcare in spite of a difficult climate for business.
Avoid: Drop-out of insiders in follow-on rounds, financing failures of good companies making progress.
David Lawson, open innovation manager, Procter & Gamble: Economically scaling SME [small and medium-sized enterprise] relationships.
Repeat: Identify consortia or scale partners earlier for this work [of economically scaling relationships].
Avoid: Difficulty in identifying consortia or scaling partners earlier for this work [of economically scaling relationships].
Alexander von Frankenberg, managing director, High-Tech Gruenderfonds: The biggest issue in corporate venturing in the next two years will be the continued engagement during an economic downturn. With recessions looming in Europe, the US and Japan, some corporations might need the cash allocated to the corporate venture units in their core business. This can lead to reduced investment activities or even the shutdown of some corporate venture units.
Repeat: Corporate venture units continue to invest in hi-tech start-ups. There is a lot more potential for established corporations to engage with start-ups. So hopefully the trend to establish new corporate venture units will continue.
Avoid: Exits need to be planned ahead over a long period of time. Long before a sale of a start-up is planned, internal preparations can be completed. Additionally, relationship with potential buyers can be established long before the sale of start-ups is envisioned.
Dan Cherian, general manager, Nike’s Sustainable Business and Innovation Lab: [Building ecosystems], as we have started to show with the BioPET consortium of Nike, Procter & Gamble, Coca-Cola, Ford and Heinz.
Repeat: New breed of collaboration between disruptive entrepreneurs and incumbents.
Avoid: China slowdown.
Richard Lewis Jones, investment principal, British Gas Venture Capital: Focus on how much funding flows to connected home – whether investors follow corporations such as British Gas into the sector.
Michael Lee, managing partner, Rogers Venture Partners: See if public markets buy consumer-oriented start-ups.
Repeat: IPO openings for tech companies, or another large foreign transaction, perhaps using US cash held offshore.
Avoid: Overpriced IPOs and investment funds giving entrepreneurs a pre-exit, as it creates misalignment.
Stephen Socolof, managing partner, New Venture Partners: [US President Barack] Obama’s second term will be about jobs, stock markets and taxes, while in Europe and Latin America there is growing government incentives to encourage venturing as economic development.
Repeat: More progress on [US] jobs and small business, such as JOBS [the US Jumpstart Our Business Start-ups Act].
Avoid: Regulations that inhibit recruitment and growth of small businesses – government should get out of clean-tech incentives.
Peter Magowan, head of energy, Moonray Investors: For small companies there is a diminishing pool of VCs, in fact they are falling off a cliff, so more companies are out of runway during or after this economic recession.
Repeat: There is a lot more corporate investment and at earlier rounds.
Avoid: A lot of people are giving up the ideology of working for or setting up a start-up and going to work for a big corporation as a safe job. It is disappointing to see people give up their dream.
Crispin Leick, managing director, Innogy Venture Capital: Cash and capex [capital expenditure] constraints in the European utility sector.
Repeat: Celebrating multimillion-euro contracts that make a portfolio company independent of VC funding.
Avoid: Insolvency of a portfolio company.
Marc Westermann, principal, SFR Développement: Scale our synergy-oriented corporate venture strategy to higher levels and bigger tickets.
Repeat: Good start-up scouting and visibility, good exit activity.
Avoid: Crisis that kills some portfolio start-up development and freezes decisions at investment committee level.
Claudia Fan Munce, managing director, IBM Venture Capital Group: Finding innovative young companies in emerging markets that can serve the raising needs for innovation in the infrastucture transformation of Brazil, Africa and eastern Europe.
Repeat: Continue to have great success in collaborating with VCs to identify bleeding-edge start-ups that can be enabled by IBM to serve IBM customers across the globe.
Avoid: Working with traditional VCs that do not grasp the concept of working with corporate strategics to build successful portfolio companies.
Jean-Marc Bally, managing partner, Aster Capital: The lack of economic growth that will limit growth and co-operation initiatives with corporates.
Repeat: The good investment opportunities and co-operations with corporates.
Avoid: Fundraising!
Peter Cowley, investment director, Martlet: Internal human resource limitation.
Repeat: Gradual strengthening of the UK economy.
Avoid: Increasing selectivity at an early stage.
Darren Herman, president, KBS+ Ventures: Access to capital if we go off the fiscal cliff [tax breaks ending and spending cuts affecting the US].
Repeat: Additional acceleration.
Davorin Kuchan, director of corporate venturing and innovation at Texas Instruments: Broader sourcing and internal adoption of qualified semiconductor opportunities.
Repeat: Continued recognition of corporate venturing among independent venture funds and co-operation with other corporate venture teams.
Avoid: Having to look for re-energising hardware and semiconductor investment from the broader venture industry.
Fabienne Herlaut, founder and managing partner, Ecomobilité Ventures: Find additional financing.
Repeat: Motivation to move forward.
Avoid: The default of one shareholder.
Martin Grieve, managing director, Unilever Corporate Ventures: Liquidity and availability of good investments.
Repeat: Some more great investments.
Avoid: Internal fundraising.
Brook Wessel, senior investment manager, T-Venture: Market constraints prevent portfolio company exits.
Repeat: Portfolio company growth and exits.
Avoid: The repeat circumstance where a company is acquired at the 11th hour of closing on investment.
Clennell Collingwood, partner at TTP Ventures: We need to convert initial interest and enthusiasm from corporates in our Advanced Technology Accelerator into firm commitments to fund it.
Repeat: A number of corporates have understood the opportunity and been quick to sign up to our Advanced Technology Accelerator. We need more like that.
Avoid: Issues in portfolio companies have taken significant time to resolve.
Christine Phillpotts, global portfolio manager, Grassroots Business Fund: I am an investor in a fund focused on emerging and frontier markets, and do not currently work in a corporate venture group. However, based on what I see in the market, the biggest issue in corporate venturing in 2013 as it relates to emerging and frontier markets will be around competition for deals coming from an increasing amount of global capital being deployed in these markets, given relatively stronger growth rates and returns in these markets compared with the developed world.
Specifically, valuations are getting higher for relatively good emerging and frontier market assets, given increased competition by an increasing number of private equity funds – such as Carlyle’s new Africa fund – and a larger number of corporate venture groups and other investors looking to deploy larger amounts of capital in these markets. Corporate venture groups will need to ensure rises in valuations are justified,and that strategic synergies drive additional value to the investment relative to purely financialinvestors, such as funds.
Dominic Emery, chief development officer, BP Alternative Energy: Extending our corporate venturing model to our oil and gas businesses.
Repeat: Continued rise of corporate venture capital groups in the energy sector.
Avoid: Overpromising on exit proceeds.
Rich Adcock, president, Sanford Frontiers: Focusing on delivering on key projects with the resources available.
Repeat: Combination of hard work, preparation and opportunities continually presenting.
Avoid: Nothing – happy with 2012 results.
Martin Kelly, partner, IBM Venture Capital: Disruption of the venture capital industry.
Repeat: Continue to collaborate across industries.
Avoid: Industry is only just starting to understand opportunities beyond consumer internet.
Graeme Martin, executive president, Takeda Ventures: Widening our investment scope into technology territories with which we have hitherto had no involvement. For example, aspects of drug develop-ment adherence and compliance technologies.
Repeat: More opportunities to engage early with like-minded institutional as well as corporate investors.
Avoid: Loss of investment momentum for internal organisational as well as external reasons that are outside our control.
Gwen Melincoff, senior vice-president, Shire Strategic Investment Group: Sifting through all the opportunities. Given that traditional VCs lack capital, corporates are being deluged.
Repeat: Corporates coming together to get deals done.
Avoid: Inability to pull together syndicates.
John Suh, director, Hyundai Ventures: Developing an investment tool that takes into account financial return, strategic financialvalue and strategic non-financial value. This tool can be useful in communicating with internal executives and stakeholders.
Repeat: Finding and investing in start-ups that have good teams, market potential and technology that is strategic to the automotive business.
Avoid: Ineffective collaboration with team members at headquarters-based corporate venturing business group that resulted in wasted efforts.
Paul Morris, consultant, ex-Dow Venture Capital: Corporate venturing activity is increasing. It is demanding more resources, specifically capital for investments and expense costs to fund growing CV [corporate venturing] teams. Corporate budgets are under pressure and further cutbacks are anticipated. CV units are vulnerable, some may not survive.
Raj Singh, chief executive, Sooqini: Continuing economic pressures forcing more reductions in R&D [research and development] and increased pressure on CVC [corporate venture capital] activity to deliver in shorter timeframes.
Repeat: Growing understanding of CVC as a real and strategic element in the corporation’s arsenal.
Avoid: Continuing economic pressures forcing more reductions in R&D and increased pressure on CVC activity to deliver in shorter timeframes, but also a lack of finance hindering the progress of start-ups that could bring value to CV units.
Patty Burke, partner, Bell Mason Group: There will be a period of reflection and adjustment by many of the new CV groups created during the past two years – the peak of the hype cycle will probably occur in 2013 and we may [afterwards] be facing the trough of disillusionment. The good news is that many CV groups have learned the lessons of iteration and agility from their portfolio company start-ups, and from financial VCs, and we willl see fast reconfiguration.
Repeat: Last year CV groups demonstrated they could really leverage their assets to support their ventures – beyond distribution. Many companies showed they could tap into expertise, processes and relationships that could kickstart time-to-revenue for their start-up partners. And traditional VCs became much more willing to bring the good deals to corporate VCs as they began to realise the market muscle that corporates can provide.
Avoid: [Some groups lacking] achievable plans and metrics that matter to internal and external stakeholders – and being able to tout strategic successes within the company and to industry audiences. It is easy to measure an exit, but if CV groups can get more savvy about how to measure and quantify non-financial goals, they will get permission to invest in ways that can have an even greater impact on the company.
Martin Haemmig, adjunct professor, Cetim (Center for Technology and Innovation Management): The CV industry will see the rise of the local CV programmes from [Brazil,] Russia, India and China [collectively known as the Bric countries]. Western and Bric corporates may want to consider the emerging-to-emerging market opportunities, which may have nothing to do with the western problems and solutions.
It requires locals to understand the issues and figure out simple, frugal (jugaad – Hindi word meaning a creative idea, a quick, alternative way of solving or fixing problems) solutions of a technical nature combined with new business models that are affordable by people at the bottom of the pyramid and rapidly deployable and scalable across entire frontier nations.
Russia is late to the VC game, but watch the VC industry unfold as a very early-stage (pre-revenue) play by local funds and then the foreign funds following with revenue-stage deals, similarly to Israel in the 1990s. In addition, westerners will recognise Russia as the largest untapped VC and CV opportunity with a dual-track investment scheme for local and international markets in: internet, mobile, consumer services, mainly for the local market; and core technologies and solutions for international markets – IT, biotech, materials, clean-tech.
Andrew Gaule, founder, Corven Networks: The clock will be running for many new CV units. After the initial set-up by the many new CV units, they will try to get clarity on the strategic objective with operations, learn that deals are different in the start-up space and doing an investment is easy but linking to the corporate is the big challenge. If CV units do not get moving in 2013 they may not survive the continued hard times.
Repeat: I hope the positive Olympic and Paralympic atmosphere [in the UK] and sense of achievement is repeated in the wider economy.
Avoid: Poor summer weather.
Naveed Khan, president, Strategic Venture Association: Portfolio triage and trimming.
Repeat: More solid companies to invest in.
Avoid: Lack of funding.
Simon Gall, founder, Integrity Capital: Access to finance, predominantly for mid-sized to large private companies.
Repeat: Entrepreneurs becoming more influential in corporate boards.
Avoid: Timewasters.
Anonymous
Our biggest challenge is sourcing deals as we are technically very diverse. We are addressing it by staffing a corporate-level team with experienced secondee personnel from each technical concentration.
l Convergence of key pressures – co-investors unable to follow-on, regulatory uncertainty, need for additional rounds and bridges before liquidity.
l Finding the right investment partners.
l Lack of liquidity in exit markets.
l Continuing funding new investments in a difficult financial and business environment.
l Finding deep-pocket investor syndicates as fundraising is difficult for many independent VC managers. Otherwise, the challenges are the same as for independent VCs.
l Having enough fresh capital to put to work for innovative ideas.
l Keep the excitement of the corporate guys under control and not do too many unreasonable deals.
l Convincing corporate HQ to start engaging and investing in early-stage companies.
l Anchoring with the parent.
l Ramping the activity and scaling the model.
l Balancing corporate culture and dynamics at an innovative small firm.
l Raising the balance of the fund – corporate investors other than our seed investor.
l Potential conservativism remaining from the parent corporate.
Anonymous Repeat
The Global Corporate Venturing Symposium!
l Direct engagement with the market at the highest levels in our organisation to hear the VOC [voice of consumer].
l Insiders able to take super-pro rata positions to cover the gaps [in bridge and financial discussions].
l Successful exits of companies financedby corporate venturing telecoms consortiums.
l Good dealflow for seeds of innovation.
l Broadening our relationships and reputation in Silicon Valley to the benefit of the parent company.
l Keep the focus on deals that makes sense from a VC perspective in the first place – rather than being pushed just out of strategic or political reasons.
l Successful investments.
l Working with business units to identify and get aligned on key opportunity meat for investment so sourcing is more targeted.
l Level of excitement through the organisation about being able to engage with innovation in a new way, help implement an innovation culture, and help them stay on top of trends.
l Willingness to choose corporate ventures over pure financial investors.
l Syndication of strategic investors to contribute to the value creation of the venture.
l Continued growth for all our companies.
Anonymous Avoid
Unclear senior management engagement with leadership and board, and venturing being treated as opportunistic and one-off – move from strategy to execution.
l Long bridge and financing discussions where it is difficult to reach consensus on what to do.
l Closing down of corporate VCs that actually did a good job.
l Weaknesses of current structure and process.
l With a new fund being raised in 2013, we will hopefully be able to forge tighter relationships with early-stage companies [to avoid this problem from last year].
l A lack of access to more accelerators and incubators to gain early access to trends and investments.
l Loose deals due to a slow decision process.
l Orphaned portfolio companies – made investment and then strategy change caused business unit to deprioritise work with portfolio company.
l CV activities bring a lot of ups and downs, but no single issue sticks out worth mentioning.
l Nothing particular.
l A [poor] fundraising environment.
l Faster than projected new capital-raising rounds. Corporate misunderstanding that they had several months to make certain decisions. Also, they had a tendency to want to apply unrealistic derisking strategies to their investment, which might work with other corporates but does not work with new ventures.
Sir Martin Sorrell, chief executive at WPP, speaking at Intel’s Global Summit in October said nine things were important:
l Shift [of economy and advertising] to the east, south and south-east of New York City.
l Overcapacity of maufacturing but a shortage of human capital.
l Rise of the web for disintermediation.
l Growth of retail power.
l Internal communications, such as having the chairman or chief executive explain strategy and changes, and the horizontality of getting people to work together and share knowledge.
l Growth of local and global structures leading to a squeeze on regional managers.
l Power of financeand procurement to drive consolidation and revenue growth, not from cutting costs.
l Growth of government.
l Importance of corporate social responsibility.