If the world can be broadly divided into saints and sinners, then it is probably fair to say both sides were at the US-based trade body National Venture Capital Association’s (NVCA) corporate venturing group’s annual meeting last week.
As one attendee said: “Coming here [Delaware, for the NVCA’s meeting] is a little like coming to church: to have your faith reaffirmed.”
While Tony Palcheck, managing director of Motorola Solutions Venture Capital, the corporate venturing unit of the eponymous phone maker, in a light-hearted touch to open his presentation said half the audience looked like they knew the back seats of police cars.
But whether a saint or sinner, corporate venturers were optimistic their role in the venture ecosystem was being increasingly appreciated.
While more than half of those voting in the electronic polls said they would being more this year than last they said one of the main obstacles they faced was challenges facing other players in the ecosystem.
The meeting started with a series of predictions from the NVCA’s head of research, John Taylor, and financial services provider Silicon Valley Bank’s Russell MacTough, technology sector lead for SVB Analytics.
Taylor said its 522 active venture capital members could fall in number “and potentially significantly further” as fundraising continued to be below investment activity and concentrated in a handful of firms.
MacTough added that over the past five years this discrepancy added up to more than $29bn more invested than raised and its three-year forecast indicated the dry powder of money to invest could fall again if the fundraising average stayed below $25bn per year.
But, conversely, both said these overall conditions for venture capital firms – part of a “natural expansion and contraction we have seen in venture before” – meant corporate venturing units had what MacTough described as “tremendous investment opportunities”.
Taylor said it was changing its research methodology to cope with what he said was underreporting of corporate venturing (CVC) activity. Steve Socolof, partner at venture capital firm New Venture Partners and chairman of the NVCA’s corporate venturing group, said this underreporting could be as much as two-thirds on deals.
In February, the NVCA said: “A recent revamp in [data provider] Thomson Reuters’s definition of CVC will allow them to capture all CVC investments regardless of syndicate makeup, round sequencing, investing company’s corporate structure, or virtually any deal whether it is strategic or financial in nature. Historically we have only captured CVC investment if it is part of a syndicate of traditional VC investors.”
The NVCA said corporate venturing had made up about 8% of the money invested and 15% of all deals last year but Taylor said he expected a “spike” in numbers once the new methodology, which copies Global Corporate Venturing’s three-year numbers, took hold from the first quarter.
The April issue of Global Corporate Venturing out this week will have an extended analysis and comparison of the first quarter data from the US and worldwide – for a sneak preview please listen to our webinar recorded on 2 April here – which shows US dominance as overseas groups come to the world’s largest economy to invest and also increasingly look at earlier-stage deals beyond the core sectors.
(For a Corporate Venture and Innovation Initiative (CVI2) webinar hosted by law firm DLA Piper and including SVB and Global Corporate Venturing on “Rethinking innovation capital: drivers, components, trends and implications” at 23 April please register here.)
But for corporate venturing units to seize on their “tremendous investment opportunities”, MacTough said required building trust with entrepreneurs that they have patient capital and will be around beyond the corporate parent’s budget cycles.
Art Marks, managing general partner at venture capital firm Valhalla Partners, said aligning entrepreneurs with their board and investors, as well as alignment among board members, was the “best predictor of success”. A point emphasized by Randy Brouckman, serial entrepreneur now leading EdgeConnex and former head of Nextel’s corporate venturing unit, who said interests needed to be aligned across management, financial and strategic investors as this is critical to ensuring a successful exits.
Other speakers warned of the perennial challenges corporate venturing units faced in changes to personnel in their teams and higher up and changes in strategies. The rapid turnover of largest companies in the Fortune 500 list – escalating to 238 per decade since 1980, according to Ewing Marion Kauffman Foundation’s report, “What does Fortune 500 turnover mean?” – both encourages corporate venturing as a defensive strategy and to help seize opportunities to expand and disrupt others but means firms in decline potentially have less free cash to invest in entrepreneurs.
Getting parental support through a wider buy-in of business unit leaders and senior executives beyond so-called “pockets of enlightenment and surfing chief executive statements” was one of the main talking points for a number of the event attendees.
To this end, one of the roundtables organized during the second day of the NVCA meeting participants said creating the role of a chief innovation officer (CIO) could help, even though only two corporate venturers present had a parent organization with this position.
Thomas Connelly, CIO at US-based chemicals company DuPont, which acted as host for the event in Delaware, in an excellent speech laid out why he had championed the company’s ventures team – for more on this topic see the forthcoming May issue of Global Corporate Venturing and our analysis of the position from September.
Getting and maintaining parental buy-in often leads to corporate venturing units’ aims and strategies reflecting their business cultures. These aims and strategies can vary widely from purely financial to purely strategic, from direct investing in entrepreneurs, to ecosystem partnering to incubating intrapreneurs and/or committing to venture capital funds as limited partners.
Measuring success, therefore, is as much about having “softer” metrics of strategic relevance as setting specific return on investment or other targets that can potentially be “gamed”, according to David Zilberman at Comcast Ventures. He said: “With business units, we act as a consultant on new products or projects. Success for us is as much as gauging whether senior executives reach out to us for this.”
With such pluarality of potential options to run corporate venturing leads to reevaluations of best practices. Just before the NVCA event, Brad McManus, head of the Panasonic Venture Group (PVG), the corporate venturing unit of the eponymous Japan-based consumer electronics company, said he was moving to be a consultant at PVG to form a firm, Capbridge, planning to manage funds on behalf of corporations (see today’s news).
The dynamism of the NVCA event, while naturally insular in focus to just looking at the US market, brought into relief the main dogmas and almost-religious divides in the market – and talking points likely to also come up in next month’s global Symposium in London, UK, where 150 corporate venturers from more than 50 countries around the world – controlling more than $20bn in assets and responsible for more than $30bn in profits for their parent businesses – have already registered (see agenda). Given the overall levels of optimism at the NVCA event, however, corporate venturing’s positive momentum looks set to continue.