There is a good question asked about why corporations are interested in venturing – can you point to any innovation actually transmitted from unit to parent? This month’s profile of Bertelsmann shows how the Germany-based publisher has used a swathe of corporate venturing tools, including limited partnership commitments and direct investments, to complement the acquisition of a venture-backed company and build its third main division of education over the past few years.
That Bertelsmann is one of relatively few established media groups to have continued growing against the rise of the digital natives indicates how important venturing and entrepreneurialism are for incumbents.
But the rise of Facebook, Google and others has, as the Bertelsmann example showed, also encouraged a move beyond core media – selling advertising against content – to diversification into education and beyond. Naspers and Tencent, respectively an old-school media group from apartheid-era South Africa and a China-based messaging app and gaming company, met through corporate venturing – Naspers still owns about a third of Tencent – and together have grown and reaped the rewards of pushing the boundaries beyond their home countries and sectors.
It is, however, fair to say, that most media and telecoms companies (sector report) have missed a lot of opportunities over the past 20 years since Netscape floated to help spark the first dot.com bubble.
But the sophistication of identifying strategic opportunities and working out with whom and how to partner is also showing up in how venturing is being led by the industry’s leaders.
William Taranto, head of US-based Merck’s Global Health Innovation Fund, said that while corporations were becoming more independent and less reliant on VCs, they were also looking at how to partner private equity firms to aggregate and expand a portfolio without using all their own capital.
At the heart of this sophistication comes understanding of how to build an “internal culture of entrepreneurism”, according to a guest comment by Erik Vermeulen and Mark Fenwick in this issue. This, for example, is one of Bertelsmann’s four core values.
But US firms have been most adept at developing this culture and capitalising on the current era’s primary strategic resource.
Thomas Grota, partner at T-Venture, the corporate venturing unit of Germany-based telephone operator Deutsche Telekom, pointed out in a blog that “like oil and gas [dominated] the industrial era, today the owners of big data, the fuel providers of today’s world, are leading the markets”.
The five largest companies by market capitalisation are now tech players – Apple, Alphabet, Microsoft, Amazon and Facebook – surpassing oil major Exxon.
As Grota noted in his post: “What is new in today’s markets [is] the ability of those [tech] corporations to own the investment and innovation space for the coming decades.
“Those companies are starting to create their own startup ecosystems in which it will be hard to invest for private investors. Cash-loaded digital market leaders have no need for outside money. Those market leaders own their closed private markets and investors will have a hard time to compete or enter those markets. Maybe we will see grey markets for outside investors in this deals or we see certain stock classes traded publicly with higher risk-return rewards when indirectly investing in the projects of Facebook, Amazon, Apple and Google.”
It should certainly be the case that companies with a sophisticated and well-developed approach to their internal and external entrepreneurs should do better in terms of financial results and ratings than their less-developed peers.
What seems to be as interesting is that these sophisticated leaders are increasingly recognising each other and learning from them. As Epictetus noted: “The key is to keep company only with people who uplift you, whose presence calls forth your best.”
My colleague, Tim Lafferty, and I will be endeavouring to do just that as we prepare for our Global Corporate Venturing & Innovation Summit in Sonoma, California, on 24-26 January with trips to New York City, Silicon Valley, Brazil, Portugal, Russia, Singapore, Hong Kong and China over the next few weeks. It will be great to catch up and hear your innovation and venturing insights.
Separately, a note of thanks to our colleague and GCV chief analytics officer, Toby Lewis, who will be leaving this month to start his own company after five years with Mawsonia, the publisher of Global Corporate Venturing.