There is probably no better indication that a nascent corporate venturing programme, such as, sadly, Germany-based media company ProSiebenSat.1’s, might be destined to fail than an arrogant sense of superiority over the start-ups they are trying to work with.
The belief is usually understandable: the entrepreneur’s company is usually still small and the market potential, let alone technology, often unproven to be a profitable and defensible against predatory attacks from incumbents and peers.
The incumbent corporation has already been through these hurdles, attracts bright and ambitious recruits with good academic records and has the benefits of extensive networks and resources.
But as private equity firms, such as KKR or Permira, which own ProSiebenSat.1, know – you are always selling until you are a buyer at the last.
The litany is long of large corporations that tried to break into venture ecosystems, such as Silicon Valley or London, by showing up and expecting people to beat down their door to work with them but usually it requires a bit more awareness of what you are bringing and how it helps others before it can happen. Venture capitalists and entrepreneurs are rightly skeptical until the corporate venturer has proved both she and her parent are committed to the longer-term relationship.
Arrogance can show up in many ways – believing your time is more important than the person (me, in this instance*,) left hanging for a conference call without an apology or that you can buy part of the start-up’s equity through offering your services. The idea of shares-for-services rather than cash can be a good one but again it depends on the culture of how the partnership between the two parties is meant to work and why both sides enter into such a deal.
ProSiebenSat.1’s SevenVentures corporate venturing unit offers cash and/or access to its media stable is potentially strong but its strategy document until 2015 lays out the pressure it faces – its opportunity to grow in international markets outside of German-speaking regions is potentially harder than inside its established language area.
In a nice chart, ProSiebenSat.1 says its international broadcasting revenues are expected to more than double to over €150m ($225m), whereas its German-speaking market revenues are expecting a five-fold increase to more than €250m. Adding in five-fold increases in its digital and content production sales and the international broadcasting division – if its targets are hit – will be about a fifth of its total, down from a third currently.
Having a large domestic market with international sales a shrinking proportion can mean ProSiebenSat.1 becomes an appetising target to global peers as KKR and Permira looks to sell or float the business. Given the private equity consortium bought ProSiebenSat.1 in late 2006 and bolted on another portfolio company, SBS Broadcasting, six months later, it could be an exit is sought before 2015.
In this context, corporate venturing looks to be part of an exit strategy showing the room for growth and innovation potential the portfolio company has still left in it. The best exit values come when buyers perceive there to be further upside rather than the buyout firms having bled it dry (a sensitive subject in Germany since senior politicians have had a habit of calling leveraged buyout firms “locusts”).
But for entrepreneurs and potential syndicate partners to SevenVentures a combination of arrogance and uncertain ownership is toxic unless the early exit route is mapped out. I hope I am proved wrong.
*Permira and KKR were unavailable to comment at 24 hours notice. Matthias Bohlig, spokesman at ProSiebenSat.1, by email said: “As we spoke about yesterday we are very sorry that the phone interview with Christian [Wegner, chairman of SevenVentures and member of the ProSiebenSat.1 executive board since October last year,] couldn’t happen.
“And as I said in my email, we would like to offer you a repeat interview next week. I’m not sure I would connect the unfortunate cancelation of the interview with our executive’s approach to this project.”