Curiosity among venturing leaders drives the industry

What links South Africa-based media and e-commerce company Naspers, China’s largest company by market capitalisation, Tencent, car-hailing company Didi Chuxing, and local bike-sharing platform Ofo and Brazil-based peer 99?

Naspers acquired about a third of Tencent more than 15 years ago for about $30m and has seen the latter’s value climb to about $300bn. Tencent, in turn, understood the power of the venture model and invested in what is now called Didi Chuxing, which has backed Ofo and 99.

The same question could be asked of SoftBank, Alibaba and Didi Chuxing. And the answer would be the same – SoftBank in 2000 invested $20m for a 36.7% stake in Alibaba, which has invested in Didi Chuxing and so on to Ofo and 99.

That Naspers, SoftBank, Tencent, Alibaba and Didi are all in the top 20 for Global Corporate Venturing’s Powerlist 2017 indicates the power of the venture model of financial and often strategic and operational support. It also reflects the rise of non-US-based corporations, especially in China, which overtook the US last year by the value of its corporate venturing deals.

Portfolio companies are turning to venturing themselves – either from their balance sheet or using funds raised – indicating how rapidly wealth has been created by startups and so-called proxy wars by technology groups using investee companies as part of bigger battles against each other. Didi Chuxing last month raised $5.5bn – the largest private round in the world for any company at any time – to take its total funding to more than $15bn.

But the speed of this venture (r)evolution this decade has caught many unprepared and underinvested.

I put the above question last month to a group of 100 CEOs, who represented about the third of Canada’s gross domestic product, and the answers, while perceptive, missed the corporate venturing connection.

These Canadian CEOs had almost no comprehension of venturing or how innovation could affect their businesses. That SoftBank could be raising $100bn for its Vision Fund, or that Intel Capital put out more than $400m in the first three months of this year or even that Tencent probably committed this last month alone, was eye-opening for them.

For context, the entire venture market amounted to about $134bn last year, according to data provider Preqin, with GCV Analytics tracking corporations involved in $83bn of these deals. It was $31.3bn in 2005, with the US, Canada, Europe and Israel 93% of the total, according to Dow Jones, and corporate venture capital an unreported proportion..

The good news is these Canadian CEOs are ready to engage and learn, encouraged by a forward-looking government and select leaders, such as those at Magna, Rogers and Telus, whose corporate venturing leaders make up three of the Powerlist 100.

Other countries, such as Brazil, have engaged their business community earlier and seen a rapid increase in senior executive activity and leadership. When GCV partnered government agency Apex-Brasil for its first Corporate Venture in Brazil event in October 2015, almost none of the senior executives among the country’s 50 biggest corporations had any innovation strategy. For last October’s second conference, more than 100 attended and had developed strategies, and two of its leaders, from Embraer and Stefanini, are in the Powerlist 100.

While China overtook the US for corporate venturing activity last year, according to GCV Analytics, the rest of the world is trying to catch up. But the rewards reaped by those who have scaled up have been so enormous – the top five listed companies in the US by market capitalisation are now tech firms, and the same leadership by tech firms is true in other stock markets.

Fundamental changes in quantum computing, artificial intelligence (AI), healthcare and energy production and storage offer further great opportunities.

As Demis Hassabis, co-founder of AI startup DeepMind, acquired by Alphabet rather than remain independent or be listed, told news provider Financial Times last month: “Intelligence is probably a process of converting unstructured information into useful and actionable knowledge.”

This information can come in many forms, and groups, whether asset manager Blackrock with its Aladdin technology platform, hedge fund Bridgewater Associates or media group Thomson Reuters, plan to turn a variety of data and information into actionable intelligence to predict likely mergers and acquisitions and share price movements based on current innovation trends.

But while hope remains that early engagement and investment in startups can be transformative, in the ways Naspers’ investment in Tencent or SoftBank’s in Alibaba have been, doing so effectively is less easy.

GCV Analytics tracked 965 corporate investors active in at least one deal last year but 1,667 over the five-year period to the end of 2016. The difference between the two numbers indicates how few corporations have dedicated time and resources to make it a meaning part of their innovation strategy.

The top 20% of these corporations, primarily the members of the GCV Leadership Society, are responsible for about 80% of deal activity.

The top criteria often separating the leaders from the also-rans is CEO support (see the C-suite quotes) and finding the talented people who can drive a corporate venturing team. The examples in the Powerlist 100 show what the combination of both elements can bring. Finding talented leaders is the first and hardest priority, so executives such as Laurel Buckner, who last month left General Communication, Alaska’s largest telecoms company, after its $1.1bn acquisition by Liberty Ventures Group, a subsidiary of US-based media conglomerate Liberty Interactive, will be eagerly snapped up.

Alongside M&A, there was some churn in the Powerlist with the retirement of Deborah Hopkins from Citi, Graeme Martin from Takeda and Rachel Lam from Time Warner, moves into consultancy for Julia Rebholz and Dirk Nactigal from Centrica and BASF, respectively, departures for Bill Maris, Jim Lussier, Soichi Tajima, Geeta Vemuri, Katelyn Donnelly, Girish Nadkarni and Nikesh Arora, and move by Susana Quintana-Plaza from Eon to Siemens in a supporting role to Lak Ananth, himself moved from Hewlett-Packard Enterprise. Women were slightly overrepresented on this list of changes compared with the one-fifth (23) they contsituted in this year’s Powerlist.

The Powerlist, and the near-2,000 corporations in the initial GCV analysis, indicate a number of skills they have in common. They are often the same talents the CEOs of parent companies have, as identified by Harvard Business Review:

• They are decisive even with imperfect information – what Amazon CEO Jeff Bezos calls deciding at the 70% level of available facts.

• They engage stakeholders around value creation and performance.

• They adapt, reversing wrong decisions as facts change.

• They deliver reliably.

Few of the 140-plus CVC units with at least a 10-year track record have the same strategy and team as when they launched. Of the 100 named groups in the Powerlist, fewer than 20 have been heads for at least a decade – the median year for becoming one was 2013. The average year was 2011 given outliers, such as Barbara Dalton at Pfizer.

Delivering for corporate venturers often means making both a financial return as well as having strategic relevance. There is little point being the tip of the innovation spear if the targets are side issues for what might affect the company in the medium to longer term. But given the short attention spans of corporations – the relatively high turnover of senior executives – and impending economic downturn, making sure a CVC unit can deliver at least financial results in the short term of a three-year horizon is important.

However, aiming for financial returns can miss the bigger picture. The CEO of one Canada-based company described how he had set up a series of accelerators across the country but was struggling for metrics to judge their performance.

Rather than aiming for the usual key performance indicators of level of follow-on funding, aggregate revenues and employee numbers, a bigger question could be in finding a mission that could engage all.

As Apple co-founder Steve Jobs said: “My passion has been to build an enduring company where people were motivated to make great products. The products, not the profits, were the motivation. [John] Sculley flipped these priorities [when he replaced Jobs] to where the goal was to make money. It is a subtle difference, but it ends up meaning everything.”

By focusing narrowly on the economy and financial performance, the unintended consequence has been slowing growth rates and, over the past 15 years in the US, greater revenues to the top four corporations in the majority of industries and declining startup rates.

Allworth overlaid another economist, David Moss, whose book on US democracy gave him the impression it was the shift among policymakers after the Second World War to focus on the economy rather than the impact on democracy that was having an effect.

If profit moves from “necessary but not sufficient” to “prime objective” then potentially disruptive or important events can be missed.

In this light, the decision by Wendell Brooks, president of Intel Capital, to make all managers responsible for diversity is an important signal. Similarly, Centrica’s decision to incorporate the impact venturing approach taken by its Ignite fund for its new £100m ($130m) program is heartening.

A decade ago, corporate venturing was a byword for “dumb money” and fickle investors. The band of long-serving and hard-working visionary corporate leaders and the newer breed prepared to reimagine venture from a cottage industry to primary component in financial markets is a sign of the shift that has happened in the relative blink of an eye.

Two of the top three corporate venturers in this year’s Powerlist are former investment bankers, and all CVCs are involved in deals globally on a scale never seen or imagined before. To get an idea of the leadership qualities of the future, see our article on a Silicon Valley roundtable of corporations, mixed by sector, experience and gender, held under Chatham House rules, and the report on a Bell Mason Group survey of CVCs to get ahead of the emerging data trends.

As physicist Albert Einstein said: “The important thing is not to stop questioning. Curiosity has its own reason for existing.”

In the graphs attached to the top 25 profiles, the blue lines and the figures above them are maximum values investors have reached in each of the examined categories, according to GCV Analytics data.