From deciding which markets to go into, how many team members to send and whether it is worth taking an LP position in a local VC fund instead, here are six things to think about before opening an overseas office.
Many corporate investors have their headquarters in Silicon Valley to be close to the area’s tech innovation. But recently, corporate investors have taken the plunge to set up teams physically located in many other countries as well.
Corporate VCs are usually lean teams, so the decision to expand physical office locations should be well thought through. While most corporate investors do well investing globally from one location, the time may eventually come when the benefits of having a global office outweigh the short-term challenges of setting up in another country.
Global Corporate Venturing held a webinar, Going Global – How CVCs can successfully expand into new markets, to look at how CVC units that have gone into new regions have chosen the right markets and how they have done it successfully.
Here are six takeaways:
Consider if you will get a return on investment from a new office
TDK Ventures, the CVC arm of Japanese electronics maker TDK, recently opened offices in Bangalore, India, and London, UK. Nicolas Sauvage, president of the Silicon Valley-based CVC, says its decision to open an international office was based on addressing a key pain point. “If we can avoid having a new team and building it somewhere, then of course, we would prefer to leverage local teams or local partners. It has to have that significant threshold or ROI,” he says.
Its decision to open an office in Bangalore was part of the parent company’s decades long strategy to do more business in India and leverage the innovation happening there. “We are based in Bangalore because there is a lot of deep tech concentrated there. We feel like the ‘why’ and ‘now’ is very strong for entrepreneurs to be successful in India, and then to go global,” says Sauvage.
TDK Ventures chose to open a London office for different reasons. The location was tied to a new decarbonisation fund it was launching, and London is one of the top locations for climate tech after the US cities of San Francisco and Boston.
The need to manage your growing portfolio of startup investments will be a driver
LG Technology Ventures, the CVC of Korean conglomerate LG, has for several years successfully invested from its main office in Silicon Valley. But now the need to manage its portfolio of global investments has brought it to the point where it is considering opening international offices, says CEO Dong-Su Kim.
“LG has many tech scouting offices throughout the world, which helps us to source deals. So, deal sourcing is not such a big challenge. But now we have quite a number of portfolios all over. Portfolio management is becoming more difficult. So, right now we are getting to the stage where we’re thinking about opening other offices,” says Kim.
For companies with global offices, CVCs can get closer to the business units in key markets
If the parent company has offices all over the world, having a member of the CVC team in key regions can help forge closer ties between the investment team and the business.
Most of aircraft maker Boeing’s customers, for example, are outside the US. Nichola Bates, managing director of Boeing’s CVC Aerospace Xelerated, says the CVC team have focused on selecting locations that are close to Boeing’s priority markets. The CVC team has locations in the US, London, Amsterdam, Dubai and Shanghai.
“We’ve really been thinking about how do we get closer to our customers and how do we help solve some of the challenges that they have at that front end. It is important for us to be thinking about where those priority markets are not just where the quality startups are based. We have to marry those two things together,” says Bates.
Boeing also has 120 employees globally who work with the CVC team to do things like scout technologies and help with technical due diligence. Being close to these people in the business units helps the CVC team make better decisions, says Bates.
Siemens Energy is another global company with office locations all over the world. When the CVC team was put together in 2020, the members were picked partly on whether they were in a strategic location to the parent. Siemens Energy Ventures has a presence in the US, Mexico, Dubai, Africa and Shanghai, China.
“Siemens Energy is operating in six regions, so it helps me and the team to be close to the regions because they are the finger on the pulse of our customers,” says Kendra Rauschenberger, general partner of Siemens Energy Ventures.
Having a dispersed team in different regions helps the CVC leverage its network in the company but also build ecosystems that matter to it externally as well, says Rauschenberger.
Think about the right number of people you need for critical mass
CVCs seeking to open global offices should think carefully about how many people should be in those locations. Sauvage, of TDK Ventures, says a good number is between three and four. “The intention is to create a camaraderie and support between the team, so that they are not feeling too remote and too alone, and that they can actually engage locally as a team,” he says.
CVCs should also think about whether it is best to relocate staff members to foreign offices or hire on the ground in those locations. For its Bangalore office, Sauvage says he would have preferred to relocate a member of his team who had been at the unit for a while, but he didn’t have that opportunity. Instead, the CVC hired someone locally with experience of CVC.
“When we’re talking about creating a new office in a new location with someone who doesn’t come from either the mothership or the CVC team, it comes with more challenges,” says Sauvage.
Having a team located in different time zones also creates its own challenges. Rauschenberger, of Siemens Energy Ventures, says “you need to be creative on how you actually then work well together, because you can have one or two or three hours where the full team actually has team time possibility.”
Investing in a local fund is an alternative but does it suit the company strategy?
For some CVCs, becoming a limited partner in a local fund is a good way to expand into a new market rather than having a team on the ground. It is a good way to accelerate deal flow and understand how a local geography works, says Kim, of LG Technology Ventures, which has done multiple LP investments.
“There could be certain geographies where you don’t have the coverage. It’s a lot easier to start with an LP investment in that particular geography with some of the top VCs who are very active in that area but also ones that that know how to work closely with the corporate investors and understand the needs of the corporate. Once you’ve selected the right partner, it can really help you,” says Kim.
Other panellists, however, felt it was better to invest directly so that the team can understand geographies more in depth. “We haven’t taken any LP positions yet, because we wanted to learn ourselves how to do this well in a corporate context,” says Rauschenberger. “We obviously are talking to many of the other funds, and we share deal flow and build connections. But LP positions have not been part of our strategy so far.”
TDK Ventures takes a similar stance. But, for certain regions where it is challenging to learn the local ecosystem such as China, Sauvage says he could imagine taking an LP position.
Today’s geopolitical tensions put focus on need for global outlook
The US Trump administration has ushered in a period of geopolitical fragmentation, with the US in particular moving towards a more nationalistic worldview.
What does this mean for CVCs that are seeking to expand globally?
“I think it solidifies my position that us investing outside the United States as a US-based company is really important. It’s really important that we build that technical capability globally,” says Bates, of Boeing’s Aerospace Xelerated. “Whatever comes, we need to be ready for it, and we need to have all of that technology in all of the places that we might need it.”
Watch the full webinar below:
This webinar is part of GCV’s The Next Wave series of webinars. We run a webinar every month, alternating between advice for CVC practitioners and deep dives into specific investment areas. Our next webinar will be: From lab to market – How CVCs can unlock the potential of university spinouts. Register here to secure your place.
