Introduction to the Global Corporate Venturing Powerlist 2019 by James Mawson, editor-in-chief
The big themes
Partnerships and co-investment
Structures – continuum from strategic to financial and from in-house to independent
“Diversity brings strength to the industry” was an earlier editorial in Global Corporate Venturing, reflecting on some of the highlights from the Global Corporate Venturing & Innovation Summit, including a panel led by Tracy Isacke of Silicon Valley Bank, and including Meghan Sharp of BP Ventures, Karen Kerr of GE Ventures and Kathie Resteiner of Intel Capital.
However, just 5% of the 2,472 corporate venturing leaders are women, according to research for the GCV Powerlist awards to be held at the UK’s House of Commons on May 23. Just below the top rank, however, the picture looks better – more than a third of the GCV Rising Stars 2019 are women, so change could be imminent.
Leaders in venture often rise by distinguishing traits beyond the obvious and find the themes that will drive value, ever since 1976 when 29-year-old venture capitalist, Robert Swanson, famously parlayed a 10-minute appointment with biochemist and genetic engineer Herbert Boyer into a three-hour meeting over beers that led to the creation of Genentech.
Even if these observations appear hidden in plain sight – such as women making up about half the population or the internet bringing online billions more people – there are no limitations to the power of innovation capital once it moves beyond a cottage industry.
One signal for the transformation of the venture industry is its globalisation and diversity. From a relatively small coterie of lifestyle business venture capitalists raising limited-sized funds from institutional investors, such as pension funds, there is now a broad sweep from angels and family offices through VCs and corporations, governments and universities which are approaching all stages of investment and even employing different structures, such as initial coin offerings, tokens and quasi-equity, and debt structures, to be rewarded with revenue growth or interest and capital repayment rather than a sale.
The US has a decreasing share of the VC industry and as entrepreneurship, networks and capital globalise the biggest success stories could come from other places.
Last month in Neue Buercher Beitung newspaper, investor Peter Thiel said: “In 2005, I gave a speech at Stanford University, in the middle of Silicon Valley, and the question was: where is the next Google coming from? The answer I gave back then was pretty optimistic. With a 50% probability, the next Google is within eight miles. And in retrospect, I was right. The next Google was called Facebook, and it was just three miles from the room in which I spoke in 2005.
“Today, I would say that the likelihood that the next Google will ever be found anywhere in Silicon Valley is significantly less than 50%.”
But where else in the world the next Google will be found remains less certain.
To improve their odds of finding the next ByteDance, corporate venturers are more likely than VCs to invest outside their home region, according to GCV Analytics and PitchBook data. Many countries now are focused on inward investment from CVCs as well as encouraging domestic entrepreneurs and investors to become more international.
Almost all the GCV Powerlist 2019 winners are international in outlook. The organisational and management challenges this can bring can be immense, but the rewards from tapping into innovation hotspots early – witness the growth of Israel, Brazil and Singapore – beyond more established centres, such as the US, the UK and China, can bring both financial and strategic benefits.
But even the largest CVCs struggle to cover all the possible entrepreneurs around the world, let alone across multiple sectors and emerging breakthroughs. Partnerships, therefore, become crucial.
However, whereas the tools for buying, investing and building are increasingly well understood, speeding up the innovation cycle of portfolio companies and business units through partnerships remains more art than science.
Wendell Brooks, president of Intel Capital, and who as chairman of the GCV Leadership Society has a special profile outside the top 100 list to be presented later in the year, made it a clear goal in his first speech at the Global Corporate Venturing & Innovation Summit that his mission was about having the team ask “not what the portfolio companies can do for us, but what we can do for the portfolio companies”.
Allied to this was a strategic positioning in trying to collaborate with other CVCs to achieve this and support an entrepreneur in her four primary needs of capital, customers, product development and an exit.
In a world of $100bn venture investment vehicles, such as the SoftBank Vision Fund, or Asian peers, such as Tencent and Alibaba, which can invest in 100-plus deals a year, this also makes sense. Intel Capital’s unique position a decade ago, as the largest and best-resourced CVC unit, has passed, but its ability to punch above its weight through soft power measures, such as partnerships and collaboration and identifying power nodes of serial entrepreneurs and smart investors in its network, remains first class.
Some of the most exciting partnerships are being formed between CVCs and their former or existing portfolio companies as they scale up and start investing.
South Africa-based media group Naspers and China-based peer Tencent are placed third and first respectively, while telecoms group SoftBank and China-based e-commerce provider Alibaba are second and 10th.
Cross-shareholdings and co-investing, also notably between CVCs and their executives’ family offices, such as phone maker Xiaomi and Lei Jun’s Shunwei, create scale and opportunities, as the idea of a corporation becomes more porous in how it uses external innovation to bring ideas and units into the business and how it spins off or sells others as they grow. Again, particularly notable in China, Alibaba has separated Ant Financial and brought in Ele.me and Cainiao. Tencent has spun off Tencent Music and bought and syndicated games developer Supercell.
A glance at the GCV Powerlist and in particular the top 25 shows groups that can invest hundreds of millions of dollars or even billions annually – more than almost any independent VC – around the world and in multiple sectors.
But while the outcomes can look similar, the approaches by the CVCs remain relatively idiosyncratic. Tencent, with more than 700 portfolio companies, is becoming more of an investment holding company centred on gaming, similar to Alphabet on search, while Alibaba still seems to be looking more for assets to buy.
Still, certain trends remain clear. CVCs are looking for ways to leverage resources from their parent through additional money from outside. This reduces the possibility that an isolated problem in a business unit can affect cash and resources so substantially, as in the case of GE Ventures in the past two years, that the entire CVC unit is disrupted and may be sold.
Formal limited partner (LP) commitments to specific funds managed by a general partnership (GP) that can enable better incentives for staff also helps, with Intel Capital among those paying performance fees from profitable exits and tightening its team to deliver fewer but bigger deals.
The continuum of CVCs from purely financial to purely strategic remains, but increasingly there is openness to the question of in-house ownership or full independence.
Vicente Vento, co-founder and CEO of Deutsche Telekom Capital Partners Management, which manages the Germany-based phone operator’s corporate venturing and private equity assets, said: “We are working hard to position ourselves as a non-corporate VC. We operate independently from Deutsche Telekom, now have a multi-LP fund, and invest across venture, growth equity and private equity through distinct funds.
“Fun fact – in our case the majority of the GP is owned by the employees. We are still in transition but moving in the direction of becoming like my former employer and alternative asset manager Blackstone Group.”
It is hard to overstate the significance of what is, perhaps, Germany’s most establishment corporation effectively taking on an approach and governance set by alternative asset management titans, such as Blackstone, KKR, Carlyle Group and TPG, only a generation before known as the “barbarians at the gates” after the debt-fuelled leveraged buyout raid on RJR Nabisco.
When a group is effectively employer-owned, such as Deutsche Telekom’s, or SAP’s Sapphire or Wells Fargo’s Norwest, even if the money is almost all committed by one or several corporate units, they are excluded from the Powerlist.
Others, such as Alphabet’s GV, CapitalG and Gradient, remain in-house CVCs, while other categories, such as Swisscom Ventures have taken on institutional money from pension funds but remain strategic and in-house. New forms of multi-corporate-backed VCs, such as Touchdown and Redstone, have joined traditional players, such as Translink, Emerald, Iris and Pangaea, with specific mandates or funds.
The weight of capital and length of economic cycle mean the golden age of corporate venturing in the first half of the decade might have passed, but the talent, sophistication and diversity of approaches mean the industry finally has the chance to drag the entire private innovation capital ecosystem, as well as the more substantial public markets, into an era of more efficient capital allocation, productivity and economic growth allied to a goal of making the world a better place through the impact of investment.
This will require leadership from this generation of Powerlist winners, but the goal is important.
At our May symposium in London, Global Corporate Venturing runs the Powerlist of the top 100 heads of corporate venturing units out of the 2,200 we cover globally.
These are celebrated at an awards reception at the Terrace Pavilion of the House of Commons by kind permission of The Speaker.
We use a number of metrics for selecting the Powerlist, which draw on our GCV Analytics (http://gcvanalytics.com) insights-as-a-service data platform.
In addition, we look for strategic and leadership measures, such as thought-leadership, vision and motivational abilities, including who from the team was part of our Rising Stars awards selected in January at our GCVI Summit (http://www.gcvisummit.com) in California.
Strategic and leadership measures:
- Any examples of corporate acquisitions of portfolio or venture-backed companies.
- Business unit partnerships and development with portfolio companies.
- Product or strategy roadmaps and public leadership positions in conferences and associations and societies.
- Team members included in GCV Rising Stars and other awards.
- Team expansion and recent promotions.
My thanks to Liwen-Edison Fu as author of the profiles and Keith Baldock for production of the report.