Nine things we learned at the GCVI Summit

The GCVI Summit in Monterey was three days packed with talks and networking and it is almost impossible to summarise that. But these were some of the highlights and most interesting nuggets for us on GCV editorial.

1. Don’t have your CFO on your investment committee. This is something that Louie Pastor, chief corporate development officer and chief legal officer of Xerox, learned the hard way. When the 116-year-old tech company launched a $250m corporate venture fund last year — its first return to CVC activity since the 1990s — there was so much interest in it that the whole C-suite wanted to be in on making the investment decisions. But the CFO has turned out not to be a good fit for this.

“He has said this himself, that he has trouble taking his CFO hat off,” Pastor told the Summit.

The CFO, coming straight from a budget meeting where he had been squeezing a business contract for maximum value, would struggle to suspend belief when asked to value a not-quite-yet-market-ready portfolio company at 30x next year’s revenues. See the rest of what Xerox has learned here:

2. $4.5 trillion. That is the amount of capital that needs to be deployed every year until 2050 if the world is to deliver on its net carbon zero pledges, Meghan Sharp, global head of Decarbonization Partners, told the Summit. “As a global citizen I find that number overwhelming. As an investor — it’s an opportunity. A historic opportunity,” she said.

This is part of the reason Sharp has moved to the joint BlackRock and Temasek vehicle, where she aims to invest in late-stage venture deals, the kind of Series D big funding rounds that help a scaleup build its first commercial facility. It is where Sharp sees the gap in the market. A lot of funds are focusing on the Series A part of the sustainability startups, but there will be a growing need for the funding that will get these to meaningful scale.

Watch the session here:

3. The 10-year-fund might be obsolete. Bill Coughran, founder’s coach and general partner at Sequoia did not quite come out and say that plainly, but the venture capital firm recently moved to a permanent rather than time-limited fund structure because it felt that it would help it make the most of its holdings, even beyond IPO.

“An IPO is just a starting point,” said Coughran, pointing out that when Google listed on the stock market in 2004 the shares were priced at $85. If you had sold at that level you would have felt pretty cheated today (they are at just under $2,200).

Sequoia is still looking at different age cohorts within the fund to have some consistency in metrics around these companies. But removing the imperative to return money after a specific time gives it more freedom to act — and probably results in better returns in the long run.

Watch the session here:

4. Ten bosses in 12 years. That is what Bill Taranto had to contend with as president of Merck’s GHI Fund. Still, this has not derailed the fund particularly, partly because Taranto has been careful to articulate the investment thesis and overall purpose very cleverly. It is that every health company must be a data company and that point solutions in healthcare do not work, you need integrated solutions. Taranto says that whatever the particular new vision of an incoming boss, it has been hard for them to argue against these principles, meaning that the work of the unit has been able to continue without much disruption.

Making sure your fund survives frequent management changes is one of the trickiest challenges for CVCs — so it is worth learning from these tips that Taranto, Michelle McCarthy, managing director of Verizon Ventures and Quinn Li, senior vice president and head of Qualcomm Ventures shared.

5. “Portfolio management” is going to become a slightly sinister term for startups. There is some schizophrenia going on among the corporate investors we heard speak at the Summit. On the one hand, investors such as George Kellerman at Woven Capital, Toyota’s investment arm, are talking about preparing to write more follow-on cheques for portfolio companies struggling to raise. But others, says Jeff Baglio, partner at DLA Piper, are talking about “portfolio management”, which, in practice, means letting the weaker members of the portfolio wither.

“The stigma of not supporting a portfolio company is going to get significantly less,” he told the Summit audience.

6. 2.6% — that is how much Yamaha Motor Corporation’s stock price rose after it announced a $100m sustainability fund last month. Coincidentally, that 2.6% rise is equivalent to about $100m, so before the fund has invested a single penny it has already paid itself off for shareholders. But Yamaha’s venture efforts are not just about burnishing its image with shareholders.

“The objective of the venture arm is creating a new business at Yamaha,” Kei Onishi, CEO and managing director at Yamaha Motor Ventures told the Summit. Yamaha Motor Corporation’s history is one of diversification — the company is not just motorcycles and boats but also has a large agricultural unit and a healthcare business — but it has not added a new business unit for 20 years, since it added the electric bikes business

“It’s not a healthy situation for us,” Onishi said. A lot is resting on the venture unit being able to find the next big thing for the company. Those shareholders who bought into the sustainability fund announcement are certainly hoping so.

7. Need a concierge to the innovation coming out of University of California, Berkeley? Rich Lyons, chief innovation and entrepreneurship officer, took to the stage to not only talk through some of the new innovation ideas he is working on but promised to help shepherd any corporate investors through to find interesting startups. You can email him at lyons@berkeley.edu, he told the audience. So don’t be shy.

8. There is a purely mathematical reason why a down market is more favourable for CVCs than financial VCs, Deborah Zajac, director of Touchdown Ventures, told the Summit. Institutional investors’ LPs are likely to pull back in a down market because they have limits on how much they allocate to different investment categories. As their public market shares are worth less, LPs will start to look overweight in their VC investments and will have to pull back to maintain that 8-10% allocation many specify for VC.

Corporate venture funds do not have this LP problem and they tend to invest from corporate cash reserves. Zajac had a lot of helpful tips about how to manage a portfolio well through a down market too — the full video is here:

9. What can you learn from building 100+ corporate ventures? Sean Sheppard, managing partner of Corporate Venture Builder U+, told the Summit audience that it is this: the only metric that matters is finding product market fit as fast as possible. Too many people focus on products not customers. You need an agile team that gets talking to real customers as quickly as possible. And you do not sell at this stage, Shepherd says, you “recruit” for an early cohort of customers.

Do this right, and you can get a digital startup to revenues and customers in less than nine months and spending less than $1m. If not, you are wasting money and time. There are lots more helpful tips in Shepherd’s full presentation:

There were plenty of other highlights. To see the rest of the videos, head over to our YouTube channel where you can find all 28 videos:

Opening image courtesy of Adam Bacher