Corporate venturing units see the looming recession as an opportunity to hire experienced VC professionals who soon may be out of work.
As the economy contracts, some venture capital firms and CVCs are expected to close or pare back operations and corporate venturing firms will be waiting to scoop up the staff.
“We see it as an opportunity to recruit top talent,” says Nicolas Sauvage, president of TDK Ventures, the corporate venturing arm of Japan-based electronics maker TDK Corporation. “We are going to get good people looking for roles.”
TDK Ventures has six open positions. Sauvage sees the coming months as a good time to invest in startups if VC firms and CVCs withdraw from the sector, leaving less competition for deals and investment professionals.
Institutional VC firms, in particular, may shy away from early-stage high-risk investments, says Hakan Goker, managing director of M Ventures, the corporate venturing subsidiary of German pharmaceutical company Merck. “I expect that, as CVCs, we will have opportunities to recruit people who may not feel secure enough in institutional VC.”
So far, the market contraction has not led to widespread closures of CVCs or institutional VC funds. The most recent notable closure was of TotalEnergies Ventures, the CVC unit of France-based oil and gas producer TotalEnergies, in May this year. The oil company’s executives said they wanted to shift focus to smaller early-stage investments through its accelerator.
A slackening of competition will be welcome relief for CVCs, which have faced stiff competition for talent in the past couple of years as the venture capital sector has grown. Traditionally, VC firms have been able to pay much higher salaries than corporate venturing units.
The result is that CVC teams are often filled with less experienced young business school graduates who want to get a foot in venture sector, says Josh Lerner, a professor of investment banking at Harvard Business School. “It is very hard for corporates to duplicate the kind of profit share at independent VCs,” he says.
Carry is becoming more common
This could be changing, however, as more CVCs adopt salary incentives that mirror those at VC firms. Close to 30% of corporate venturing funds now offer financial upside compensation schemes such as carried interest, according to PwC data.
Providing carried interest as part of a compensation package has helped Global Brain, a Japan-based venture capital firm that oversees various corporate venturing funds, attract and retain talent from the financial and CVC sectors, says Naoki Kamimaeda, partner and Europe division head.
Other CVCs are not seeking to change their compensation structure, instead relying on their mission and core values to attract the best talent. Sauvage at TDK Ventures says he seeks professionals who are forward-looking and hold contrarian views. “I am looking for people who want to impact the world. If I am in interviews and people start asking about job title, that is probably a no for me to recruit them. Job title should be the least important thing to consider.”
Tiffine Wang, partner at MS&AD Ventures, the corporate venturing arm of Japan-based MS&AD Insurance Group, says her unit pays a competitive salary but she seeks to hire people who are collaborative and good at working with business units at the parent company – skills that are not necessarily prevalent in the pure venture capital world.
“A lot of venture firms tend to hire people who are individual contributors. In a CVC world, being an individual contributor doesn’t work well. You have to be cross functional and open to working with people who are different from you,” she says.
To attract and retain talented people, Wang has set up roles in which staff have room to grow. Associates, for example, work in investments as well as in business development. The company received between 700 and 800 applicants for recent associate roles, she says.
Getting the right mix
The jury is out on what makes a good mix of internal and external hires at CVC funds. Some place more focus on hiring from the parent company while others prefer to recruit mostly from the VC and investment worlds. An equal distribution of both is optimal, say others.
Gen Tsuchikawa, CEO and chief investment officer at Japan-based Sony Ventures, says the unit hires predominantly – 80% of staff – from its parent, Sony Group. He likes internal hires because they tend to have a strong understanding of the parent company and can also be suited to the venturing sector.
“I often hear from people who want to set up CVCs that there is nobody inside the company who can do these jobs. But I often find that is wrong. That person may not have climbed the executive ladder, but they are interested in what is going on in the startup world,” says Tsuchikawa.
Recruiting mostly external hires is the approach at Netherlands-headquartered M Ventures. The CVC has a strict firewall between itself and the parent company. Because investors at the CVC sit on boards of their portfolio companies, having a close tie to the mother ship would be seen as potentially “contaminating” or taking advantage of the startups, says Goker. “Unless you have a firewall, you will be kicked out of the strategic decisions of the board,” he says.
M Ventures has hired two people from Merck. But they have severed ties to the parent. “They have quit their jobs. Because of these confidentiality and firewall challenges, we say if you are going to work for us, you have to quit your job and this is your new career.”
Other CVCs have more of an equal mix of external and internal hires. MS&AD Ventures, for example, has five employees who were hired from outside the parent company, and between five and eight staffers including interns who are sent from the Japan headquarters.
A recent PwC study finds that top performing CVCs in Europe tend to build their investment teams with external hires instead of recruiting staff from the parent company. The study of 123 European publicly traded corporates that operate a CVC or have done so in the past concludes that top performing units employ investment teams with the most venture capital experience.
The study, which PwC carried out in partnership with EBS University of Business & Law in Wiesbaden, Germany, also finds that women have a positive impact on performance. Corporates that improved the share of women in CVC teams to 30% from 20% increased the market value of assets by 20%.
Will there really more talent available?
Florian Nὅll, head of corporate development and innovation at PwC, says he has not yet seen the venture capital industry pull back from investments to the extent that it frees up people for CVCs to hire. He points out that the sector will continue to be active, at least in the short term, because it has to deploy the large amount of money it has raised in the past couple of years.
“They can maybe slow down or wait for a few months, but if you have raised $200m fund last year, you have to invest it at some point,” says Nὅll.
As the economy contracts, it is possible that CVC units will struggle more than VCs. Much of it depends on how well CVCs have become part of the long-term view of the parent company.
Lerner at Harvard Business School cautions that, historically, corporates have not hesitated to terminate CVC units during downturns and have proven “flakier” than limited partners. But he adds: “You could argue that corporate venturing has really become integrated into corporates’ innovation strategies. As such, that stop-start pattern will no longer be there.”