November 2021 issue editorial by James Mawson, editor in chief, Global Corporate Venturing
Perpetual optimism is a force multiplier, according to Colin Powell’s 13 rules of leadership.
Former US general Powell’s death last month was a sad loss but his insights lived on at the 10th Global Corporate Venturing Symposium in London, UK.
The optimism came from the unique insights gained from talking with hundreds of the world’s best investors about the innovations they see and how the professional development of the corporate venturing community was allowing almost a factory system to incubate, accelerate, invest and partner to scale up the opportunities.
Bill Gates wrote in the Financial Times just before the start of the symposium: “Before the last major COP meeting, in Paris in 2015, innovation was barely on the climate agenda. This year in Glasgow it will take centre stage.
“Shifting the world’s focus to inventing clean technologies was among the greatest successes of the Paris COP. Continuing that trajectory is, perhaps, its biggest opportunity this year, because innovation is the only way the world can cut net greenhouse gas emissions from roughly 51bn tonnes per year to zero by 2050.”
Looking beyond climatech to healthcare, industry 4.0, artificial intelligence, education and communication and there is no shortage of innovation. Dominique Mégret, head of Swisscom Ventures, the corporate venturing unit of Switzerland-based telecoms operator Swisscom, since its formation in 2007 described in his book, Deeptech Nation, and keynote speech at St Paul’s Cathedral’s gala dinner for the symposium how even relatively small companies and countries can succeed if they target “very ambitious and inspiring projects, the moonshots”.
The sold-out GCV Symposium in the UK – host of COP26 – showed both how innovative ideas are being formed often as spinouts or startups from student and faculty at the main universities, then developed and funded using some of the $22 trillion of cash on company books.
But there are two main threats facing the community. First, as Kaloyan Andonov, head of GCV Analytics, noted in his keynote, there has been a record number – more than a 1,000 – corporations doing their first CVC deal through the pandemic.
This massive increase in new units risks diluting the growing reputation for professionalism and competence in the corporate venturing community over the past decade.
Greater experience of investing and the GCV Institute, which trains the units and their business units and management on how to land the value of corporate venturing and go beyond venture investing into business development, have reaped enormous rewards for the committed. A huge wave of inexperienced CVCs risks entrepreneurs being unsure whom to trust and other venture investors leaping on the opportunities to damage the whole sector through tarring all with the same brush of “dumb money”.
That VCs and others will do so if they feel there is a competitive advantage is only too likely. This leads to the second concern: the mindshare good CVCs have with the best entrepreneurs is weakening as capital flows towards them from multiple directions.
When tracking CVC deal volumes and values against the broader venture data recorded by PitchBook, there is a clear decline in the percentage of total money in rounds that now include at least one corporate over the past three or four years.
The scale-up in the venture ecosystem in the 2010s – to about $1.37 trillion according to PitchBook – was primarily because corporations were involved in up to about 75% of all rounds by deal value in the latter part of the decade, according to GCV analysis.
Corporations scaled up and professionalised the whole industry, with China-based Tencent investing almost all its free cashflow of about $10bn per year in CVC deals, according to Jeffrey Li, managing partner at an earlier GCV symposium, and hence building up at least 160 unicorn portfolio companies (those worth at least $1bn). SoftBank’s ability to raise almost $100bn for its first Vision Fund showed venture was scalable and no longer a cottage industry for lifestyle-focused diletanttes.
Now, other types of professional investors see the opportunities to invest more, faster. Tiger Global Management has reportedly attracted $8.8bn in the first close of its biggest venture fund on record, according to newswire Bloomberg. The fundraising brings Tiger’s assets to about $95bn up from $28bn in 2018.
Data showed by Silicon Valley Bank in its state of the markets report at the GCV Symposium indicates about half of all money going into rounds now includes the biggest hedge funds and VCs, such as Accel, Coatue and Tiger, and massively scaling up all round sizes. Sequoia’s public fund move to create an evergreen model promises even more money into the ecosystem.
This pressure is forcing out earlier investors, such as corporations ahead of initial public offerings, while valuation increases for private and recently-public companies, such as 23&Me or Rivian, are such that they can no longer be afforded by corporations, according to Bayer’s Marianne De Backer in her fireside chat at the GCV Symposium.
This encourages CVCs to invest earlier or try venture building to develop opportunities – a naturally riskier proposition and harder to develop partnerships with business units or certainty around strategic fit. These deals can be successful but can take decades to play out and if disruption or a downturn hits then the pipeline of returns can look barren just when chief financial officers might want it or after CEOs are yet again changed.
But investing and building teams for the longer-term surely pays off and this is where optimism could be warranted.
GCV has just run some numbers for its second book, Transformative Innovation, co-authored with Christine Gulbranson, venture capitalist and former CEO of Sergey Brin’s family office as well as ex-chief innovation officer at the University of California System, to be published in time for its next GCVI Summit in California.
These show how over a 20-year time period there is a marked correlation with CVC as an indicator of innovation for the corporation. Those that fail to retain or support exceptional corporate venturing talent, such as Greg Hoffman, who has just departed US-based chemicals group DuPont, are likely to struggle.
And their shareholders will take notice. BlackRock, the world’s largest shareholder in public companies, described at the symposium how even its CEO, Larry Fink, has started to take CEOs to task for their failures.
The past quarter of a century has seen a failure of these institutional investors to recognise that companies paying back more in buybacks and dividends to current shareholders has been denuding these businesses of the armour needed to fit the innovation wars.
If this changes and more flows to innovation, and a glance at the record valuations ascribed in special purpose acquisition companies to acquire private companies and list them indicates there is a new willingness to support innovation and growth prospects, then corporate venturing should do well and be supported.
But it will only happen if the industry continues to invest as much internally on its professional development and benchmarks itself rigorously to communicate with management and entrepreneurs how and why they add value and are competent.
“By CVCs, for CVCs.”