Global Corporate Venturing Rising Stars Awards 2017: Introduction

Celebration

Researching, selecting and writing the Global Corporate Venturing Rising Stars 2017 list has been a fascinating and inspiring dive into the wealth of talent tackling probably the hardest job in finance.

As Arvind Sodhani, former president of Intel Capital, said while giving a keynote address at a Global Corporate Venturing event hosted by DLA Piper in Tokyo in April: “Sure, corporate venturing is not easy. The big issue is dealflow. The top one or two in an industry make 110% of its profits, with numbers three to five often losing money. Getting the best dealflow requires scale and broad relationship skills, and compensation is an ongoing concern when competing against traditional VCs.”

It is the “broad relationship skills” at which these GCV Rising Stars 2017 often excel, whether working with colleagues, managers, business units, entrepreneurs and other venture investors, or just trying to maintain a family and social interests rather than let work emails swamp everything.

While GCV’s annual Powerlist 100 looks at the established industry leaders to understand and help celebrate their achievements and strategies for unit survival and success, the GCV Rising Stars awards is often a chance to look deeper inside the mechanics for how corporate venture capital is practiced currently and what ideas and opportunities there are to shape the industry in the future.

What would help the industry

The feedback from these GCV Rising Stars 2017 provides insights that complement the statistical analysis and qualitative feedback from GCV’s annual survey of more than 200 industry leaders – carried out in conjunction with professors from Stanford, Harvard and Chicago universities and published in the World of Corporate Venturing 2017 – and the regular profiles and interviews published online and in our monthly magazine.

These GCV Rising Stars broadly concentrated their advice in five areas:

•  Entrepreneurs first

•  Financial or strategic but communication with entrepreneurs, other VCs and senior management

•  Networking and best practices

•  Deal-sharing among CVCs

•  Role models

Beth Ferreira, managing partner at WME Ventures and a GCV Rising Stars 2016, summed up the attitude of many of her peers in an interview in Forbes in November about raising her debut $50m fund last year: “An agency is a service business, and venture capital is too.”

In venture, the clients are the entrepreneurs. Servicing them well through money and support in building their business and then exiting at the best time and price are all skills corporate venturers should have the edge over other types of innovation capital providers.

Yao Xia, executive director at media platform Tencent and number one in the GCV Rising Stars 2017 list, invested $15m in the series B round for what is now China-based ride-hailing service Didi Chuxing for a 20% stake. The portfolio company has now raised more than $10bn in equity and debt to reach its $35bn valuation with Tencent supporting it in the way its own main corporate venture, South Africa-listed media group Naspers did during Tencent’s own growth.

Support, however, is the crucial differentiator given capital is inherently a fungible commodity. At the time of her latest deal, Laela Sturdy, partner at conglomerate Alphabet’s CapitalG corporate venturing unit, said: “Google has been a customer of Care.com’s enterprise services for employees since 2011, so I have been able to see first-hand how Care.com’s innovative mobile platform and enterprise solution – Care@Work – helps families search for caregivers and get much needed backup care services.

“CapitalG is excited to support Care.com in building on their market leadership by giving them access to our biggest asset—some of the world’s leading experts in a range of topics at Google and Alphabet – as they continue to deliver delightful and seamless solutions to consumers and enterprises.”

Founded in 2013, CapitalG pairs its companies with advisers spread across Alphabet. As Robert Hohman, CEO of Glassdoor and another of Sturdy’s portfolio companies, said: “It is extremely convenient when you are facing a hard problem to be able to ask the question: ‘I wonder what Google did on this?’.”

Almost any VC trying to raise capital is looking for corporations to commit as a limited partner in order to help them offer value-added services to portfolio companies as well as money, unless they are able to raise so much money they can hire a team to try and replicate this support as Andreessen Horowitz has done.

The third main area of support is in helping portfolio companies exit. Sturdy’s boss, David Lawee, had run mergers and acquisitions for search engine provider Google, which has bought at least 190 in the past few years of the probably thousands it has reviewed.

As Global Corporate Venturing’s exit analysis in its December issue showed, since 2014 about a fifth of corporate venture-backed companies going through trade sales were acquired by the parent of one of its investors.

This can be a double-edged sword for entrepreneurs. They want the buyers to know them and value their offering, and being a minority shareholder is a great place to start. But they want there to be tension in the exit process to make sure a fair market value is found, which obviates investors having special rights, such as a first refusal on buying the company, unless there is a price and mechanism for on such an option agreed upfront.

Strategic and financial reasons for investing matter less than clarity of communication and execution. Only about half of corporate venturing units in 2015 struck a deal that year and the 80:20 rule seems to apply in the industry with about 80% of deals being agreed by 20% of units.

These active members and those that aspire to excellence and best practices are part of the industry’s GCV Leadership Society founded last year and lead by luminary members, including Wendell Brooks, president of Intel Capital, Sue Siegel, CEO of GE Ventures, Jeffrey Li, managing partner at Tencent, Tom Heyman, president, Johnson & Johnson Innovation–JJDC, William Taranto, president of Merck’s Global Health Innovations Fund, and Jaidev Shergill, head of Capital One Growth Ventures.

The GCV Leadership Society is being led by such luminaries and all its members to improve communication with entrepreneurs, other investors and senior management. In October, GCV in partnership with US trade body the National Venture Capital Association held the Shift conference in New York to help bring corporations as potential limited partners, co-investors and acquirers with their VC peers.

The World of Corporate Venturing annual review provides the data and insights that will provide a summary guide for senior management of the trends and rankings that will matter to them.

Best practices for the industry will emerge from networking and sharing, whether online through GCV’s Leadership Society app developed by Eric Ly, LinkedIn’s co-founder and first chief technology officer at his new firm, Presdo, or in person at conferences. Unlike many institutional VCs competing to raise money from often the same sources as well as to gain access to the top entrepreneurs, corporate venturers’ access to money in part depends on the attitude of the C-suite and non-executive directors that control the company.

It is no coincidence that many of the most active corporate venturers, whether Tencent, Alibaba or Baidu in China or Intel, Google and Amazon in the US, raised money themselves from venture financiers and had investors on its board. The retirement of Deborah Hopkins, CEO of Citi Ventures, this month enables her to join the boards of Marsh & McLennan and Union Pacific and share her expertise in the way Claudia Fan Munce was able to join the boards of Best Buy and Bank of the West last year.

Fan Munce said the best advocate she had when running IBM Venture Capital in the early 2000s after the dot.com crash and the flight of venture capital, including corporations, was Dan’l Lewin, her counterpart at software provider Microsoft. Having a peer at another firm to point to as evidence that the strategy can make sense is important validation to many boards.

CVCs might, therefore, compete on deal-sourcing but there are plenty of conflicting interests in corporations or people ready to listen to vested interests from outside that argue corporations should only be on hand to buy VC-backed companies rather than invest in or support entrepreneurs beforehand.

But, ultimately, it all comes back to the entrepreneurs and dealmaking. All the GCV Rising Stars were asked: “What do you think all CVCs could do better to make it a stronger industry?”

Carl Stjernfeldt, senior venture principal at Shell Technology Ventures, the corporate venture arm of Royal Dutch Shell, said: “Share deals with each other first, then to the outside world.”

Deal-sharing among CVCs of existing portfolio companies already happens and can be facilitated through the closed network of the GCV Leadership Society app. However, curating dealflow from top universities and regional agencies can enable CVCs to leverage their teams to reach innovations outside existing hotspots, such as Silicon Valley, the UK’s golden triangle of London, Oxford and Cambridge, and Beijing.

It is no surprise that both Google and Tencent have backed Oxford University’s student and faculty investment fund or that entrepreneurs from MIT and Stanford and probably Tsinghua and Peking universities have created companies with aggregate annual revenues as big as the GDP of large countries.

Governments have a number of tools in supporting innovation and entrepreneurs as a way of developing and building enough jobs for their populations – help entrepreneurs start and go global to gain more customers and be competitive, encourage local VC and innovation capital community to fund them, encourage inward investment of innovation capital.

However, they are challenged in targeting VCs to help domestic portfolio companies go global or invest internationally as most remain locally-focused. Corporations on the other hand are interested in global innovation as their operations are usually multinational but their CVC and innovation teams are often only in traditional VC hotspots, such as Silicon Valley, and by the parents’ headquarters. In the past four years, CVCs coming into the UK in pursuit of deals have outnumbered foreign VCs four to one, according to the Department of International Trade’s venture capital unit.

Historically, many governments have viewed attracting inward investment and the best entrepreneurs as a zero-sum game – “if we have a VC or entrepreneurs then others do not”. But corporations are interested in the best rather than best marketed, and do not have time or resources to set up regional outposts in every country, but if they see something interesting they can invest or visit, such as to GCV-curated events in Brazil, Canada, Russia, Japan, Singapore, Hong Kong and Shanghai as well as London and California.

The next iteration of the GCV Leadership Society will see these local entrepreneurial stars have the platform to meet the corporate venture capitalist stars.

Knowledge about how practically to make venture investments has been democratised from a handful of VCs to a broader swathe of investors and entrepreneurs. But the need for role models remains.

James Rogers, chairman of the department of business development at US-based healthcare provider Mayo Clinic, said: “Timmeko Love would be great as a GCV Rising Star. She is relatively new to Mayo [having previously invested while at Best Buy Capital]. She has made a big impact in her time here on the Rochester campus.

“We recently moved her to Arizona and she is heading up our activities in the southwest. She leads our accelerator activities across the enterprise and our outside outreach. She is also responsible for our Benefactor Innovation Fund, which allows us to fund clinical trials in exchange for equity.”

This would have been an ideal nomination of an experienced investor, but Love demurred and ruled herself out of the process.

Two-fifths of the GCV Rising Stars 2017 are women. However, despite GCV’s research showing they could be in the top 1% of investors or talent in the industry, nearly half (18) of the women nominated by their bosses or selected for the final 100 declined to help with their profiles, compared with about 10% (seven) of the men.

Still, the diversity in the GCV Rising Stars 2017 list reflects the opportunity for less group-think in the industry, and fewer investors from one demographic finding entrepreneurs that look and sound like them.

Given the findings of the first NVCA-Deloitte Human Capital Survey published last month, where women represent 11% of investment partners or equivalent on venture investment teams in the US, and black or hispanic employees are at 3% and 4% respectively of the entire workforce, then the industry appears structurally in better shape, at least judging by this sample.

However, diversity is about more than gender and ethnicity – it is also about experience. Almost all the CVCs in the GCV Rising Stars 2017 list are educated at top universities, the majority with post-graduate degrees, but their route into venture investing covered the range from investment banker, to corporate lifer who had worked in a range of business units, to former journalists and sales and marketing veterans, as well as experienced VCs and serial entrepreneurs.

The route into CVC might be wide-ranging but the experiences inside can be more challenging, at least judging by reading the stories of these Rising Stars.

How to develop a Rising Star

Andy Grove, former CEO of chip maker Intel, in his book High-output Management, said there were two tools for a manager – motivation and training.

Motivation could be considered a given, as corporate venturing is a well-paid prestigious job that involves meeting interesting people and offering at least some of them the cash and help they ask for.

Marc Andreessen, co-founder of Andreessen Horowitz, once pithily said he invested only in a company whose team had the right ethics, aptitude and attitude. It is a useful gauge for recruiting investors too.

Knowing why someone has joined an industry or firm and what their ambitions are can frame and shape the what they do, what training they might require and how they feel about working there if or after they leave.

There is a meme that resurfaces occasionally on the internet of a CFO asking a CEO why money should be spent on training as trainees might later leave. The CEO’s response is: “What would happen if we do not and they stay.”

Training a Rising Star in corporate venturing and converting aptitude into success can seem almost harder, given venture investing has often been described as an art rather than a science, although relatively few CVCs in the list came from an arts rather then a technical background.

It is interesting to note how many of the corporate venturing industry leaders have chosen to send their talented or newer staff and colleagues on training courses. From its start just two years ago, the GCV Academy led by Andrew Gaule has had nearly 200 alumni from the world’s leading global corporates.

The academy also has the accreditation of the top corporate venture leaders in the industry, who have decades of CVC experience reporting to the C-suite of their global organisations and have been speakers on courses:

•  Sue Siegel, GE Ventures.

•  Bill Taranto,  Merck Global Health Innovation Fund.

•  Claudia Fan Munce, formerly IBM Ventures and now on the New Enterprise Associates board.

•  Dominique Megret, Swisscom Ventures.

•  Tony Askew, REV Venture Partners and chairman of the British Private Equity & Venture Capital Association’s venture capital committee.

The mentoring by today’s leaders of tomorrow’s stars is part of a desire to leave the world in a better shape then you find it. Judging by the GCV Rising Stars 2017 list, therefore, the future looks bright.