About the survey

Annually GCV Keystone conducts an in-depth global survey that provides an informed perspective on trends and best practices in corporate venturing programs strategies, processes and team designs for accelerating performance and overcoming the ‘corporate antibodies’ that inhibit program impact and resiliency.

The survey delves into critical CVC building blocks including:

• Charter and funding
• Operating model
• Investment strategy and management
• Performance metrics
• Team structure and compensation
• Diversity, equity and inclusion
• Automation priorities

In 2023, GCV Keystone with the support of the Japan Venture Capital Association, conducted a Japan market version of the survey to take a comparative look at Japanese CVCs relative to global peers.

Contributing CVCs

As corporate venturing has become a mainstream weapon in the corporate innovation arsenal and the bar for professionalism has been raised, the CVC community continues to demonstrate commitment to sharing best practices and learnings.

This survey and the global survey tapped Global Corporate Venturing’s (GCV) and JVCA’s access to the largest pool of CVCs across the globe, including a representative cross-sector of industries, charters and programme maturity phases. Forty-six Japan-based CVCs participated in the survey.

Respondent corporate parents

Almost all respondents (95%) have Japanese-domiciled parents, with a good cross section of parent verticals reflecting that most industries are now represented in the CVC landscape. Nearly three-quarters of parent corporations have revenues of between $1bn and $50B, with 42% in $11bn and $50B range, mirroring participant distribution in the global survey.

Respondent CVCs

Though the Japanese market alone is the priority for 52% of the sample, one-third also see North America or global markets as important targets. The predominance of CVC programmes in their first three years (55% versus 36% in global survey) reflects a less mature community. Like their global counterparts, increasing numbers are integrating a range of elements, including venture clienting and scouting into their venturing toolkits.

Charter and funding

Survey results suggest that most Japanese CVCs are chartered to invest beyond the scope of established parent businesses, with creating new businesses (Horizon 2) and preparing for future disruptions the top priorities for more than 70%. Financial returns were seen as slightly less important than for global peers as was support for existing business (Horizon 1).

The funds managed by Japanese respondents were generally smaller than those of global peers with 62% under $100M and 43% under $50M (versus 60% over $100M globally). The same pattern held true for assets under management where 59% of the Japanese sample were under $100M (versus ~40% globally). Less than one-third provide for follow-on reserve of more than 20% versus 54% of global peers.

CVC structure and governance

The past few years have seen the emergence of a range of CVC legal structures/ operating models, all of which are ‘strategic’, even the fully-independent GP/LP. As opposed to the global data set where 70% invest off the balance sheet, 58% of Japanese CVC respondents are structured as independent funds, although 42% are subsidiaries still subject to significant parent control. Global and Japanese CVC reporting lines include the same cast of characters, though the Japanese CVCs are more likely to report to a chief innovation officer (24% vs 14%) and less likely to report to the CFO (11% vs 30%) or CEO (24% vs 40%).

Japan survey respondents are following the global trend toward more streamlined investment committees with 43% having three or fewer voting members and 78% having five or fewer. Very few count strategy and legal as voting members but are more likely to include risk than global peers. The cadence for Japanese CVC investment committee meetings is more likely to be ad hoc (60%) with slightly fewer decision topics than a regular (weekly, monthly, or quarterly) schedule preferred globally.

Investment strategy

Although the overwhelming majority invest in the Asia-Pacific region, two-thirds also search for entrepreneurial talent in North America, and more than half in Europe, with increasing numbers in the Middle East and Africa.

Digital health and IT are overwhelmingly the top investment sectors, although the top eight each attract more than 40%. Transportion and energy are lower priorities for Japanese CVCs than global ones.

Eighty per cent are active investors with 45% looking to make between four and six investments a year. The sweet spot for 95% is early stage (Series A-B), with more than half looking at growth (series C), 37% open to seed and 27% to late stage deals. Versus global peers, 69% (vs 43%) prefer to follow with no respondent preferring to lead and only 31% equally comfortable leading and following.

Strategic LP positions in VC funds

LP fund positions historically, have been seen as a passive investment vehicle for corporations who lacked direct investing skills or did not seek to build out a dedicated investment programme/ team. That is no longer the case as Keystone survey data shows that the majority of CVCs in Japan and globally (56%) do invest in VC funds. However, more Japanese CVCs (86% vs 59% globally) do use LP positions as a ‘toe in the water’ as well as for specialist sector or geographic expertise. Seventy-eight percent that take LP positions have more than one stake. Though the majority rely on defined standing meetings with GPs to access insights, more than two-thirds derive value from co-investing and 36% have staff secondment programmes for exposure to VC practices and networks.

Investment management

Given the early stage investment focus of most respondents, 67% do not generally require a commercial deal as a condition of investment, although parent engagement is the important strategic metric for many.

Japanese survey respondents, many of which are newer programmes, are more likely to ask for control terms such as right of first refusal (60%), right of first negotiation (45%) and right of first offer (37%) than global peers. They also are much less inclined to take board seats and/or observer seats than global peers (26% vs 70%), though they do share the majority view that the CVC investment professional versus a parent representative should be the board seat holder.

Performance – financial metrics

Competititive financial performance metrics tend to grow in importance with CVC programme scale and maturity. Japan survey results show that standard VC financial metrics such as IRR (59%) and total value to paid in capital (TVPI) (56%) are the language of financial performance for many, though in smaller percentages than global peers. And only 23% are targeting at least VC-level returns vs 64% of global peers. This is noteworthy given that CVCs with more independent operating models outside Japan usually come with a greater emphasis on financial performance.

Reported fund TVPI and IRR are likely impacted by the youth of the progammes and challenging economic conditions, though Japanese survey respondents are less likely (55%) to measure IRR than global CVCs (26%).

Portfolio management

As larger global CVCs are increasingly expected to be asset managers as well as advisors, this year’s survey explores several new portfolio management topics. Half of global CVCs are employing VC-type portfolio construction models for portfolio management versus 26% of this Japanese sample. Japanese CVCs are more likely to make quarterly as well as event-driven valuation assessments. About half of respondents have adopted IFRS accounting standards for valuation, impairment and investment classification vs 60% globally.

Performance – strategic metrics

For most global CVC programmes, particularly those focused on Horizon 2-3 beyond the core business, insights on emerging markets and technologies are seen as the most important strategic contributions. In contrast, Japanese respondents prioritised commercial engagement, followed by strategic insights, culture change and optionality (M&A). Sixty-two percent of Japanese respondents say are involved in corporate M&A activity, but 62% have yet to see a portfolio company acquisition.

Like global peers, the primary vehicles for communicating strategic performance tend to be activity-based indicators (80%) supported by impactful ‘story telling.’ Interestingly, Japanese respondents are somewhat less likely to try to quantifiy commercial impact though it has top priority.

Team

Most global CVC teams run lean – 71% have a team size less than 10 professionals, with 37% staffed by between three and five. For Japan survey respondents, teams were much larger, with 38% staffed by more than 10 and 66% reporting teams with more than six. Roles are similar to those found on global CVC teams though with a larger percentage including parent rotational staff.

Forty-one per cent include a business development function, with emphasis on access to parent resource and capabilities. These tended to be the largest teams. Japanese CVC participants reported lower average years of experience and were more likely to be drawn from internal sources than global peers which recruit heavily from VCs/CVCs and I-banks for investment professionals.

Compensation

Corporations have multiple levers to apply in recruiting and retaining a high quality team. Given the heavy reliance on internally-sourced team members, the primary compensation elements for Japanese CVCs are base salary and standard bonus. Few have access to parent equity incentives (8% vs 40% globally) or the upside programs designed to reward CVC financial performance commonly found with more independent operating models outside Japan (13% vs 34% globally). For the few that do have financial upside programmes, there appear to be a range of approaches to generating and distributing a bonus pool. The sample size for the CVC unit head compensation questions was very small but summary responses have been included for completeness. Compensation levels suggest that unit head may be a less senior role compared to global peers.

Diversity, equity and inclusion (DE&I)

While most (45%) of global CVCs include DE&I KPIs in their strategic scorecards, 82% of Japanese survey respondents do not, though 9% track both team and portfolio diversity.

Japanese CVC teams are heavily male-dominated (83% majority or all male) as opposed to global teams where 45% are relatively balanced. The same is even more true with portfolio company CEOs. As one of the most ethnically homogeneous countries in the world, it is not surprising that most CVC teams and portfolio company CEOs are not racially or ethnically diverse.

Automation priorities

Portfolio management (38%) and deal sourcing (25%) were ranked as the top process automation priorities, with CRM the second level priority for 43%. However, given the breadth of operating models and activities that fall under ‘corporate venturing’, it is not surprising that Microsoft and Google suites along with custom/proprietary applications were the most commonly used tools along with Salesforce. Carta (cap table management & valuation) and Affinity (sourcing/deal flow) are not as widely adopted in Japan as globally.

Business confidence index

While 47% felt that business conditions are and will continue to be challenging for CVCs, ~ 30% remain cautiously optimistic.

However, crisis can also be seen to create opportunity. GCV data shows that a record 101 new CVCs were formed in 2022 and corporate backed deal numbers fell less than VC deals without CVC participation.