Venture investing is about spreading ‘happiness’

That might be less obvious initially to the majority of entrepreneurs whose business fails to deliver returns to venture capitalists’ limited partners or even the “idiots” who want to be corporate venturers but George Davis, chief financial officer (CFO) at US-listed chip company Qualcomm, had a point in his keynote address at the Corporate Venturing and Innovation Partnering (CVIP) conference in California this past week.

It might be easier to feel happier about life when the apparently random walk of venture investing throws your corporate venturing unit, Qualcomm Ventures, a meaningful stake in a company, Xiaomi, recently valued at $40bn.

Venture intermediaries, such as the highly-rated Qualcomm Ventures run by Nagraj Kashyap, however, “spread happiness” by “thinking what is possible, that has never been imagined before,” Davis said.

Too few people have this opportunity through a lack of time from having to focus very narrowly on the core business, Davis added.

Venture intermediaries, whether traditional VCs, corporate venturers or those investing on behalf of universities, governments or individuals, have to cultivate a wide enough network able to generate the orthogonal or disruptive ideas that will eventually be important to increasing numbers of people.

As Davis put it: “Your network is your net worth.”

This network has less use if the knowledge or deals fails to be put into action.

Davis said being able to test assumptions and act as a messenger bringing outside information inside about why expectations for a technology roadmap might be wrong was “the most important reason” for Qualcomm having a corporate venturing unit. But such messengers, or canaries, can be shot. Davis, therefore, asked: “So, how can you put armour on the canary?”

This could be in the form of appreciating that because technology and business models were changing so quickly having sensors out in the market was important, he added.

In the case of Xiaomi, there had been a “big internal debate” about whether to invest, Davis said. “It is very hard as a technology company to see how a startup without expert technology but with a different go-to-market strategy can be so successful.”

But by avoiding thinking too narrowly about its role and instead focusing on building a successful ecosystem, Qualcomm Ventures has delivered on its multiple objectives.

Davis said: “It is a big job description. Only an idiot would want to do this job. To take on this makes you vulnerable at times because it is a very tall ask.”

The role includes to provide insights, help its business units, influence the wireless industry and deliver top quartile financial returns, where the latter is a necessary but least important requirement.

Instead longevity – Global Corporate Venturing tracks more than 140 units with more than a 10-year track record – comes from the right structure to support the venture intermediaries in their work.

Davis said: “Key stakeholders, the CTO [chief technology officer], CFO and business unit executives must have a voice. The worst state is to solely rely on a charismatic executive who sponsored its start. If there is a change then the unit has lost its mandate. But the hardest people to network with are inside the organization as they do not want to hear what is at risk [from technology disruption].

“One test [for likely longevity] is how well the corporate venturing unit knows the corporate strategy and the critical assumptions being made three, five, seven years out and how well they know the business unit to be able to say ‘you said X in the previous meeting’.”

Dominique Mégret, head of Switzerland-based phone operator Swisscom’s corporate venturing unit, at CVIP (attach slides) agreed that why he and others did the role was not just money but to be part of the innovation and creative process. [We need] to have the ambition for change and make an impact as a cost-effective centre of competence for early-stage management and external innovation.

Mégret said: “There is a 1% rule of thumb. Corporate venturing units generally have 1% of cashflow or R&D [research and development] budgets but can potentially deliver more than 1% of value to the company.”

Jack Crawford, partner at Velocity Venture Capital said corporations were investing more money at earlier stages and also investing more time there to develop and understand the ideas being developed by entrepreneurs.

Given R&D, business development and mergers and acquisitions budgets can fail to deliver such efficiency unless the venturing units help, it is unsurprising that more money is being allocated to the new centres of competence.

In a survey of event attendees managed by technology analysis group Lux Research, 71% of respondents said they expected to increase their budgets over the next two years.

More happiness is about to be spread, it seems.