corporate venture and corporate venture capital k. mcnally master in engineering policy and...
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Corporate Venture and Corporate Venture Capital
K. McNally
Master in Engineering Policy and Management of Technology (2001)
Bernardo Rodrigues, Carlos Mora, Nuno Constantino
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Agenda
• Definitions and Concepts
• Nature and Forms
• Venture Capital Industry
• Potential Benefits
• Case Studies
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Definitions and Concepts
• Corporate Venture Capital or Corporate Venturing
A variety of techniques used by large companies seeking business growth and expansion
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Nature and Forms (1)
• ICV - Internal Corporate Venturing– entrepeneurial activity within the company with
corporate sanction and resource commitment
• ECV - External Corporate Venturing– structured relationship between large firm with
small, unquoted usually innovative firm
• CVC - Corporate Venture Capital– equity stake is taken by large firm in small,
unquoted usually innovative firm
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Nature and Forms (2)
• CVC - Corporate Venture Capital– Externally Managed (indirect)
• Pooled Funds (financial benefits)US increase between 1979 and 1986 up to 100 funds in 1987
US decrease from $484M (1989) to $84M (1992) because of recession
• Client Based/Dedicated Funds (financial+strategic benefits)US growth from 31 (1982) to 102 (1987) because of
strategic unsatisfaction
Advent Internation manages 14 funds (RJR Nabisco, Apple)
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Nature and Forms (3)
• CVC - Corporate Venture Capital– Internally Managed (direct)
• In-House Corporate Managed Funds (strategic, structured, may involve direct support)
1990/2000 ABB, AT&T, Intel, SmithKline Beecham
• Ad-hoc/One-off Investments (strategic, unstructured/opportunistic, may involve direct support)
1980/1990 Exxon made, Apple received
1990s investments by 5 largets electronics and 10 largest pharmaceutical corporations in US
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Venture Capital Industry (1)
• Venture Capital Funds– In USA focus on TBFs versus science based projects
– In UK tend to be reluctant in TBFs
– Barriers: the rigorous investee selection process
– Implications: move away from early stage deals
• Business Angels– invest small amounts, usually in startups
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Venture Capital Industry (2)
• Public Markets– Disadvantages:
• High fixed costs in underwriting, accounting fees and printing costs
• criteria's for listing imply sufficient size and a trading record
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Potential Benefits Large Firms
• Training – junior, middle and (“therapy” to) senior management
• New Market – new products, services and new technologies
• $$$$$$ – less costs, less costs R&D and capital gains
Fundamental reasons for CVC: Flexibility, adaptation and innovation.
Em
piri
cal d
ata
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Potential Benefits Small Firms
• Financial benefits– Initial funding to investigate– Profits insufficient to meet capital
requirements– Survival
Barriers to
growth
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Potential Benefits Small Firms
• Strategic benefits– Management assist (Short term problems,
recruiting, corporate assist)– Mentor or confidant - social or supportive role– Strategic network (tax lawyers, patent
agents…)
CVC gives small firms the necessary structure to compete in the aggressive market
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1680
400 347 479
2551
0
500
1000
1500
2000
2500
3000
1989 1991 1992 1993 1994
UK V.C. fundsM£
Recession
(…) Venture capital depends on the alignment of incentives to VC Investors, V capitalists and Entrepreneurs
Potential Benefits Independent Venture Capitalists
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Levels of CVC activity - USA
• Well-established and widely accepted
• Less concern with acquisition and more focus on strategic collaboration
• Trend to start in externally funds and move to direct investments
• Indirect CVC:• 100 US firms with $413 million
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Levels of CVC activity - USA
• Dedicated funds are increasing• 31 firms (1982) to 102 in 1987• ex: Monsanto with $50 million
• Internal management programmes are common
• 72 US firms + 27 foreign investing $500 million
• Several hundred of adhoc invest. each year• Digital Equipment, Compact
• Spin-outs are flourishing
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Levels of CVC activity - UK
• Extremely low level of investment of major corporations in CVC
• Indirect CVC are increasing at low rate• Foreign firms like Elf Aquitaine and Molson
Companies (in Alta-Berkeley Lmtd)
• Internal managed funds represent a low amount
• Pilkingston’s Rainford VCF with £2,5 million
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Reasons for underdeveloped nature of UK CVC
• Lack of motivation of large companies• predilection for alternative strategies• concentration on core business• organisation, structure and culture
• Lack of motivation of small companies• Entrepreneurs are not aware of CVC• Loss of identity and ownership
• Lack of investment opportunities• Reluctance of sacrifying secure jobs
• Information gap
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Corporate Venture and Corporate Venture Capital