corporate venture capital
TRANSCRIPT
Corporate Venture Capital
Overview CVC
Structural Strengths and Weaknesses
Investment Trends, Sectors and Players
Problem Statement
Frameworks for Successful CVCs
Based on Investment Type
Based on CVC Prevalence
Analysis
Intel Capital
Exxon Enterprises
Google Ventures
Optimizing Corporate Alpha
2
Agenda
Syndication of Investments
Diversified CVC Support
Deal Evaluation Support &
Effective Utilization of
Information
Rigorous Deal EvaluationReduced susceptibility to
Opportunistic entrepreneurs
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
0.0
20,000.0
40,000.0
60,000.0
80,000.0
100,000.0
120,000.0
Total VC Investment $M Total CVC Investment $M Calculated % of $ from CVCs
Syndicatio
n allows
for:
11.3%
Syndication occurs for 50.8% of VC investments and 88% of CVC investments
$M
CVC Objectives
› Intended to increase sales, reduce costs and by extension bolster profits
›Technological & business model innovations, opening new markets, ecosystem development, etc
Strategic type investments(unlike IVC)
›Largely focused on exit and buyout returnsFinancial
Investments(like IVC)
Structural Strengths & Deficiencies
In-house knowledge
of sectors , markets
and technologies to
precisely identify
valuable ventures
Complementary
capabilities and
Resources can support
the venture
21Provides an immediate window & faster responses to market transformations / threats
Provides the “real option”
investment feature
Adverse Selection:
Entrepreneurs
concerns of having
their technologies
misappropriated
CVC fund managers
often do not have
similarly high incentives
as IVC fund managers
21
Fund performance may
suffer due to lack of firm
resources necessary for
investment to occur
3
Strengths
Deficiencies
CVC – Measure of Value
Studies attempt to measure the value of CVC using Tobin’s Q, a statistical that
captures value of the firm beyond the value of its tangible assets
It is difficult to measure value of a CVC given that its
objectives are not purely financial and more strategic. Using
IRR is difficult as it is very difficult to distinguish individual
contributions of entities.
Total Exits & Total Acquisitions by
parent companyContinuity of a CVC
Investment Trends, Sectors and Players
CVC
ActivityFairly consistent 6% to 8% of overall venture activity
18% 0%
2%
2%1% 1%
1%
12%
8%
7%9%
1%
0%
4%
4%
28%
3%
% of CVC Investment $
Biotechnology
Business Products and
Services
Computers and
Peripherals
Consumer Products and
Services
Electronics/Instrumentati
on
Largest
Players Google Ventures and Intel Capital, together participate in 20% of all
CVC deals at least since 2012
Emerging
Areas16% of total CVC investment dollars have been devoted to the clean-
tech sector since 2012
Problem Statement
Median lifespan of corporate venture initiatives has traditionally
been one year making corporations hesitant to partake in CVC
CVC investments have been very cyclical over 40 years in line
with Independent VC investments. If the investments are strategic
and considering the strengths of CVC over Independent VC’s,
one would expect lesser correlation between the two.
Only 3% of CVC Investments have resulted in an acquisition by
the parent company
A conceptual term that captures all benefits that a CVC can get in terms
of sustained competitive advantage from their investments
Need for “Corporate α”
CVC Trends
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2014-12-13
Frameworks for successful CVC investments
CVC Success Frameworks
High Technological
Resources
Strong marketing resources
Syndication Network Strength
Appropriate pay scheme
Corporate Commitment
Firm Conditions
Industry Competition
IndustryConditions
Technological Change
Industry
Appropriability
Corporate
α
Investment Type
This framework is
established using academic
literature, and provides a
systematic approach to
achieve CVC investment
success
Interlinked
Industry and Firm
Conditions(Micro & Macro)
Analysis of 3 CVCs
Analysis of three real world examples to explore each framework individually and
establish linkage that exists between them to obtain investment success
Research shows that companies with the highest strategic orientation emerged
as the top-most performers in CVC investments
Investment
Type
CVC Trends
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Intel Capital
Intel Capital
Intel Capital is a VC arm of the Intel
Corporation, and is considered
one of the most successful CVC
enterprises in the world
Approximately does 100 to 150 deals per year ranging from $300 to $500 M
Success rate of 41%
Of the 550 exits, 259 have been acquired by Intel
Cyclicality of
Investment
Parent company
Acquisitions
CVC
Continuity
Investment Type
Built up expertise in
multiple microprocessors
related sectors – Ex:
data centre and cloud
services
Invests in sub-sectors:
wearable technologies
(heads-up display (HUD)
devices, arm bands-
MYO etc.)
Investments to increase
Intel’s growth by inflating
the demand for its chips
- video, audio, graphics
hardware, and software
Industry Conditions
Industry
Competition Technological
Change Appropriability
High High Medium
Firm Conditions
High
Technological
Resources
Strong
marketing
resources
Syndication
Network
Strength
Appropriate
pay scheme
Corporate
Commitment
High
High
High
High
High
Intel Capital has used strategically conducive investments to achieve significant
success, corroborating the importance of congruence in the two frameworks
Remarks & Implications
Interlinked
Intel is in congruence with both the frameworks
Used conducive “macro-“ and “micro-“ to make enabling investments to
achieve significant success by establishing eco-system.
Corroborates the importance of congruence in the two frameworks.
CVC Trends
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Exxon Enterprises
Exxon Enterprises
Founded in the 60’s and over the course of 20 years, the company
shifted from one line of business to another
1970’s to 1980’s - Carried out 2 stage venturing program
18 Ventures and 12M in
investment
19 Ventures
Stage
Stage
Valued at $218M by 1982
(IRR OF 51%)
None were successful
1980 : Acquisition of Zilog and Exxon’s $1B debacle
Acquired Zilog for $1BBut failed with the 16 bit
microproccessor
Exxon closed down Exxon Enterprises and sold the company for less than $1M.
Cyclicality of
Investment
Parent company
Acquisitions
CVC
Continuity
Exxon
Explored smart
technology in the oil
and gas industry
(primary reason to go
into semiconductors)
Switched focus to
semiconductors and
software in the 80’s
Invested in ventures that
utilizes the petroleum by-
products in 60’s.
Industry Conditions
Industry
Competition Technological
change Appropriability
High High Low
We do an analysis in the context of the semiconductor industry
Firm Conditions
High
Technological
Resources
Strong
marketing
resources
Syndication
Network
Strength
Appropriate
pay scheme
Corporate
Commitment
Low
Low
High
The analysis is done in the context of the semiconductor industry
Low
Med
Remarks & Implications
Exxon failed because it didn’t have a necessary alliance or
ecosystem for a knowledge based industry for semiconductors,
Interlinked
Exxon doesn't fit into either of the frameworks
CVC Trends
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Google Ventures
Google Ventures
Investment Philosophy: “We provide seed, venture growth and growth stage
funding to the best companies – not strategic investments for Google”
225 Companies 6 Different Sectors
Founded in 2009, with $100 million in commitment. Total total assets under
management has increased to over $1.5 billion
Second most successful in terms of exits behind Intel. But they have acquired
only 2 companies out of 225 companies they have invested in.
Does not exclusively use the traditional VC approach, and instead uses data
mining algorithms to make investment decisions
Cyclicality of
Investment
Parent company
Acquisitions
CVC
Continuity
Investment Type
Investments are not made
with the intention to
assimilate them into Google
and enhance its operations.
Technology investments
however fit in with Google’s
capabilities.
Current Portfolio
Investmentsfocused on the development mobile apps and app development technologies
Notable StartupsUBERPocketTuneinStampedngmoco
Focused on the development of enterprise-focused software and data capacity solutions
Notable StartupsClouderaDocuSignHubspotOptimizelyDasient
Investments in firms participating in online commerce & online platforms
Notable StartupsNestAbout.meKabamFitStarNextDoor
Investmentsfocused on methods, not necessarily online technology, to improve health or further scienceNotable Startups23andMeOne Medical GroupFoundation MedicineAdimab
Driving Potential
Enabling Potential
Emergent Potential
Passive Current
Portfolio
Only 2 Companies were acquired by Google out of the 225 startups
Industry Conditions
Industry
Competition Technological
change Appropriability
High High Low - Medium
Firm Conditions
High
Technological
Resources
Strong
marketing
resources
Syndication
Network
Strength
Appropriate
pay scheme
Corporate
Commitment
High
High
High
High
High
Google’s success rate simply in terms of exits has been very good and second
only to Intel
Remarks & Implications
Google Venture’s approach to VC is purely an IVC one and
attempts to leverage its internal resources
Interlinked
Google Ventures is congruent with first framework, but fits into the second
Optimizing Corporate α
Highlights the importance
of establishing
congruence between
investment type as well as
the micro- and macro-
environment
Key takeaway: by
investing in enabling
investments, Intel
achieved a true
corporate α
Addresses all 3 CVC
issues
Exxon indicates how a
complete macro- and
micro inconduciveness
will typically result in
incongruence
Does not address any
CVC issue
Google Venture acts
more as an IVC and its
ability to generate a
“corporate α” is reduced
(problems with cyclicality
and SCA)
Ex. exits such as
RetailMeNot, HomeAway
Inc. do not enhance
Google’s strategic
capability
IVCs adopting data
driven approach
Hypothesis implied by framework congruence is established.
Refining the Framework: Sub-Investment Type
SuccessfulCVCs
Program Objective Driving Enabling Emergent Passive
Market development ★ ★ ★
New Product Development
★
New Product Dev & Talent Recruitment
★
Seed / “real option” investments
★
New biotech product development
★
Intel Capital has been doing so well because they had/have a very strong enabling focus, which makes it less cyclical to IVC investment
0.00.51.01.52.02.53.0
Coefficient of Variation for CVC Investments
Compared to Total VC InvestmentsCVC Investments Compared to Total VC Investments
**Parent acquisition information not available, so relegated to cyclicality to measure strategic value-add
CVC Trends
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2014-12-13
Course : Venture Capital
Research by :
Sergey Mokin
Rajan Kalsi
Isaac Bamgboje
Aditya Tripuraneni
Arun Krishna