Download - Corporate Venture Capital
Compaq Computer
Corporate Venture Capital
March 3, 2001
Overview
Corporate venture trends Rationale for corporate venture capital Why Compaq invests How to approach a strategic investor
Corporate venture capital soars
Corporate Venture Capital
0.37
11
17
0
5
10
15
20
1995 1999 2000 est.
*National Venture Capital Association
$B
Corporate Venture Capital = 1/6 of all VC Dollars
17
83
Corp. VC
Trad'nl VC
*National Venture Capital Association
Total VC$100Bin '2000
YEAR CORPORATE COMPANIES TOTAL ANNUALVENTURE RECEIVING CORPORATEPROGRAMS FUNDS INVESTMENT
1995 45 65 $370M 1999 370 936 $10.8B2000* 385 1635 $15.7B
* Estimate
Corporate Venture Capital growth has surpassed the growth in overall VC spending
Corporate VC spending
Compaq invested approximately $500M in 2000
Corporate Venture Capital
0
400
800
1200
$M1999
2000
Source: Venture Economics
Typical corporate venture funds
Corporate venture funds typically only invest with a major VC; Series B or later
Investments meant to supplement or lead global product group strategies Most funds are primarily focused on creating opportunities for their firms
to capitalize on technology developed outside the firm - Financial return is secondary
Most corporate funds are independent - no other limited partners nor investment banking firms
Typical average investments are under $10M
Factors driving the trend toward corporate venture capital
• Outsourced R&D model (Leverage innovation in startup community)
• $103B US VC spending in 2000 vs. $1.7B Compaq R&D
• Need for speed
• Internet driving rapid, fundamental change (Commerce, Entertainment, Education, Government)
• Quest for knowledge of disruptive technologies/industry trends• Use venture fund as early warning system -Lead product group strategies
• Client cultivator • Squeezing additional value out of relationship with a client
• Securing sell to, through, or with opportunities
• Profit motive - ROI
Why Compaq Invests
Access to technology – Differentiation– New markets– White space
Compaq as a technology provider
Making a good impression
Clearly identify the customer’s pain
How you will solve it
What it means for your strategic partner
Know your value proposition to your
customers, investors and strategic partners
Have a dedicated senior person who can build
a trusted relationship with the partner
When the discussion turns to equity
– Don’t lead with this discussion Let the value of the alliance to your partner set the stage
– Be prepared to discuss why equity makes sense Exclusivity Time - to - Market advantage
Joint product development
– Control Board seat?
– Where could the investment ultimately lead? Merger or acquisition
What are we seeking?
Something unique, innovative
Technology which will help Compaq serve new or existing
customers; enter new markets; competitive advantage
Products or services that help Compaq differentiate its offerings
Differentiating technologies–Performance, reliability, scalability, availability, cost savings
Wireless technology and applications
Technology to improve the out of box experience for our consumer customers
Backup
Venture capital investment trends
Total venture capital has skyrocketedAverage venture investment also increasing
•Silicon Valley continues to dominate
*Venture capital invested in the US
was $103B in 2000
(2X 1999’s amount)
Venture Capital Investments by Geography
01/01/2000 through 11/07/2000
Geography Investment ($M) % of Investment
Northern CA $28,611.0 31.1%
New York $13,072.6 14.2%
New England $8,607.9 9.4%
Southern CA $7,183.8 7.8%
South East $6,484.2 7.1%
South West $6,138.2 6.7%
Mid Atlantic $5,342.6 5.8%
Rocky Mtn. $4,864.6 5.3%
North West $3,244.7 3.5%
Great Lakes $3,204.1 3.5%
Ohio Valley $2,207.3 2.4%
Great Plains $1,935.5 2.1%
South $948.3 1.0%
Alaska&Hawaii$9.5 0.0%
Totals $91,854.2 100%
Total Venture Capital Invested
0102030405060708090
100
90 91 92 93 94 95 96 97 98 99 00*
$B
Average IT Investment Size
0
5
10
15
20
25
1995 1996 1997 1998 1999 2000*
$M
Source: Venture Economics
Source: Venture Economics
What does a potential partner need to know about you?
How much of a risk am I taking on this start-up?–Can you clearly describe the company’s business in 3
sentences - “Elevator pitches”–What type of relationship are you seeking?
Co-Marketing, Discount equipment, Customer, technology licensing, Online services aggregation, product integration
–What is the possible sustainable value proposition?–Who are your competitors, customers, partners?–What is your key competitive advantage?–What stage of financing are you in?–What are the firm’s revenues/business model–What is the path to profitability