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Global corporate venture capital

survey 2008–09Benchmarking programs and practices

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Supporting organizations

1Global corporate venture capital survey 2008 Benchmarking programs and practices

Foreword

With increased globalization, innovation has become the new currency of competition. More and more large corporations have realized that relying just on in-house research and development (R&D) is not suffi cient to compete effectively in today’s global markets. A robust innovation strategy includes both internal initiatives and mechanisms to access external innovation, including collaborations, partnerships, acquisitions, joint ventures, licensing and investments in emerging venture-backed companies. Corporate venture capital (CVC) is a vital component in the innovation strategies of corporations around the globe.

By defi nition, corporate venture capital is investment money that is in some way connected to another corporate entity whose core business is something other than providing equity fi nance. The nature of this kind of investment creates challenges in a number of important areas, such as alignment with the parent company, governance, compensation and metrics for success.

While the corporate venture capital industry has experienced several different waves of activity, the growing emphasis on accessing innovation brings to the fore such questions as what constitutes best practice in the CVC sector and how large corporations should structure themselves to gain best value from investing in external start-ups.

To respond to the growing need for insights into corporate venture capital, Ernst & Young’s Venture Capital Advisory Group conducted a confi dential survey, through a market research fi rm, of corporate venturing programs around the globe. The survey questions focused on program structures, objectives, relationships with parent companies, investment practices, relationships with portfolio companies and the current outlook.

This report summarizes the results of the survey, whose respondents provided insight into the CVC industry today, and offers a benchmark against which present and future corporate venturing programs can compare themselves. We hope it provides a valuable tool for existing and emerging programs and promotes dialog within the industry.

We would like to offer our thanks to the US National Venture Capital Association (NVCA) and the European Private Equity & Venture Capital Association (EVCA) for their input into the design of the survey and their assistance in recruiting respondents among their members.

We are also grateful to Andrew Jay of Siemens Venture Capital, Mary Kay James of DuPont Ventures and Steve Tregay of Novartis Venture Funds for sharing their insights in our roundtable discussion on the leading issues facing corporate venturing today.

Study advisory board

Dr. Gary Dushnitsky, Assistant Professor of Management; Goergen Fellow, Wharton Entrepreneurial Programs, The Wharton School of the University of Pennsylvania

Dr. Martin Haemmig,Adjunct Professor, CeTIM; Sr. Advisor on Venture Capital, Stanford University, APARC-SPRIE

David Tharp, Vice Consul and USA Lead Offi cer for Biotechnology and Pharmaceuticals, UK Trade & Investment

Special thanks goes to our advisory board for giving input on the composition of the corporate venture capital survey, providing their interpretation of the results and sharing their own research and insights into corporate venturing.


Table of contents

Ernst & Young corporate venture capital survey ............................5A summary of the results of the Ernst & Young survey of corporate venturing programs globally

Corporate venture capital roundtable ..........................................13A discussion among Andrew Jay of Siemens Venture Capital, Mary Kay James of DuPont Ventures and Steve Tregay of Novartis Venture Funds on the leading topics in corporate venturing today

Corporate venture capital — a global snapshot .............................22A roundup of global corporate venture capital investment statistics with a focus on the United States, Europe, Israel and China


Respondent profi leOn behalf of Ernst & Young, an independent research fi rm carried out an online survey of CVC units in North America, Europe and Asia in early 2008. Respondents were anonymous.

The survey was designed with input from the NVCA and EVCA, which also helped identify the appropriate respondents. There were 37 responses in total, with units ranging across 17 industries and 8 countries.

Among the CVC units, 83% have been in existence for more than 5 years, and close to half have been in operation for more than 10 years.

Operational challengesMany of the top challenges faced by CVC units do not relate to the identifi cation of investment opportunities or the success in signing deals with portfolio companies. Rather, they are concerned with the relationship and interaction between the CVC unit and the parent corporation. Figure 1 details the greatest operational challenges that CVC units face to be successful.

Gaining parent company support for CVC, both in terms of corporate venturing as a concept and on individual deals, rates as one of the most vital challenges. Getting the support in a timely and effi cient fashion is a priority among CVC professionals.

The main investment challenge is determining the most effective exit route from any given portfolio company.

Figure 1. Top operational challenges for CVC units Mean score (1 = top challenge)

Securing business unit sponsorship for investments 1.4

Determining path to exit from investments 1.8

Speed of corporate investment decision-making 1.8

Impact of venturing activities on parent company fi nancial results 1.9

Securing long-term parent company commitment to corporate venturing 2.0

Recruiting and retaining CVC unit personnel 2.0

Continuity of business unit teams and priorities 2.1

Providing guidance to the management of investee companies or dealing with management and strategic issues in investee companies

2.3

Measuring value-add to parent company 2.4

Accessing adequate deal fl ow 2.5

Competition from traditional venture capital fi rms 3.0

Ernst & Young corporate venture capital survey

Key points

• Securing business unit sponsorship for investments is the top CVC challenge.

• Mapping emerging innovations is the most important strategic objective.

• Identifying partnership/alliance opportunities is the most signifi cant area of portfolio company support.

• Deal activity, deal output and value added to business units are key nonfi nancial success measures.

• Most CVC units report to the CFO or CTO/CIO, refl ecting a focus on fi nancial returns and innovation.

• Cleantech is a fast-growing area of CVC focus.

Respondent profi leLocation No.

United States 19

Germany 6

France 3

Switzerland 1

Sweden 1

China 1

Canada 1

United Kingdom 1

Industry No.

Energy 5

Chemicals and materials 3

Medical: pharmaceuticals 3

Technology: software 3

Telecommunications: hardware 3

Communications and networks 2

Technology: hardware 2

Electronics 2

Financial services 2

Media 2

Medical: instruments/devices 2

Technology: semiconductors 2

Transportation 2

Other 2

Consumer 1

Manufacturing (other) 1

Medical: healthcare 1

Note: some respondents work in more than one industry and not all gave location.

6

Further survey responses provide insight into how global CVCs are responding to the challenges outlined in Figure 1, namely:

Identification of the correct strategic and financial objectives for a CVC unit •

Creation of a parent-CVC structure that most effectively pursues these objectives•

Recruitment and retention of suitable employees — investment professionals who •understand both the wider venture capital sector and the needs of the parent business

Assessment of the success of the above factors in achieving the goals of the parent •company

Where traditional venture capital (VC) fi rms operate from a purely return-on-investment perspective, CVC units typically need to achieve a blend of fi nancial success (at the very least, covering the cost of employed capital) allied with identifying and realizing strategic goals that contribute to their parent company’s core business.

Among the respondents, 80% say that their programs are aimed at this blend of strategic and fi nancial objectives while 17% are looking merely for strategic advantages, and only 3% are pursuing a solely fi nancial route.

Academic research1 suggests that CVC fi rms exhibit a greater market-to-book value than their traditional VC peers due to this strategic focus in their activities. The premium is experienced only in those CVC units that are strategically orientated. Those that pursue purely fi nancial goals experience a discount in market-to-book value.

A breakdown of objectives can be found in Figure 4, but three major themes emerge from our survey responses, with innovation a particular concern:

Insights into new innovation and technology/providing a window on the market1.

Product development and enhanced internal innovation within the parent company2.

New relationships with companies and independent VCs/identification of acquisition 3.opportunities

1 G. Dushnitsky and M.J. Lenox. 2006. “When does corporate venture capital investment create fi rm value?” Journal of Business Venturing, 21(6): 753-772.

Figure 4. CVC strategic objectives Mean score (5 = very important)

Map emerging innovations and technical developments 4.7

Window on new market opportunities 4.6

Import or enhance innovation within existing business units 4.2

Develop new products 3.9

Provide additional revenue growth opportunities for parent company 3.8

Develop relationships with independent VCs 3.7

Identify and establish partnerships and joint ventures 3.7

Identify acquisition candidates 3.4

Leverage internal technological developments 3.2

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Figure 3. CVC reporting channels

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Figure 2. Duration of CVC program

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Relationship with parent company CVC units need to be closely aligned with their parent companies so as to understand best the needs of the core business and deliver the most effective strategic investments.

For our survey respondents, this alignment is achieved either with a CVC unit established as a full-fl edged business unit of the parent company (54%) or as an entity that is fully or majority owned by the parent in the form of a subsidiary company or LLP. In only 9% of units did the original corporate sponsor hold a minority stake.

Further insight into how CVC units are viewed at the corporate level can be gleaned from the distribution of reporting lines. About a quarter of respondents (26%) report to the chief fi nancial offi cer (CFO), suggesting a fi nancial emphasis in their thinking. An equal proportion, however, have CVCs reporting to the chief technology offi cer (CTO) or chief information offi cer (CIO), suggesting that venturing is viewed from the innovation perspective.

The corporate development offi cer (CDO) is the second most-cited CVC reporting line head, suggesting that many parent companies view CVC as a tool for identifying acquisition candidates.

Measuring success: is this working? The attainment of strategic objectives can be diffi cult to measure accurately. This diffi culty is refl ected in the variety of assessment criteria that are utilized by the CVC sector.

Measurement of the fi nancial aspects of success is fairly universal, so it is no surprise that 91% of units use metrics for overall fi nancial performance as one of their assessment methods.

Measuring the more intangible progress made on strategic performance is a subjective task, and multiple measures are used in the sector. Activity (deals screened) and output (deals made) are popular methods, along with metrics for value added to business units.

There is anecdotal evidence that assessment is also made of how much technological take-up there is within business units as a result of CVC activity.

Employment practicesIt is quite diffi cult to recruit the correct investment professionals for CVC. While a track record of success in the VC sector is important, it may not be solely suffi cient for success with CVC, as CVC professionals need to have an intimate understanding of the objectives and needs of the parent company as well.

Recruiting based on a track record of success in traditional VC partnerships may not be the most effective path to follow, as a CVC professional needs to have a good understanding of the workings and culture of large corporations as well as the more nimble world of VC.

Survey responses and feedback from interviews with industry fi gures suggest that characteristics of successful CVC professionals typically include:

Credibility within the parent organization•

Ability to act as both “relationship broker” with investees and other VCs and “navigator” •within the parent company

Willingness and ability to spend significant time with the parent company to understand its •needs, and then to communicate these needs to the VC community as part of the search for deal flow

Commitment to achieving alignment between the CVC unit and the parent•

0%

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Figure 5. Success measures

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Figure 6. Full-time investment professionals employed

1–3 4–6 7–9 10+

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8

According to our survey, an average of 52% of CVC investment professionals are permanent internal hires, with 43.2% of the total being business unit personnel on temporary assignment.

Despite the necessity for an intimate understanding of the needs of the parent company, investment experience must also be a factor when hiring for a CVC unit. A balance must be struck between an understanding of the parent company and knowledge of the VC industry.

Our survey shows that the typical CVC unit is not a large operation, with 80% of the units having fewer than 10 full-time investment professionals.

Remuneration and bonusesCVC professionals are largely rewarded with fl at-rate salaries. The survey suggests that about three-quarters of remuneration is of this type. The remaining compensation comes from various types of bonuses. This fl at-rate payment system is in contrast to the remuneration systems used most often in traditional venture capital.

A typical “2 and 20” system2 creates a considerable “carried interest” for traditional VC fund managers, which would seem to have an effect on the types of investment they undertake. Research has indicated that greater personal interest for traditional managers results in riskier investments at earlier stages than in the equivalent CVC unit, whose managers have less incentive to push for risk deals due to their fl at-pay landscape.3

Structural issues within large corporations can also make it somewhat diffi cult to devise an appropriate compensation policy for CVC due to:

Difficulty in agreeing on metrics to assess performance•

The need to maintain equality in pay to avoid possible resentment from other business units •or high-level executives on flat salaries

A desire to avoid complicated accountancy and administration systems•

InvestingOnce a CVC unit has established its strategic objectives, it needs a tactical plan to achieve them. CVC units must have a clear picture of how best to organize funds, source and negotiate deals and work with potential portfolio companies.

Fund size Respondent funding varies greatly, ranging from less than US$50 million to more than US$750 million. The majority of funding falls within a band from US$50 million to US$259 million and is mainly sourced from internal funds from corporate headquarters or from external investors. Some funding is gained from internal business units or from general partners, but these represent a less important source.

Direct vs. indirect investmentWhen investing funds in portfolio companies, CVC units prefer direct involvement over involvement through a third-party fund, with an average 86% of respondent capital allocated in this manner. The advantages of direct investing include hands-on involvement for the CVC (which is what many entrepreneurs are looking for) and the ability to join with multiple VC fi rms (not tied into any one fund).

2 Management fees of 2% of funds managed and a 20% share of investment profi ts. 3 G. Dushnitsky and Z.B. Shapira. 2008. “Entrepreneurial Finance Meet Corporate Reality: Comparing Investment

Practices by Corporate and Independent Venture Capitalists,” Academy of Management Proceedings.

0%

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20%

25%

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Figure 8. CVC capital allocation — size distribution

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Figure 7. Preferred investment strategy

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Where they do invest in VC funds, it is usually either to enter a new global marketplace or to develop relationships with VC fi rms. A minority also use funds as a way to diversify fi nancial risk.

Deal fl owReferrals from traditional venture capital fi rms are the most important source of deals for respondents, with 65% rating them as a very important factor. Personal identifi cation of deals by CVC staff is the second most important source of deals.

More “passive” sources make up a second tier of sources — internal referrals and contacts from external entrepreneurs have a similar ranking. Academic or government labs, professional service fi rms and internal venturing proposals form a third tier.

Our respondents’ preferred method of investing is through a syndicate with an independent VC leading the deal and doing much of the legwork. Where this is not possible, the next options are either to lead a syndicate with independent VC members or to invest fully on an individual basis.

Deal termsAs shown in Figure 9, the key requirements for CVC units investing in portfolio companies are oversight and protection of equity.

Having at least an observer on the board of the portfolio company is vital in most instances, and there is a strong desire to have full voting rights. The other great priority is protection against dilution of stock or preference when liquidating equity. Opinion seems mixed when it comes to assuring the strategic objectives of investments — 17% of units require clauses that formalize objectives while 29% never require them.

Due diligenceOnce a deal has been identifi ed, due diligence is performed by a combination of internal and third-party sources. A large majority (74%) have due diligence performed by business units that are frequently supported by third-party reviews of the prospective portfolio company’s fi nancials, technology and/or business systems.

CVC-portfolio company relationships Once a deal has been concluded, the portfolio company moves into a position from where it can take advantage of the larger resources of the parent company. This most often involves the portfolio company being able to utilize the parent company’s scale to access capabilities that would have been beyond its means prior to the investment.

As can be seen in Figure 10, the main areas of support for portfolio companies are logistical networks (e.g., national/international delivery networks) and market access/contacts (identifying and contacting potential customers and partners).

CVC exitsSale to a third party has been the most common method of disposal for portfolio companies. Respondents reported that 56% of exits over the last two years came from third-party acquisitions and another 15% from acquisitions by the parent or related party. IPOs accounted for 12% of exits. Sales of interest were another 5%. Absolute write-offs were made in the remaining 12% of exits.

Figure 9. CVC deal terms

Mean score (4 = always,1 = never)

% always requiring

Non-voting observer board seat

3.39 58%

Liquidation preference

3.38 56%

Dilution protection 3.18 42%

Convertible preferred stock

3.06 39%

Regular voting board seat

2.31 6%

Direct co-investment options

2.13 9%

Veto rights 2.12 9%

Common shares 1.55 —

10

Figure 10. Most important areas of portfolio company support

Mean score(5 = highest)

% rating very signifi cant

Identifying partnership/alliance opportunities 4.3 50%

Sales, marketing or distribution 3.5 16%

Access to R&D teams and facilities 3.5 28%

Fundraising assistance 3.4 25%

Global expansion/operations 3.0 7%

Building a corporate development agenda 2.7 3%

Human capital and recruitment strategy 2.7 7%

Design or engineering supervisory support 2.5 —

Identifying early acquisition or consolidation opportunities 2.4 —

Regulatory compliance 2.0 —

Building a fi nance function 1.9 —

Accounting/internal controls 1.8 4%

Tax compliance or strategy 1.8 —

OutlookThere is optimism among our CVC survey respondents with regard to increased activity, global expansion and the ability to access new sources of innovation.

A majority of companies made from one to fi ve investments in 2007. In 2008, the majority expect the level of investment activity to remain the same or to increase slightly.

The location of this activity will depend on the relative importance of various markets — 79% of respondents expect the US market to be very important for CVC in the next two years while about a quarter of respondents see Europe and China as being very important (see Figure 12).

Interestingly, India is viewed as a prospect similar to the European Union and China, despite there being very little CVC activity to report in the country at present. Clearly, India is considered a growth area in CVC as it is in many other areas of economic activity.

Aside from India, there is little indication of CVC expansion into new geographical areas. The markets of Latin America, Eastern Europe and the rest of Asia are seen as having no real part to play in the CVC story, at least in the short to medium term.

11Global corporate venture capital survey 2008 Benchmarking programs and practices11

0%

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Figure 11. Cleantech investment outlook

One-year horizon Five-year horizon

More

Same

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No cleantech investments

Figure 11a. Strategic objectives

Strategic objectives of cleantech investment

%respondents

Enhance an existing cleantech product/service

40%

Create a new cleantech product/service

32%

Add a cleantech feature to an existing non-cleantech product/service

24%

Improve internal operations or supply chain

24%

Fulfi ll requirements of corporate social responsibility

12%

The cleantech revolutionCleantech is the enabler of the world’s response to climate change. It encompasses a diverse range of innovative products and services that optimize the effi ciency of natural resource consumption, minimize the environmental impact of their use and provide value by lowering costs or providing superior performance.

The year 2007 represented something of a tipping point for the cleantech sector as it emerged as a true investment center with potential for huge growth.

In total, about US$70 billion of corporate development investment was committed to cleantech work, along with US$49.4 billion raised from private equity and US$2.36 billion raised in VC funding — a 100% increase on the 2006 fi gure.

The CVC survey responses refl ect the growing corporate focus on cleantech — 35% of survey respondents intend to invest in cleantech during the next year, and this grows to 44% over a fi ve-year period. Furthermore, cleantech accounts for a large amount of capital: our respondents are allocating, on average, 41% of their capital to cleantech investment.

12

Figure 12. Anticipated importance of selected markets, next 24 months

5 Very important 4 23 1 Not at all important

0% 20% 40% 60% 80% 100%

Latin America

Other Asia

Eastern Europe

Israel

China

India

European Union

US 361279

3125 19 9 15

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12 15 24 24 24

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271463

Tapping into innovationInnovation is the answer to many of the questions currently asked of the world’s governments, businesses and people. Providing environmentally friendly food and energy from limited raw materials to an ever-expanding and aging population could prove to be one of the greatest challenges ever to face the world. Alongside increased human mobility and socioeconomic barriers that are being broken down by the internet and other advances in information technology, these are just some of the major issues that innovation will play a part in solving.

How a company accesses these innovations will be increasingly vital to its success. Large companies have begun to realize that they cannot invent everything and that they need to reach beyond their own payroll to fi nd the best brains and smartest ideas, wherever they may be, to maintain their competitive edge.

New ideas are coming from “innovation networks,” loose collections of individuals and organizations outside a company that can form an extension of the company and be called upon to help solve problems and fi nd new ideas for growth. A CVC unit is a proven method of accessing innovation and can become the anchor of an innovation network.4

There are lessons for new participants in the CVC sector that have already been learned and internalized by those companies that have maintained a long-term presence in the CVC space. If this new wave of CVC-led innovation is truly to have an impact, these lessons must be shared and applied across industries and geographies.

4 G. Dushnitsky and M.J. Lenox. 2005. “Corporate venture capital and incumbent fi rm innovation rates,” Research Policy, 34(5): 615-639.

Note: total may not equal 100% due to rounding

Participants

Andrew Jay, Managing Partner — Healthcare,

Siemens Venture Capital

Mary Kay James,Venture Portfolio Manager,

Co-Managing Director of Solar

Investments,

DuPont Ventures

Steven Tregay,Managing Director,

Novartis Venture Funds

To bring real-life insight into the leading practices of corporate venturing, Ernst & Young convened a panel of CVC professionals who manage some of the top programs in the industry. The discussion focused on their programs’ objectives, measures, interactions with portfolio companies and place in the corporate structure. The panelists also shared how their strategies have evolved, lessons learned and advice for anyone considering starting a corporate venture capital operation today.


Corporate venture capital roundtable

14

Ernst & Young: What are the strategic objectives of your companies, and how do you measure if you are being successful or not?

Andrew Jay, Siemens: Our parent company sees the corporate venture capital business unit as an opportunity to gain access to insights on innovative technologies and to get placeholder investments in companies that might be potential acquisitions. Historically, Siemens has acquired slightly less than 10% of its venture capital portfolio. There has been a philosophy of: “Let’s invest in this company, let’s learn more about it and let’s see how the business develops. And if it’s growing the way we want, if it’s attractive, we can acquire it.”

Does every investment pan out that way? No, but we do have a nice combination going of interesting placeholder investments, a track record of some nice acquisitions and investments generating some healthy returns. I believe it’s paramount for a corporate venture capital arm to generate returns. If the group generates returns, then a whole series of questions on the purpose of the unit are eliminated. With those returns in hand, the question becomes: “OK, we are making profi ts; how is the strategic side coming out?” And those discussions are a lot easier if it’s a profi t-making entity.

Mary Kay James, DuPont: Our group looks to venture investing for a couple of reasons. Ideally, we are looking for the ability both to increase the speed of our commercial development and to reduce the overall development cost. When we make an investment on behalf of a business unit, we will call that a center-line investment as it’s something that’s center-line to the strategy of an individual business unit. Beyond that, we have investments we refer to as positioning options — investments we make that might be in new or evolving areas where we are looking to get an insight into the market or the technology.

Steve Tregay, Novartis: We have two venture funds with slightly different angles. If you are making great returns, then it kind of becomes a no-brainer. If you are making good returns and you are leveraging existing capital in an evergreen fashion, that is a great way to get a window into things. Novartis’ traditional venture fund is extremely fi nancially driven and uses fi nancial returns for assessment. Novartis may not buy the companies we invested in; they may not be a fi t for Novartis. But because big pharmas are often a moving target in terms of what they think is interesting or not, fi nancial returns are a more consistent marker of the success of the science.

On the Option Fund side, we do still very much consider our fi nancial returns, but we do include an option fee to secure an option to one specifi c therapeutic program in addition to our equity investment. The fund accomplishes two things: one, it’s a great way to fi ll the pipeline with therapeutic programs; two, those programs often serve as a great conduit to evaluate a technology. In the drug discovery arena, what’s often important is how well a program is progressing — how easy it is to get into the clinic over the issues that arose in the lead optimization process, for example — and so it’s a great way for us to look and see if we want to do something more strategic.

Ernst & Young: What kind of yardsticks do you use for financial returns? Do you compare yourselves with the returns of the top quartile of venture capital funds or is it good enough to show a positive return?

Steve Tregay, Novartis: We do a fairly broad survey of returns in the venture capital industry, and we benchmark against that.

The fund accomplishes two things: one, it’s a great way to fill the pipeline with therapeutic programs; two, those programs often serve as a great conduit to evaluate a technology.


Mary Kay James, DuPont: Our group’s a little bit different. We are a hardwired strategic investor, so our accountability is really related to the individual business units and what kind of business they can build within our company based on the technology that has been accessed through venture investing. That is really our measure of success, so it’s a little different from a fi nancial portfolio.

Ernst & Young: How has the role of corporate venture capital within the larger corporate strategy changed in the last couple of years?

Andrew Jay, Siemens: The large players are very good at taking an existing product, iterating it and running it through the sales channels. There clearly is a growing realization that it is very hard for these same fi rms to produce new products from scratch. This may stem from the pressure to perform on a quarter-to-quarter basis and the pressure for resources within the company. It can be very hard for an organization to say: “We are going to make signifi cant investment in a project that will not generate revenues for four to fi ve years.” If they opt to do this, there usually are only one or two projects that can get meaningful support.

In addition to the funding challenge, there usually is a skill set mismatch as well. Different project management skills are required to drive a new initiative from the early stages from those needed to oversee a business generating US$500 million in annual revenues.

So there is an acknowledgment that there are other entities that may be better suited for this type of endeavor.

Steve Tregay, Novartis: I would echo that, with two other comments. First, it’s often diffi cult to truly try to experiment in the pharmaceutical industry. When there is a particular technology that might be utilized in the drug discovery process, it is always competing against several other technologies that may accomplish the same activity. So with demands on deliverables and everything else, we tend to go back very quickly to what we already know and not take that bigger risk on the technology. Small biotech is far more likely to be focused on whatever that technology platform is — and will therefore live and die by whether it succeeds. It will pursue the technology much more aggressively than a big pharma company that would be more likely to give it three months, then revert back to existing technology.

The second thing is that when Novartis created the Novartis Option Fund — which is only a year-and-a-half old — it did so because VC, while still a tremendous resource going forward, has moved away from interesting platform companies by and large. It has begun moving toward product-based opportunities, which can be great to fi ll the pipeline one product at a time, but don’t provide a variety of new offerings. We did deliberately try to create a fund that would help enable companies we felt were being underrepresented in the marketplace and underfunded by the venture community.

Mary Kay James, DuPont: Our company has a long history of innovation and even open innovation to some degree, and we are seeing some trends that impact our thinking as we are going forward. One is the complexity of breakthrough innovation in terms of the intersection of different areas — like biology and chemistry, for example. You get these overlapping areas where in order for innovations to happen, expertise is required beyond that of a single company.

A second trend is more along the lines of the speed of innovation required to compete in a global marketplace. When you put those things together, and you look at what a company needs against what they can do internally versus what they can access and leverage externally, it puts a certain degree of interest in the external category.

It can be very hard for an organization to say: “We are going to make significant investment in a project that will not generate revenues for four to five years.”

16

Ernst & Young: Where are you situated within your organizational structure, and when you interact with the business units or the R&D group, what are some of the dynamics?

Andrew Jay, Siemens: We have a pretty good working structure in that we are a part of Siemens Financial Services, which is a large organization that does everything from leasing to project and export fi nance to treasury and even funding power plant construction. We have representations from the relevant businesses of the whole Siemens Group on our investment committee.

Within Siemens Venture Capital, we have established an account management structure where we assign different individuals responsibility for different corporate divisions and for networking with the relevant people. On the healthcare side, we maintain relationships with the top 100 people, so we actually have quite an extensive network within the business unit. We spend anywhere from 30% to 40% of our time working on internal projects such as dedicated conferences on a special area where we’ll bring start-ups in, or liaising with internal people on special projects where we assess an area: “Let’s look at this entire space and whether we should be investing in it, is it something that’s strategically relevant to Siemens, and should we pursue it?”

This structure is proving to be quite effective. The relationship with the R&D team is becoming better and better over time. There still is an element, of course, of the “not-invented-here” syndrome on the R&D side, and we do still occasionally hear: “Well, we could do this.”

To which I would reply: “Well, yes, you could do this, but you’ve got 10 other projects on your plate, so do you have the time, do you have the resources, and do you have the money?”

Mary Kay James, DuPont: We have a separate group called DuPont Ventures, but the reporting relationship is up through our Central Research and Development (CR&D) group. We were set up so that we had what were referred to as “account managers,” individuals who had domain expertise and would liaise with the DuPont growth platforms — we have fi ve in the company. And that worked well; they try to integrate into the different business units.

A recent change, from my perspective, is the interest from our CR&D group in looking at new technologies and then using the venture investing model as a way to access them. We are now looking at our fi rst investment where CR&D would use that model, and that’s a pretty big deal from my perspective.

Steve Tregay, Novartis: The Novartis venture funds report to an independent advisory board in which Novartis is represented by the CFO of Novartis, which is very powerful for us. I would say the research folks are very engaged because they feel they have a conduit to get value.

I think among some other areas — and sometimes within the portfolio companies — there isn’t that direct understanding of how the researchers themselves can create value. I used to run strategic alliances for all the technology areas at Novartis, and I think there is an increasing appreciation that we often wait for technology to be absolutely perfect before we actually do a deal on it, and that the venture model can be a very interesting way to take a higher risk tolerance to looking at technologies.

I get a sense that there is an appreciation from the research organization that CVC gives them a different risk profi le than they would be able to look at themselves.

The Novartis venture funds report to an independent advisory board in which Novartis is represented by the CFO of Novartis, which is very powerful for us.


Ernst & Young: What new types of things are you guys doing in terms of how you deal with the portfolio companies? How much interaction do you have, and who is responsible for those interactions?

Steve Tregay, Novartis: One change we have done at the venture funds over the last several years is that we’ve been moving away from being a more passive investor of smaller investments across a broader range of companies, often maybe not getting board seats. Our recent investments were often leading the rounds or co-leading the rounds and taking board seats. All the company interaction is really managed by the managing director on the board, at the board level.

Andrew Jay, Siemens: It’s interesting how much of our activity and evolution is paralleling what Steve described at Novartis. We are insisting upon a board presence, to be an observer or a director with the latter happening with greater frequency. We have also gone from being relatively passive in terms of following others to being a lead investor.

Much of this stems from the fact that if we are paying close attention to helping these companies, we can do more good for them. It also makes our internal processes easier if we are close with what’s going on and actually part of the active circle that’s driving the company forward.

Mary Kay James, DuPont: When we invest in a company, we ask for certain rights and usually we are looking to obtain a less than 20% equity position initially. So we are not trying to control the company, but we want to learn from the company’s experience. We also generally ask for a board observer’s seat. Having learned its importance over time, we also always ask for the attention of key founders or development people in the company, often for a set percentage of time. We do this because we are very concerned that they don’t get too distracted — if we have a commercial agreement or license in place to develop a new technology, we want to make sure we have a foundation there to build with. We are continually evolving in terms of how we best interact with the company.

We had a six sigma baseline process development project done about the turnover or handoff of the investment once it’s made, and we came up with a process to identify an individual from the business unit whom we call a “Bobcat” — it stands for board observer catalyst. This is the key person who will sit as the board observer and also be responsible for making the link between the start-up company and other business groups or needs they have from within the DuPont company.

What we want to do is to help build the start-up company by leveraging our relationships and their technology in the area of our interest, and then we look to get venture capital partners as co-investors to help actually run that company.

Andrew Jay, Siemens: I would say it’s very similar to a private venture fund. The investment partner that brings the deal in and actually does the investment then manages the investment by sitting on the board.

Ernst & Young: Do you ask for any kind of exclusivity in your deals?

Mary Kay James, DuPont: Almost always, at least for a certain time period or with performance targets. The general way our model works most successfully is when we defi ne a small area of interest to use the company’s technology. If it’s a platform technology, and the company has a focus in one area and we have an interest in another, that’s the ideal

What we want to do is to help build the start-up company by leveraging our relationships and their technology ... then we look to get venture capital partners as co-investors to help actually run that company.

18

case. So we are actually complementing the company in their development and helping build them faster in an area that isn’t their initial focus. That is why we can get the receptivity for exclusivity.

Steve Tregay, Novartis: With the traditional fund, we don’t have any obligations, any fi rst rights or anything like that. With the Novartis Option Fund, the optioned program or target is exclusive to us until the last opt-in point, which is either phase one clinical trials or fi ve years, whichever is earlier.

Andrew Jay, Siemens: We generally don’t ask for exclusivity or special rights. The one thing we like to have is a right of information should the company go up for sale. This means that if the company is sold off, they will give us a period of time where we can do concurrent due diligence and make a bid. We have run into situations with companies we have been interested in getting a close-out bid from someone else. Our view is that we are a value-added investor; we bring additional things to the table beyond money in terms of helping to foster a company with our technologies, our channels, etc. So we feel we at least should have the right, should a company go up for sale, to make a bid.

Generally, we have found that managements and investors are receptive to this because this basically guarantees them an auction should the company go up for sale. In practice, this right of information has worked quite well.

Ernst & Young: Have you seen any changes recently in the compensation structures within your own organizations, especially changes that reflect the ”carried interest” that is seen in traditional VC?

Steve Tregay, Novartis: We currently do not have carried interest, but we are in discussions with senior management about this.

Mary Kay James, DuPont: Same here, but it is a topic for discussion.

Andrew Jay, Siemens: At Siemens, we have a pretty solid carry program, and the payments can be signifi cant. The program is an aid to retaining people and seems to be working out pretty well. The program is a real asset when working with a private company or investors who are skittish about having a strategic investor. Carry allows us to sit across the table from them and say: “Look, my interests are exactly in line with yours, and I want this company to be sold for the highest price possible.” That does carry weight.

Ernst & Young: Performance metrics — let’s eliminate the financial metrics, how do you measure the performance of the strategic component of an investment?

Mary Kay James, DuPont: For the last fi ve years, our metrics have evolved, so I will take you a bit through that process. For the fi rst couple of years, we were just getting started, so it seemed that deal fl ow or the number of deals and exposure we had of those deals to the business units were most important. So that became one of our top metrics: “What’s your amount of deal fl ow and how many business units have you sold on a deal or at least got them to listen to it?”

In the third and fourth years, it looked like: “Hey, what are you guys doing? We are paying you to sit over there and bring new business opportunities. So how many have you done?” Then it got to the point where we were measured by the number of investments that we made.

And now, fi nally, in the fi fth year, we are evolving to something a little bit different. When you have a metric that’s based on how many investments you have made, you may not be

We bring additional things to the table beyond money in terms of helping to foster a company ... So we feel we at least should have the right, should a company go up for sale, to make a bid.


putting into place the right motivators and drivers around the right model to engage the small company.

So in order to accommodate that, it’s now become more like an open innovation metric that measures how many open innovation engagements you have brought to the business units/company.

Steve Tregay, Novartis: I think we — with the Option Fund — are less centric about the value that it brings Novartis. It seems kind of contrary, but let me explain. Often we are investing three to fi ve years ahead of where Novartis is, and some of our biggest successes have been when we’ve been really investing and not necessarily asking very strategically if Novartis should be in that. So, for example, we invested in Idenix before Novartis was even interested in antivirals. We currently invest in medical devices, yet Novartis doesn’t have a presence there.

We really try to fi nd the right balance. If we did have very strong metrics on whether Novartis business units benefi t from this investment — the yes-or-no kind of metrics — we lose that innovative “let’s be well ahead of the curve” kind of thing, and we’d tend to then focus in on companies that have a product that fi ts the needs Novartis has today. Often — especially as an early-stage investor — you need to be well ahead of that because by the time the product is really there, things will have changed. It may be that Roche bought the company and Novartis wasn’t interested — but at least that means somebody in the pharma industry was interested.

So we do look at our portfolio companies doing deals with Novartis, but also, almost equally importantly, are they doing deals or getting acquired by other pharma companies? So the metric might say we may have been wrong about where Novartis was going, but we were certainly right about where the pharma industry was going.

Andrew Jay, Siemens: The meat of our strategic component discussion is subjective. We are doing a periodic assessment of our investments and their relevance. We also do track any trackable fi nancial impact, but in many cases that is hard to do.

We will do “straight-line investments,” which are products we see that can pretty quickly be folded in with our product portfolio, but our portfolio also includes white-space investments where there is no clear strategic link today with an existing division. The straight-line investments can be easier to measure, however; sometimes we might think a product can fi t in with our portfolio, but it may not be possible to make that relationship a reality.

We take more of a subjective view, asking: “Are we getting strategic benefi ts out of this; are we pushing the organization to move forward?” Those strategic benefi ts are sometimes not in dollars and cents but may be more intangible. If the consensus is yes, then we are doing the right thing.

Ernst & Young: What advice would you give to the emerging companies and their management teams that might be looking for a corporate venture capital partner?

Mary Kay James, DuPont: I think we are just really looking for about three sentences from the CEO that say: “This is my technology, this is my differentiation, and this is why I will be a sustainable company.” They could tighten up their pitch around that and not spend so much time trying to convince corporate investors that, for example, the solar area is a high-growth sector.

Also, I know it’s hard for these small companies to spend the time it takes, but if you are engaging a company like Novartis or Siemens or DuPont, you will want the start-up to be

When you have a metric that’s based on how many investments you have made, you may not be putting into place the right motivators and drivers around the right model to engage the small company.

20

knowledgeable about the CVC and then be thinking in advance of ways that we can work together to create additional value.

Steve Tregay, Novartis: One thing I would say — and I think the Option Fund kind of pieces into this — is that a lot on the pharma side is very product focused. I am seeing a lot of these kinds of investments, where we are just going to take one or two products, go to phase two and then sort of hope it works.

I really encourage people to think through what the value drivers are for collaborations. You really learn a lot through partnerships; you can help develop your technology platform at a lower cost because you are offsetting some of the costs through collaboration. And really think it through from a corporate development perspective: how is your technology going to be used, who are your customers, and how are they going to use that technology.

Be careful of these disruptive technologies where you have to tell, for example, Novartis to retool all of their research efforts to enable their one deal with you. Be creative because if you are raising US$150 million, then it’s really hard to get an exit that makes sense to a lot of people. So really try to think out of the box about how you can get there on less money.

Ernst & Young: What advice would you have for companies of your type that are now thinking about starting a corporate venture capital operation?

Steve Tregay, Novartis: Make decisions early on as to what your objectives and your goals are. If you do want to be a very active investor who is on the board and everything else, then you need that comfort level. And you probably need to think about a kind of carried interest compensation — you need to be aligned with the other venture investors at the board level. I think it’s very diffi cult to truly try to straddle strategic and fi nancial. You need to kind of decide which camp you are really going to be in.

Andrew Jay, Siemens: It is very important to have the right people in place. If you look at the profi le of the people we are hiring into Siemens Venture Capital today, it’s much different from when the organization started eight or nine years ago in that now we are looking much more for experienced investment professionals.

In many cases, the champion for a venture capital group could be somebody within the fi nance organization who is more proactive and insightful. But unless you surround that person with people who know what they are doing, there can be an expensive learning curve. And in the venture fi eld, there is a US$15 million to US$20 million learning curve to get someone to the point where they really know what they are doing.

At a corporation, those curve costs can be tough to swallow if you bring in three or four people fresh who don’t have that investment acumen.

Mary Kay James, DuPont: From the pure strategic investing side, trying to get sponsorships for an investment that has a high risk profi le or may not be directly connected to tomorrow’s objectives is very diffi cult. If you are only trying to push this up the line, you could run into a lot of challenges and a lot of reasons not to invest — we have a collection here of a number of investments we could have made, and made pay off, but couldn’t get agreement to invest. Now we would approach the investments with a far more proactive team, including high-level executives within the corporation, and ensure we tied the investment to an objective regarding open innovation.

You really learn a lot through partnerships; you can help develop your technology platform at a lower cost because you are offsetting some of the costs through collaboration.


The venture investing group’s work can augment open innovation performance targets — for example, open innovation engagements per year, or something like P&G has done in terms of their top management, saying 50% of P&G innovations are going to be coming from the outside.

That helps grease the skids of the organization so that everybody is acting in alignment on these objectives.

Ernst & Young: What’s your personal opinion of where we are today? How strong is the position of corporate venture capital in your organization and how do you look at the future?

Steve Tregay, Novartis: Certainly, within the pharma industry, you are really seeing this initiative where strategic alliances and external innovation centers are truly becoming key pieces of how companies think about fi lling their pipeline.

The thing I would say kind of overlaying that, though, is that venture investing has been very challenging recently. More and more money is going into these companies, and it’s not always clear they are creating higher and higher value companies. And the overall rates of returns have been fairly challenging, with exits made very diffi cult by the public markets.

So I think if one sees a return of the venture industry as a whole, combined with a real strong push from the likes of R&D to allow more things to come from inside companies, then these two things together would really create dramatic growth.

Andrew Jay, Siemens: Within the Siemens organization, Siemens Venture Capital is a growing group. Our investment performance is improving, and I think the profi le of the person we are bringing in is getting better. Our organization is getting stronger and we are adding ongoing value to the company. So I feel good about where we are positioned as an organization within the company.

In terms of the overall market, Steve put his fi nger on a number of issues that affect the whole venture capital industry in that the companies are consuming more money and the exits are getting tougher. This is not an easy business and it’s getting harder.

Mary Kay James, DuPont: I am very positive about where we are now and optimistic for the future. I think, overall, the DuPont ventures work and the investments we’ve made have strengthened DuPont as a company and helped to improve our offering. We have access now to new areas of development and new technologies we hadn’t even really thought of before. And we have relationships with the VC community and others in the outside world, and universities, etc., that ultimately help strengthen our own pipeline.

What it also does — and this is most important to us — is attract the right kind of new talent. They can see DuPont out there trying to make a difference in the world and they want to come and work for our company.

... within the pharma industry, you are really seeing this initiative where strategic alliances and external innovation centers are truly becoming key pieces of how companies think about filling their pipeline.

22

In contrast to the broader venture capital industry, which has entered a new investment cycle, corporate venturing has continued to contract in recent years as the industry becomes concentrated into a group of long-term players.

As with venture capital overall, investments by corporate venturing units have fallen substantially since 2000. Overall, CVCs participated in 19.1% of all investment rounds in 2002, but comprised only 11.9% of total investment activity in 2007. The number of deals has continued to fall by about 3% per year to 480 deals in 2007.

The number of active CVC units globally also fell during the same period. The year 2001 saw an average of 269 CVC units making an investment every quarter. This rate has fallen consistently every year since, and in 2007, the fi gure was only 108 units. CVC investment is now driven by a group of long-term players such as Intel, Siemens and Motorola, as shown in Figure 13.

Global distribution of CVC activityAs with venture capital in general, the United States is the overwhelming leader in CVC, representing 74% of global investments in the fi ve quarters up to April 2008. Europe forms a second tier, and Israel and China are minor players.

CVC investment trends in the US since 2001 closely mirror global movements — a steady downward trend with relatively little fl uctuation on a year-on-year basis. The other three areas — Europe, Israel and China — all trend downward, but considerable fl uctuations in investment on a yearly basis also give them a far more cyclical look.

Active sectors refl ect the major venture capital areas of interest: information technology (IT) is the leading sector and, with the exception of China, healthcare is second. Consumer goods and services place high on the list in all regions, along with industrial goods and materials.

Across regions outside the US, the active investment fund profi le looks similar. It features a leader with considerably more investments than the others, a second grouping of units with a middling number of investments and more numerous funds with only one or two investments.

Within the US, while Intel Capital is an outright leader, the more active funds are more evenly distributed, with more numerous funds at all levels.

Figure 13. Most active global investment funds — 2007–1Q 2008

No. rounds

Where active

Intel Capital 85 US, EU, China, Israel

Novartis Venture Fund

25 US, EU

Johnson & Johnson Development

21 US, EU

Motorola Ventures 19 US, EU, Israel

SAP Ventures 17 US, EU

Innovacom 16 US, EU

Siemens Venture Capital

16 US, EU, China

Steamboat Ventures 16 US, China

Cisco Systems 15 US, EU, China, Israel

Holtzbrinck Ventures 13 US, EU

Source: Dow Jones VentureSource

0

1,000

2,000

3,000

4,000

5,000

6,000

CVC

All venture capital

% CVC

20

01

20

02

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20

04

20

05

20

06

20

07

1Q

‘08

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Figure 14. Global CVC activityNo. of rounds

Corporate venture capital – a global snapshot



Pre-money valuations and equity raisedThe strategic focus of CVC and the fi nancial muscle of corporate parent companies have led to an assumption that CVC investments are priced at a premium, and that more equity is raised before a liquidity event because the value of the strategic contribution merits the extra investment.

Global investment data since 2001 show an average 72% premium in median pre-money valuation for initial public offerings (IPOs) with CVC investment compared with venture-backed IPOs overall.

The amount of equity raised before a liquidity event is also higher on average for CVC — averaging a premium of 34% on equity raised pre-merger and acquisition (M&A) and 64% on IPOs.

The main factor behind these differences would seem to be that CVC investments tend to go into companies with more developed technologies/business models and less risk but a higher price for entry.

ExitsAs can be seen from Figure 15, the majority of exits for CVC companies are via M&A transactions although there is a sizable minority of IPO exits. And the proportion of IPOs has been increasing in recent years as the supportive capital markets until mid-2007 made a public offering a more attractive option.

Global post-M&A valuations for CVC show the same trend as with IPOs — an 85% premium for CVC investments when compared with overall venture-backed M&A transactions.

Contributing factors include the perceived and actual value that the parent company can bring to an external start-up. The experience, resources and market access that can be brought to bear by a large corporation can add more substantial value to an investment than the purely fi nancial backing that comes from traditional venture capital.

Figure 15. Global CVC/all VC exits

Corporate venture capital All venture capital

Period No. IPOs No. M&As % IPO No. IPOs No. M&As % IPO

2001 15 185 7.5% 42 369 10.2%

2002 9 177 4.8% 25 353 6.6%

2003 19 182 9.5% 21 323 6.1%

2004 45 216 17.2% 67 420 13.8%

2005 49 230 17.6% 84 418 16.7%

2006 58 219 20.9% 110 502 18.0%

2007/1Q ‘08 59 269 18.0% 102 567 15.2%


$0

$20

$40

$60

$80

$100

$120

$140

Figure 16. Median venture-backed M&A valuation with corporate investor vs. without

No corp. investment

Corp. investment

20

01

20

02

20

03

20

04

20

05

20

06

20

07

1Q

‘08

US$m

$0

$50

$100

$150

$200

$250

$300

$350

$400

No corp. investment

Corp. investment

20

01

20

02

20

03

20

04

20

05

20

06

20

07

1Q

‘08

US$m

Figure 17. Median venture-backed IPO pre-money valuation with corporate investor vs. without



24

USA

Most active CVC by number of investments 2007–1Q 2008

Investing fi rm No. rounds

Intel Capital 66

Novartis Venture Fund 18

Johnson & Johnson Development 18

SAP Ventures 16

Motorola Ventures 15

Cisco Systems 12

Chevron Technology Ventures 12

Steamboat Ventures 11

Siemens Venture Capital 11

Qualcomm Ventures 10

CVC investment by sector 2007–1Q 2008

No. rounds % all VC

Information technology 236 14.4%

Healthcare 114 14.1%

Business and fi nancial services 32 8.1%

Energy and utilities 17 15.6%

Consumer services 11 8.9%

Industrial goods and materials 10 16.9%

Other 4 3.9%

Consumer goods 3 7.7%

Grand total 427 13.0%

Source: All data from Dow Jones VentureSource

0

500

1,000

1,500

2,000

2,500

3,000

3,500

20

01

20

02

20

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20

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‘08

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5%

10%

15%

20%

25%

30%

Figure 18. CVC activity US

CVC

All venture capital

% CVC

No. of rounds

Global corporate venture capital survey 2008 Benchmarking programs and practices 25

Number of active CVC investors by sector 2007–1Q 2008

1 to 4 rounds 5+ rounds

Business and fi nancial services 35 0

Consumer goods 4 0

Consumer services 15 0

Energy and utilities 15 0

Healthcare 66 8

Industrial goods and materials 10 0

Information technology 140 13

Other 5 0

Total 290 21

CVC vs. all venture capital exits

CVC All VC

Period IPO M&A % IPO IPO M&A % IPO

2001 11 159 6.5% 12 247 4.6%

2002 7 142 4.7% 12 238 4.8%

2003 15 148 9.2% 8 195 3.9%

2004 45 159 22.1% 23 258 8.2%

2005 25 171 12.8% 18 234 7.1%

2006 33 152 17.8% 22 271 7.5%

2007/1Q ‘08 41 269 13.2% 38 328 10.4%


26

Europe



Innovacom 13

Holtzbrinck Ventures 9

Intel Capital 8

Novartis Venture Fund 7

Schneider Electric Ventures 6

Volvo Technology Transfer 5

T-Venture Holding 3


SFR Développement 3

Johnson & Johnson Development 3

Google 3


No. rounds % all VC


Healthcare 27 10.2%



Industrial goods and materials 2 4.9%



Other 1 3.7%



0

500

1,000

1,500

2,000

2,500

20

01

20

02

20

03

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20

05

20

06

20

07

1Q

‘08

0%

2%

4%

6%

8%

10%

12%

14%

Figure 19. CVC activity Europe

CVC

All venture capital

% CVC

No. of rounds





Consumer goods 1 0



Healthcare 17 1



Other 1 0

Total 79 3


CVC All VC


2001 3 23 11.5% 28 119 19.0%

2002 2 31 6.1% 12 111 9.8%

2003 4 27 12.9% 5 124 3.9%

2004 8 48 14.3% 29 155 15.8%

2005 16 48 25.0% 55 173 24.1%

2006 20 46 30.3% 70 204 25.5%

2007/1Q ‘08 44 51 46.3% 33 219 13.1%


28



Intel Capital 6

Steamboat Ventures 5


Google 2

UMC Capital 1

DSM Venturing 1

Hikari Tsushin 1

Adobe Systems 1

Shenzhen Dongjiang Environmental 1

Cisco Systems 1


No. rounds % all VC




Healthcare 1 4.3%


Industrial goods and materials 1 —

Other 0 —

Energy and utilities 0 —

Grand total 19 6.8%


China

0

50

100

150

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250

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Figure 20. CVC activity China

CVC

All venture capital

% CVC

No. of rounds





Consumer goods 0 0



Healthcare 1 0



Other 0 0

Total 22 0


CVC All VC


2001 1 100.0%

2002 1 100.0%

2003 1 8 100.0%

2004 3 100.0% 11 1 91.7%

2005 3 3 50.0% 10 5 66.7%

2006 5 — 15 12 55.6%

2007/1Q ‘08 2 1 66.7% 29 5 85.3%


30



Elron Electronic Industries 9

Intel Capital 5

Virgin Green Fund 2

Boston Scientifi c 2

Rafael Development Corporation 2

Motorola Ventures 2

Broadcom 1

Advantech 1

AudioCodes 1

CSK Venture Capital 1


No. rounds % all VC


Healthcare 5 13.5%



Other 1 20.0%

Industrial goods and materials 2 -

Consumer goods 0 -

Consumer services 0 -



Israel

0

50

100

150

200

250

20

01

20

02

20

03

20

04

20

05

20

06

20

07

1Q

‘08

0%

5%

10%

15%

20%

25%

30%

Figure 21. CVC activity Israel

CVC

All venture capital

% CVC

No. of rounds





Consumer goods 0 0



Healthcare 3 0



Other 1 0

Total 23 0


CVC All VC


2001 1 3 25.0% 1 3 25.0%

2002 4 0.0% 4 0.0%

2003 6 0.0% 4 0.0%

2004 4 9 30.8% 4 6 40.0%

2005 5 8 38.5% 1 6 14.3%

2006 5 16 23.8% 3 15 16.7%

2007/1Q ‘08 5 7 41.7% 2 15 11.8%


32

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What’s next?ey.com

A cleaner, brighter future? Clean technologies enable the response to climate change for many

of today’s leading global companies. Those that meet the challenge

successfully have recognized the critical importance of responding to

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and the accelerating pace of technological innovation.

We work with companies large and small, new or established and in any

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make a lasting difference to the world.


Ernst & Young Global Venture Capital Advisory Group

GlobalGil Forer London +44 207 980 0170 [email protected] de Yonge New York +1 212 773 2541 [email protected]

AmericasJoe Muscat Americas +1 650 496 4517 [email protected] Fitzgerald Northeast +1 617 859 6524 rebecca.fi [email protected] Salas Mid-Atlantic +1 703 747 0732 [email protected] Schoenfeld Southern Calif. +1 213 977 3611 [email protected] Grabow Silicon Valley +1 408 947 5607 [email protected] Boomer Canada +1 613 598 4354 [email protected]

Asia-Pacifi cAshish Bakhshi Mumbai +91 22 6749 8000 [email protected] Partridge PRC/Hong Kong +852 2846 9973 [email protected] Choi PRC/Hong Kong +86 755 2502 8298 [email protected]

EuropeRemi Vermeir Belgium +32 9 242 5143 [email protected] Ojala Finland +358 9 1727 7613 petri.ojala@fi .ey.comKevin Harkin United Kingdom +44 11 8928 1154 [email protected] Teigland Germany +49 621 4208 11510 [email protected] Grand France +33 4 7817 5732 [email protected] Keson-Lee Switzerland +41 5 8286 3336 [email protected]

IsraelOren Bar-on Tel Aviv +972 3 623 2524 [email protected]

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SCORE Retrieval File No. CY0039

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