CVC2.0
DemonstratingAddedValueto
theCorporateBottomLine
JaideepRaje–ManagingConsultant
LuxResearch
June2,2016
Agenda
CVC1.0–StateoftheUnion
So,whychange?
ReflectionsonCVC2.0
2
Contents
CVC1.0–StateoftheUnion
So,whychange?
ReflectionsonCVC2.0
3
Minnowsnomore:
CVCisascendantintheentrepreneurialecosystem
$40
1,600
1,408
Since2010
CVC$↑31%CAGR
CVCdealcount↑16%
CAGR
$35
$30
1,200
1,018
$25
1,000
890
$20
$15
1,400
1,299
1,204
622
460
619
494
800
619
494
428
600
$13
$12
$16
$30
2006
2007
2008
2009
2010
2011
2012
2013
2014
CapitalInvested($B)
$12
$9
2005
$37
$8
$0
$9
200
$11
$5
$8
400
$6
$10
0
2015 2016*
DealCount
*Asof5/25/2016;Source:PitchBook
4
Minnowsnomore:
CVCisascendantintheentrepreneurialecosystem
U.S.CVCactivity
25.0%
Overthepast20
quarters,theCVC
participationinU.S.
VCdealshasrisen
roughly12%per
quarter
CVCgroups
“participatedin
23.5%ofdealsand
accountedfor20.6%
ofdollarsdeployed”
infirstquarterof
2016intheU.S.
23.5%
20.0%
13.2%
20.6%
15.0%
10.0%
%ofDealswithCVCInvolvement
2016Q1
2015Q4
2015Q3
2015Q2
2015Q1
2014Q4
2014Q3
2014Q2
2014Q1
2013Q4
2013Q3
2013Q2
2013Q1
2012Q4
2012Q3
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
0.0%
6.7%
2011Q1
5.0%
%ofDollarsfromCVCs
Source:PwC/NVCAMoneyTree™Report,Data:ThomsonReuters
5
Minnowsnomore:
CVCoutstripsVCinIndustrial/EnergyandBiotechfocus
ConsumerProductsand
Services
3%
MedicalDevicesand
Equipment
3%
ComputersandPeripherals
2%
Retailing/Distribution
3%
FinancialServices
4%
Semiconductors
1%
HealthcareServices
1%
Telecommunications
1%
Software
33%
ITServices
5%
TotalU.S.CVCin2015
$7.8billion
Mediaand
Entertainment
10%
Industrial/Energy
16%
Biotechnology
17%
Source:PwC/NVCAMoneyTree™Report,Data:ThomsonReuters
6
Minnowsnomore:
CVCisspreadingbeyondtheusualsuspects
Traditionalpowerhouses(top10mostactiveCVCssince2010)
1.IntelCapital(395)
2.GV(314)
3.QualcommVentures(189)
4.SalesforceVentures(141)
5.SoftBankCapital(115)
6.CaixaCapitalRisc(109)
T-7.GEVentures(95)
T-7.ComcastVentures(95)
9.CiscoInvestments(94)
10.SamsungVentureInvestment(93)
In2015,264CVCscompletedatleast1deal(up91%from138in2005)
Source:PitchBook
7
Minnowsnomore:
Biggerdeals,biggerpress
GlobalCVCActivity,2010-2015
$60.0
$51.9
$50.0
$40.0
$30.0
$32.1
$20.0
$10.0
$-
2010 2011 2012 2013 2014 2015
CapitalInvestedMean($million)
Pre-moneyValuationMedian($million)
8
Minnowsnomore:
CVCexitsarekeepingpacewithinvestmentactivity
$45
350
326
$40
300
$35
$30
$25
152
200
185
$15
115
150
134
73
$10
$19
$10
$7
$12
$33
$15
$20
$39
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
CapitalInvested($B)
$23
$12
$0
100
50
$11
$5
$11
$20
137
235
190
179
250
263
224
0
2015 2016*
DealCount
*Asof5/25/2016;Source:PitchBook
9
Contents
CVC1.0–StateoftheUnion
So,whychange?
ReflectionsonCVC2.0
10
GlibdismissalofCVCsas“dumbmoney”ispassé,
butsomecriticismisstilllegitimate
“Ifcorporatesaregettingbackinthe
market,it’samarkettop!Theyareusually
notgreatmarkettimersinthattheyget
inatthetop,thengetfrustratedandsell
atthebottom.Thatisthehistorical
patternofmostcorporateVCs.”
“CVCsarenotoriouslyfickle–
eitheritsstrategydujouror
changeoftheguard.Its
misalignmentoffinancial
interestorlackofaccountability
–attimes,CVCeveninvestin
competingportfoliocompanies
togainaccesstotechnologies.”
11
Let’stakealookatCVCsraisond’être
12
Lux-IBFCVCSurvey:Allrespondentsemphasize
strategicoverfinancialgoals
“Mostcorporateventuringorganizationshavebothfinancialgoalsandstrategicgoals.
Howwouldyouratetherelativeimportanceofeachforyourfirm?”
Strategicgoalsareparamount(thoughof
coursewecan'tjustlosemoney)
Strategicgoalsareprimary,financialgoals
secondary
Roughlyevenbalancebetweenfinancialand
strategicgoals
Financialgoalsareprimary,strategicgoals
secondary
Financialgoalsareparamount
n=40
0%
5%
10%
15%
20%
25%
Percentofresponses
30%
35%
Source:LuxResearchandInternationalBusinessForum’s“FutureofCorporateVenturing”Survey,2015
13
Timeframefordealimpactspansawiderange,but
mostcommonlywithin2-5years
Whendoyouexpectyourdealstohaveacommercialimpactonthebusiness?
60%
Estimatedtotalpercentofdeals:
15%
23%
25%
21%
17%
50%
40%
30%
20%
10%
n=40
0%
Next18months
Next2-3years
Almostalldeals
Next3-5years
Mostdeals
Next5-10years
Somedeals
Morethan10
years
Almostnodeals
Source:LuxResearchandInternationalBusinessForum’s“FutureofCorporateVenturing”Survey,2015
14
CVC’svalueinprovidingstrategicgrowthoptionsto
theparentcompanyissuspect
Initsfirst5yearsofprolificinvesting,GVhasonlysold2portfoliocompaniestoAlphabet
(kaGoogle)
IntelCapitalhasonlysold7ofits259exitstoIntel
IdenticaltothenumberofcompaniesithassoldtoYahooandCiscoSystems
SoldsamenumbertoCiscoSystemsandverysimilarnumbertoMicrosoft
Johnson&JohnsonDevelopmentCorporation(JJDC)hasonlyexitedtwoportfolio
companiestoJohnson&Johnson(whilesellingseveraltonumerousothermajor
pharmaceuticalandmedicaldevicescompanies,includingcompetitors,suchasAztraZeneca,
Amgen,Merck,MedtronicandPfizer)
AveragerateofsuccessfulexitstoacorporateVCinvestor’sparentis3%
CVCisaterribleincubator
15
Howdoyoumeasureimpactoncorporatestrategy?
CVCseemoreJDAs,fewerexitsandacquisitions
“Howoftenhasyourventuringprogramseenthefollowingpositiveoutcomes,
comparedtoexpectations?”
Successfulexitofportfoliocompany
Acquisitionsofpromisingstart-upcompanies
Whydoyou
needaCVCunit
foraJDA?
PromisingjointR&DorJDAs
Productscommercializedwithportfoliocompanies
Strategicdecisionaboutgrowthopportunities
Enteringnewbusinessesorproductcategories
Hiringoftalent
n=40
1
Source:LuxResearchandInternationalBusinessForum’s
“FutureofCorporateVenturing”Survey,2015
Muchless
oftenthan
expected
2
3
Aboutas
oftenas
expected
4
5
Muchmore
oftenthan
expected
16
Aficklepartner?
CVCsmightbeactingagainstself-interest
4,500
4,000
3,500
3,915
66%
68%
66%
60%
55%
3,000
2,500
2,000
1,500
1,056
1,000
295
500
82
29
3
Exit%
4+
0
80%
1,600
70%
1,400
60%
1,200
50%
1,000
40%
800
30%
600
20%
400
10%
200
0%
0
1
2
TotalDeals
Exit%byNumberofFollow-ons
57%
59%
63%
63%
66%
65%
70%
60%
46%
50%
40%
30%
20%
10%
0
1
2
SuccessfulExit
3
4
5
UnsuccessfulExit
6
0%
7+
SuccessPercent
Exit%byEntranceRound
Lookingattheallpre-2010CVCinvestments:
CVCsonlyinvestonceinabout73%ofcases,despitethelikelihoodofexitimprovingwith
follow-oninvestments
Ofthese1-timeinvestments,nearly2/3rdhavebeeninthe1stor2ndround
*Asof5/25/2016;Source:PitchBook
17
Aficklepartner?
Corporateculture=flightyCVC
CVCscomeinwithaboutadecadeofexperience,andstayaround5years…and
thenmoveout,notup
“Howlongdoindividualsat
yourcompanytypically
spendinaCVCrole?”
“Whatisthetypicalsubsequentcareerpathfor
individualsaftertheyleaveCVCroles?”
Percentofresponses
60%
R&Dmanagement
50%
40%
Product/lineofbusiness
management
30%
Strategicplanningand
finance
20%
Leavingthecompany
n=36
10%
0%
<1
1-2 2-3 3-5
>5
yrs
Other
0%
20%
40%
Percentofrespondents
Source:LuxResearchandInternationalBusinessForum’s“FutureofCorporateVenturing”Survey,2015
60%
18
CVC1.0–Here’swhat’sbroken…
ThedesignofCVCtodaydoomstheaverageCVCunittothe
perilousfateofthe3Ms:
Missedtargets
Missedopportunities
Madpartners
19
Contents
CVC1.0–StateoftheUnion
So,whychange?
ReflectionsonCVC2.0
20
CVCisascendant,but…
Source:<link,link,link>
21
AsustainableCVCunit:
Wheredoesventuringfitintheportfolioofbusinessgrowthdrivers?
New
business
Corporate
venturing?
M&A
Novelty
Tech
scouting
R&D
Core/
familiar
business
Early-stage
Lab
Developmentstage
Business
development
Mature
Scale
22
CVCisfundamentallyattractivetoentrepreneurs
Source:VCcharacteristicsvaluedbyentrepreneurs(UpfrontVentures)
23
Theinnovationfundingecosystemisevolving
InstitutionalVC
Corporate
venturing
Angels
Growthequity
Government
funding
Impact
investing
Publicmarkets
Innovation
Superangels
Crowdfunding
Incubators
Innovation
competitions
Micro-VCand
emergingventure
managers
Sovereignwealth
anddirect
investmentLPs
24
CVCsaredecidedlyskepticalonotherfunding
sources
“Inthenext5years,whatwillbethemostimportantsourcesoffundingfor
emergingtechnologiesrelevanttoyourcompany?”
100%
80%
60%
40%
20%
0%
n=38
Highimportance
Moderateimportance
Lowimportance
Notrelevant
Source:LuxResearchandInternationalBusinessForum’s“FutureofCorporateVenturing”Survey,2015
25
So,here’swhatCVC2.0shouldlooklike…
Focusonlyonaclearstrategicgoal:
Findandde-riskearly-stage,newbusinessopportunities
BuildconnectionsfortheCVCunitintothecompanythat
allowittothrive
New
business
“Howlongdoindividualsat
yourcompanytypically
spendinaCVCrole?”
Corporate
venturing?
M&A
Novelty
Tech
scouting
R&D
Business
development
R&Dmanagement
50%
40%
Product/lineofbusiness
management
30%
Strategicplanningand
finance
20%
Leavingthecompany
10%
n=36
Core/
familiar
business
0%
Early-stage
Lab
“Whatisthetypicalsubsequentcareerpathfor
individualsaftertheyleaveCVCroles?”
60%
Percentofresponses
Developmentstage
Mature
Scale
<1
1-2
2-3
3-5
>5
yrs
Other
0%
20%
40%
60%
Percentofrespondents
26
So,here’swhatCVC2.0shouldlooklike…
Dotheobviousstuffconsistently:
Aligncorporateventuringstrategywithyouroverallcorporate
strategyandstrategicforesighttosolvetheevergreenproblemsof
yourcustomers(oftodayandtomorrow)
•  Investearly,stickaround,andbuildamechanismtoseeitthrough
totheexit
Ignorethehype–Ifeveryoneelseisalreadyfundingit,youprobably
shouldn’t!
Takeenoughadvantageofwhatyoucandothat’sdifferent.Ifa
differentformofnimblecapitalcangetthejobdone,yourmoneyis
likelybetterspentelsewhere
27
Thankyou JaideepRaje
ManagingConsultant
jaideep.raje@luxresearchinc.com
@JaideepRaje
LuxResearchB.V.|DeBoelelaan32,1083HJAmsterdam,TheNetherlands|www.luxresearchinc.com