There’s been a huge rise in corporate venturing over the last several years, indeed I sometimes wonder if some corporates have started up the activity just because everyone else has and they want one too. CB Insights reported recently that no less than 53 NEW corporate venture capital (“CVC”) investors made their first investment in the first half of 2016. See this link for some interesting data on activity over the last 3 years.
Often the Valley is a magnet for global/overseas players who otherwise do not have a presence here, who set up venturing units in order to tap into the Valley’s “special sauce”. This is in addition to the ever increasing number of “corporate innovation labs” (well over 50 of them) or “Silicon Valley Outposts” (numbering in the hundreds). For some companies, the establishment of a CVC follows on from an outpost / lab that has been in Silicon Valley for some time. From my own experience since arriving here in 2006 I have met over 1,200 venture capitalists and about 200 of them have been from corporates.
There are many different reasons for engaging in corporate venturing, so I thought I would share a few snippets on various different types of venturing from recent events and conversations with some of the players. I’m not betraying any confidences here, so it’s OK to share.
- Yamaha from Japan, set up its VC group in the Valley a year ago. Although it is a separate unit they share an investment committee with the M&A group. Primarily they are looking either at exploratory investments, typically in early stage companies, or at strategic investments in areas of particular strategic interest. They don’t want people to think of this as an early M&A move, so they do not lead, preferring to see a financial investor lead.
- Software giant Microsoft has been engaged in various activities with start-ups for a long time, but only set up its VC group to invest just in May 2016. It targets series A to C rounds in areas where Microsoft is active or where it can help influence the ecosystem to follow routes that are more Microsoft-friendly. While they don’t need business unit engagement to make the investment, they do have a team dedicated to working with the portfolio to embed the portfolio company into Microsoft and to help open doors inside and outside of Microsoft.
- Applied Ventures by contrast is a true strategic investor and business unit engagement before a transaction is a must. Given they are investing in areas that are strategically important, they will often lead, and are happy, indeed prefer, to set the valuation. They’ve been following this model for 10 years, and although the VC arm is separate from M&A, the M&A folks are aware of everything they do.
We often get asked about the pros and cons of taking money from a corporate. Really it depends on what you are looking for. Relationships can range from a tight strategic deals which adds value to both sides as a precursor to an eventual M&A transaction (hint – financial investors often do not like these because they may limit the exit options) to a purely arm’s length financial transaction, in which case you have to ask what is the benefit of getting a strategic on board? And there are many models in between, so it’s hard to generalize. The devil, as always, is in the detail.
As always, and to keep myself in business, do get some advice from a good investment banker. It is often the “small print” of the terms of the deal that can on the positive side really cement the value you can get from the corporate or on the downside limit your exit options or put a delay on an eventual exit.
It is “Happy Holidays” time of year again so here are some fun Holiday items..
- I have my Christmas break reading all ready (see photo), all in printed book form (and author signed for one of them), what a tech novelty!
- Order your Trump Christmas ornaments from Amazon, with more entertaining reviews than most Amazon items.. and maybe if you live in Cambridge and are lucky it will be delivered by drone…
- And listen to everyone’s favorite Christmas Song from my youth, Half Man Half Biscuit’s “All I want for Christmas is a Dukla Prague away kit” with memories of Scalextric and Subutteo
- In this post PC (and I am not talking about my laptop) world, the big question remains - Is it Ok to say Happy Christmas? this 2013 Huffington Post article will show you the way
- And my post-Christmas treat is a trip in a Google Self driving car …. happening in January, I am very excited and I will post pictures!
- The “First Round Holiday Parody Video” is always good (the 2016 one will be here if they make it…)