GCV On Corporate Investment Trends

We met with James Mawson, Founder and Editor-in-chief, Global Corporate Venturing, Global Government Venturing and Global University Venturing to discuss why corporate venturing is in vogue and where the industry is heading.

Veronica: James, could you give us a brief background to your career?

James: Sure thanks Veronica, I’m James Mawson, Founder and Editor-in-Chief of Mawsonia which publishes titles such as Global Corporate Venturing, Global University Venturing and Global Government Venturing. I used to be the Private Equity and Venture Capital Editor at Dow Jones in London for 4 years and left in 2010 to set up a publishing company.

Veronica: So what’s the story behind Global Corporate Venturing?

James: After I left in 2010 I started producing Global Corporate Venturing as the first title. The idea behind it was to try and understand the venture ecosystem a bit more than what we were doing at Dow Jones, where we focused very much on the independent venture capital and private equity firm and how they raised money from traditional institutional investors: the big pension funds, life insurance companies and banks. What I was always a bit concerned about was that this only covered part of the innovation or venture ecosystem, but it wasn’t really understanding the other elements within that ecosystem by understanding what governments, corporations and universities were doing. Therefore, we had a plan to launch our titles: Global Corporate Venturing, Global University Venturing and Global Government Venturing to understand which corporates, governments or universities invest in startups or what do they do, as in what deals are done on a daily or monthly basis. That creates the data and analytics, as well as also creating the insights and reason to why people do venturing.

Veronica: How big is Global Corporate Venturing currently?

James: There are some more than 1,200 corporate venturing units out there around the world who we target. We are a subscription service so a subset of that readership pay premium to attend our events and get our newsletters and more in-depth analysis.

Veronica: Why do you think Corporate Venturing has come back into vogue?

James: It’s a difficult question. Corporate venturing has more than a 40 year history, it has been around as long or if not longer than the venture capital industry. Many VCs got money from corporations or sponsorships by people out of those ecosystems. And if you look back into the history of venture capital in the US, which is going back more than 75 years, or you go back further into the early part of the 20th Century, actual corporations were a significant part of the investment scene. For example if you look at the early firms like Bessemer, they were created fundamentally by large corporations in which founders had the money but also wanted to understand the insights in the industry. That hasn’t really changed as the same fundamental drive is the skill of play today where corporations, universities and governments have an interest in understanding what entrepreneurs are doing – and that’s either to make a financial return and/or gain strategic insights that will help the main businesses, the main countries or the main universities.

And so as we’re coming back into vogue what you find is that historically venture capital is a pro-cyclical industry meaning the more money is raised, the more deals are made towards the end of an economic cycle rather than the start of an economic cycle. Traditionally corporations have perhaps been even more pro-cyclical than the general institutional venture capital firms, meaning that they set up programs even later in the economic cycle and perhaps close the knitting and stop making deals in the early parts of the economic cycle, i.e. during recession.

What I found interesting while running the analysis back in 2009-2010 at Dow Jones was that coming out of the global financial crisis, the credit crunch, we had corporations, governments and universities saying “actually, we ought to be doing more right now because this is the way we can drive growth”. So even though there was such focus on de-leveraging, reducing risk or saving costs, corporations were at that time saying “we need to invest more, this is our growth potential over the next cycle”.

What you found was that rather than being pro-cyclical, corporations were in effect becoming contra-cyclical. This was the time institutional investors and VCs were all talking about the deficits of venture capital and often cutting back. So now what would become seen as “corporations in vogue” is perhaps the wider general media understanding of this trend and recognising it for what it is – that corporations and others have an interest in innovation beyond just purely financial return.

Veronica: What are the key trends are to watch for this year in 2015?

James: Great question, so we do an annual event each year called Global Corporate Venturing Symposium where we pull together more than 300 corporations, more than 4 trillion dollars of aggregate annual revenues and $20 billion of venture asset management in one place, in London, on 2-3 june.

The objective of the event is to get together some of the ideas and some of the talking points people are particularity interested in. The theme of our event which has been chosen by the Editor of Global Corporate Venturing, Toby Lewis, is the “tipping point”.

The question we identified a few years ago was that “why is it that corporations should have an interest in the venture ecosystem?” and “what are they doing to support that?”. Now, as generally our financial economy is better and we are seeing more institutional investors and VCs becoming more active, the natural concern is “where are we in the economic cycle, is it currently being valued at 40+ billion or hundred billion+?”.

Global Government Venturing tracked more than 41 deals where the rounds were at least a hundred million in the final three months of 2014. By comparison, that was about four times the number we saw in the final three months of 2013 and that was almost negligible in 2012. This naturally poses the question which is “where are we? And how can people position themselves to make sure this longevity in the corporate venturing or venturing industry will generally knock the whips of economical volatility to affect in a pro tipping point of an industry. Ultimately, if you’re an entrepreneur and your business idea is good you want sustained capital that will be there longer term. If not, it won’t be helpful if that capital is around for 18 months and then disappears, that doesn’t help the innovation ecosystem. What does help is sustained long term intermediaries that can allocate capital efficiently to the right entrepreneurs over a longer period of time. And too often what is being found is that the institutional investors, VCs or other corporations included, have been short-sighted and therefore they’ve short changed the entrepreneur.

Veronica: How do you see VCs and corporate venture units working together?

There’s a natural alignment potentially between corporations and VCs in supporting the entrepreneur. Entrepreneurs usually have a broader wish-list of things that they want help with rather than just money. Money is obviously important but they often need help with understanding technologies, finding customers, developing suppliers, working out who they can hire, who they might be able to buy and how to grow successfully. Traditionally VCs are very good in providing capital and an efficient mechanism to deliver returns potentially back to their investors, but what they haven’t always been so sophisticated about is providing the broader support. Now historically, in the game of generalisation, corporations have perhaps not been as specialised as venture investors but have been able to say we can help or know people who can help your business grow. Now, that is a natural partnership and a syndicate for the two (VCs and corporations) to work together.

What we found more recently was that as VC firms have understood the power of offering more to entrepreneurs and developing their brand in other areas, they’ve become much more sophisticated on broadening their offering to entrepreneurs, while corporate venturers are more experienced as venture investors – more than 140 have a 10-year track record and many others worked as Vcs before. The partnership is brought together naturally because the entrepreneur thinks that these investors can together provide the capital and support that he or she needs.

What would you say are the challenges for investment teams in terms of tracking fast-moving markets, innovation and everything else that’s happening in the space?

Well, venturing and innovating is by nature a difficult subject to follow because you’re trying to keep an idea on what is hot now and what might be hot in the future in a world where there are too many variables to really understand all the dynamics, purely. So there’s a little bit of what sometimes called a random walk down wall street that applies in venture as well.

For investment teams the challenge is that some of the really constructive or break through ideas will happen outside a main venture ecosystem. The hope is that if those ideas happen outside they will eventually get sucked into the innovation hotspots such as London, Silicon Valley, Boston, Beijing, Singapore or Bangalore of wherever it might be, and then for them be sucked into those regions and identified in the monetary supply.

However, that’s quite challenging once they’ve been sucked in as sometimes there’s more competition, so it’s a tradeoff. The challenge within investment teams, particularly from a corporate perspective, is that they need to understand the corporate needs and the corporate strategy bearing in mind these things do change, as well as understand what the entrepreneurs do, what’s exciting and what might be in the future -and that’s a really hard job.

George Davis, who is the Chief Financial Officer at Qualcomm, who have a very successful venturing arm called Qualcomm Ventures, said last week [week of 9 February] that “only an idiot would want to be a corporate venture because it is a tall ask” – you have to understand the needs, the strategic insight , different management and be able to leverage the business units and you also have to spend, in effect, a full time job trying to find deals and work with the entrepreneur. That is generally a very difficult job so I take my hat off to those who do it!

Veronica: And what ways do you think they track their competition?

James: It depends. What you find in venture capital is that anyone could be a competitor but anyone could be a partner because anyone can join a syndicate together and then you’re mutually aligned to do the best for all the portfolio companies, but equally you’re trying to beat them to get access to deals. So one could be a friend on one deal and a rival to get access to on another deal.

What you generally find is that good people like working with other good people that bring an edge to a deal that the others don’t. That might be their network, insights or technology, and that has generally proved to be the most important reason to why venture capital more generally has a stickiness to return, meaning that VCs or corporates that have had good returns historically generally end up having good returns in the future as well. And so part of that comes from the fact that investors like working with other good investors.

Veronica: What are the plans for GCV into 2015?

James: In effect, we run a trade paper – we are trying to connect data and information about who does corporate, university or government venturing and keep track of the deal making. We then pull together the data and provide insights to our customers on the topic to be able to better identify the investors they want to work with, or identify deals or trends that then help them make better deals in the future.

Now, by being a trade paper, we are fundamentally reliant on the demand for that service from our clients so for us this year is not really any different from the past 5 years as our key job is to try and understand what these people do, reflect upon that and understand to define the broader trends to help the industry, our subscribers and event attendees do a better job. We’re very fortunate when Al Gore, the 45th Vice President of the United States, or Neelie Kroes, the former Vice President of the European Commission, spare the time to talk to our attendees at our events. This sort of level, engagement and interaction is a sign that we are probably doing a reasonable job, which is of course very rewarding.

We also track deal making in the content intelligence space daily – follow us for updates on Twitter!

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