cvc2.0 demonstrating added value to the corporate bottom line

CVC2.0DemonstratingAddedValuetotheCorporateBottomLine

JaideepRaje–ManagingConsultant

LuxResearch

June2,2016

Agenda

  CVC1.0–StateoftheUnion

  So,whychange?

  ReflectionsonCVC2.0

2

Contents

  CVC1.0–StateoftheUnion

So,whychange?

ReflectionsonCVC2.0

3

$6

$8

$11

$9

$8

$9

$13

$12

$16

$30

$37

$12

460 494

622 619

494

619

890

1,018

1,204

1,4081,299

428

0

200

400

600

800

1,000

1,200

1,400

1,600

$0

$5

$10

$15

$20

$25

$30

$35

$40

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

CapitalInvested($B) DealCount

Minnowsnomore:CVCisascendantintheentrepreneurialecosystem

*Asof5/25/2016;Source:PitchBook

Since2010CVC$↑31%CAGR

CVCdealcount↑16%CAGR

4

Minnowsnomore:CVCisascendantintheentrepreneurialecosystem

  Overthepast20quarters,theCVCparticipationinU.S.VCdealshasrisenroughly12%perquarter

  CVCgroups“participatedin23.5%ofdealsandaccountedfor20.6%ofdollarsdeployed”infirstquarterof2016intheU.S.

13.2%

23.5%

6.7%

20.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2011Q1

2011Q2

2011Q3

2011Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

U.S.CVCactivity

%ofDealswithCVCInvolvement %ofDollarsfromCVCs

Source:PwC/NVCAMoneyTree™Report,Data:ThomsonReuters

5

Software33%

Biotechnology17%

Industrial/Energy16%

MediaandEntertainment

10%

ITServices5%

FinancialServices4%

Retailing/Distribution3%

MedicalDevicesandEquipment

3%

ConsumerProductsandServices

3%

ComputersandPeripherals2% HealthcareServices

1%

Semiconductors1%

Telecommunications1%

Minnowsnomore:CVCoutstripsVCinIndustrial/EnergyandBiotechfocus

6

Source:PwC/NVCAMoneyTree™Report,Data:ThomsonReuters

TotalU.S.CVCin2015$7.8billion

Minnowsnomore:CVCisspreadingbeyondtheusualsuspects

  Traditionalpowerhouses(top10mostactiveCVCssince2010)

  In2015,264CVCscompletedatleast1deal(up91%from138in2005)

Source:PitchBook

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)

7

$32.1

$51.9

$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2010 2011 2012 2013 2014 2015

GlobalCVCActivity,2010-2015

CapitalInvestedMean($million)

Pre-moneyValuationMedian($million)

Minnowsnomore:Biggerdeals,biggerpress

8

$11

$12

$19

$10

$7

$12

$33

$15

$20

$39

$23

$11

137152

179

115134

190

185

224235

326

263

73

0

50

100

150

200

250

300

350

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

CapitalInvested($B) DealCount

Minnowsnomore:CVCexitsarekeepingpacewithinvestmentactivity

9


Contents

CVC1.0–StateoftheUnion

  So,whychange?

ReflectionsonCVC2.0

10

GlibdismissalofCVCsas“dumbmoney”ispassé,butsomecriticismisstilllegitimate

“CVCsarenotoriouslyfickle–eitheritsstrategydujourorchangeoftheguard.Itsmisalignmentoffinancial

interestorlackofaccountability–attimes,CVCeveninvestincompetingportfoliocompaniestogainaccesstotechnologies.”

“Ifcorporatesaregettingbackinthemarket,it’samarkettop!Theyareusuallynotgreatmarkettimersinthattheygetinatthetop,thengetfrustratedandsell

atthebottom.ThatisthehistoricalpatternofmostcorporateVCs.”

11

Let’stakealookatCVCsraisond’être

12

Lux-IBFCVCSurvey:Allrespondentsemphasizestrategicoverfinancialgoals

0% 5% 10% 15% 20% 25% 30% 35%

Financialgoalsareparamount

Financialgoalsareprimary,strategicgoalssecondary

Roughlyevenbalancebetweenfinancialandstrategicgoals

Strategicgoalsareprimary,financialgoalssecondary

Strategicgoalsareparamount(thoughofcoursewecan'tjustlosemoney)

Percentofresponses

n=40

“Mostcorporateventuringorganizationshavebothfinancialgoalsandstrategicgoals.Howwouldyouratetherelativeimportanceofeachforyourfirm?”

Source:LuxResearchandInternationalBusinessForum’s“FutureofCorporateVenturing”Survey,2015

13

Timeframefordealimpactspansawiderange,butmostcommonlywithin2-5years

0%

10%

20%

30%

40%

50%

60%

Next18months Next2-3years Next3-5years Next5-10years Morethan10years

Almostalldeals Mostdeals Somedeals Almostnodeals

n=40

Whendoyouexpectyourdealstohaveacommercialimpactonthebusiness?

15% 23% 25% 21% 17%

Estimatedtotalpercentofdeals:

14Source:LuxResearchandInternationalBusinessForum’s“FutureofCorporateVenturing”Survey,2015

CVC’svalueinprovidingstrategicgrowthoptionstotheparentcompanyissuspect

  Initsfirst5yearsofprolificinvesting,GVhasonlysold2portfoliocompaniestoAlphabet(kaGoogle)

  IdenticaltothenumberofcompaniesithassoldtoYahooandCiscoSystems

  IntelCapitalhasonlysold7ofits259exitstoIntel

  SoldsamenumbertoCiscoSystemsandverysimilarnumbertoMicrosoft

  Johnson&JohnsonDevelopmentCorporation(JJDC)hasonlyexitedtwoportfoliocompaniestoJohnson&Johnson(whilesellingseveraltonumerousothermajorpharmaceuticalandmedicaldevicescompanies,includingcompetitors,suchasAztraZeneca,Amgen,Merck,MedtronicandPfizer)

AveragerateofsuccessfulexitstoacorporateVCinvestor’sparentis3%

CVCisaterribleincubator

15

Howdoyoumeasureimpactoncorporatestrategy?CVCseemoreJDAs,fewerexitsandacquisitions

1 2 3 4 5

Hiringoftalent

Enteringnewbusinessesorproductcategories

Strategicdecisionaboutgrowthopportunities

Productscommercializedwithportfoliocompanies

PromisingjointR&DorJDAs

Acquisitionsofpromisingstart-upcompanies

Successfulexitofportfoliocompany

n=40

“Howoftenhasyourventuringprogramseenthefollowingpositiveoutcomes,comparedtoexpectations?”

Muchlessoftenthanexpected

Muchmoreoftenthanexpected

Aboutasoftenasexpected


WhydoyouneedaCVCunit

foraJDA?

16

Aficklepartner?CVCsmightbeactingagainstself-interest

Lookingattheallpre-2010CVCinvestments:

  CVCsonlyinvestonceinabout73%ofcases,despitethelikelihoodofexitimprovingwithfollow-oninvestments

  Ofthese1-timeinvestments,nearly2/3rdhavebeeninthe1stor2ndround

17

3,915

1,056

29582 29

55%60%

66% 68%66%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

0 1 2 3 4+TotalDeals Exit%

46%

57%59%

63% 63%66% 65%

0%

10%

20%

30%

40%

50%

60%

70%

0

200

400

600

800

1,000

1,200

1,400

1,600

1 2 3 4 5 6 7+SuccessfulExit UnsuccessfulExit SuccessPercent


Exit%byNumberofFollow-ons Exit%byEntranceRound

Aficklepartner?Corporateculture=flightyCVC

  CVCscomeinwithaboutadecadeofexperience,andstayaround5years…andthenmoveout,notup

18

0%

10%

20%

30%

40%

50%

60%

<1 1-2 2-3 3-5 >5yrs

Percen

tofrespo

nses

“HowlongdoindividualsatyourcompanytypicallyspendinaCVCrole?”

n=36


0% 20% 40% 60%

Other

Leavingthecompany

Strategicplanningandfinance

Product/lineofbusinessmanagement

R&Dmanagement

Percentofrespondents

“WhatisthetypicalsubsequentcareerpathforindividualsaftertheyleaveCVCroles?”

CVC1.0–Here’swhat’sbroken…

19

ThedesignofCVCtodaydoomstheaverageCVCunittotheperilousfateofthe3Ms:

MissedtargetsMissedopportunities

Madpartners

Contents

CVC1.0–StateoftheUnion

So,whychange?

  ReflectionsonCVC2.0

20

CVCisascendant,but…

21Source:<link,link,link>

AsustainableCVCunit:Wheredoesventuringfitintheportfolioofbusinessgrowthdrivers?

Novelty

Newbusiness

Core/familiarbusiness

DevelopmentstageEarly-stage

LabMatureScale

R&D

M&A

Techscouting

Businessdevelopment

Corporateventuring?

22

CVCisfundamentallyattractivetoentrepreneurs

Source:VCcharacteristicsvaluedbyentrepreneurs(UpfrontVentures)

23

Theinnovationfundingecosystemisevolving

24

Innovation

Angels

Governmentfunding

Growthequity

Publicmarkets

InstitutionalVCCorporateventuring

Crowdfunding Innovationcompetitions

Sovereignwealthanddirect

investmentLPs

Impactinvesting Superangels Incubators

Micro-VCandemergingventure

managers

CVCsaredecidedlyskepticalonotherfundingsources

0%

20%

40%

60%

80%

100%

Highimportance Moderateimportance Lowimportance Notrelevant25

“Inthenext5years,whatwillbethemostimportantsourcesoffundingforemergingtechnologiesrelevanttoyourcompany?”

n=38


So,here’swhatCVC2.0shouldlooklike…

  Focusonlyonaclearstrategicgoal:  Findandde-riskearly-stage,newbusinessopportunities  BuildconnectionsfortheCVCunitintothecompanythatallowittothrive

26

Novelty

Newbusiness

Core/familiarbusiness

DevelopmentstageEarly-stage

LabMatureScale

R&D

M&A

Techscouting

Businessdevelopment

Corporateventuring?

0%

10%

20%

30%

40%

50%

60%

<1 1-2 2-3 3-5 >5yrs

Percen

tofrespo

nses

“HowlongdoindividualsatyourcompanytypicallyspendinaCVCrole?”

n=36

0% 20% 40% 60%

Other

Leavingthecompany

Strategicplanningandfinance

Product/lineofbusinessmanagement

R&Dmanagement

Percentofrespondents

“WhatisthetypicalsubsequentcareerpathforindividualsaftertheyleaveCVCroles?”

So,here’swhatCVC2.0shouldlooklike…

  Dotheobviousstuffconsistently:  Aligncorporateventuringstrategywithyouroverallcorporatestrategyandstrategicforesighttosolvetheevergreenproblemsofyourcustomers(oftodayandtomorrow)

•  Investearly,stickaround,andbuildamechanismtoseeitthroughtotheexit

  Ignorethehype–Ifeveryoneelseisalreadyfundingit,youprobablyshouldn’t!

  Takeenoughadvantageofwhatyoucandothat’sdifferent.Ifadifferentformofnimblecapitalcangetthejobdone,yourmoneyislikelybetterspentelsewhere

27

LuxResearchB.V.|DeBoelelaan32,1083HJAmsterdam,TheNetherlands|www.luxresearchinc.com

Thankyou

[email protected] @JaideepRaje

cvc2.0 demonstrating added value to the corporate bottom line

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