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Editorial

21 November 2017

New York affirms corporate and venture capital synergies

Corporate briefing: GCV Synergize 2017

Author: Tim Lafferty, Managing Director, Global University Venturing

Global Corporate Venturing’s annual conference in New York last month confirmed that corporate venturers and traditional VCs are increasingly working well together and CVCs are usually seen as important and useful players in the ecosystem.

Last year’s conference, Shift, focused on this changing relationship between CVCs and VCs, and this year’s event, Synergize, continued the theme. About 150 delegates registered for the event, which took place at the headquarters of the New York Times in Manhattan.

Opening the conference, Lisa Lambert, general partner of VC firm Westly Group and a former vice-president at Intel Capital, said: “By coming to GCV Synergize, you are taking a big step to show you care about the future of the VC industry and you are helping to shape it.”

Lambert joined the opening panel, which was moderated by Kenneth Gatz, CEO and founder of software platform Proseeder. The panel discussed the changing perception of corporate venturing and the increasing interaction with VCs.

Will Porteous, general partner at venture firm RRE Ventures, explained how corporates understood the nuances of venturing more than in the past. He said: “We no longer talk about how corporate antibodies might kill a startup. It is just not an issue any more.” Another example given by the panel was how in the past a corporate might send a 10-person team to a meeting with a startup, but now usually acted more appropriately when dealing with small companies. Corporates were also much less likely to ask for preferential investment terms, such as right of first refusal.

Barry O’Brien, a managing director at Silicon Valley Bank, noted that he often saw corporates helping startups scale globally. Lambert agreed, saying that scale was a key difference between a VC and a CVC. Lambert pointed out that when she was at Intel Capital they had a global focus, whereas in her current role at Westly Group she was more focused on the US market.

The panel also discussed how corporates approach investment decisions. George Ugras, head of IBM Venture Capital, said: “When considering investing in a startup we ask the question: what can we do working with this company that would be different if we made an investment? If the answer is ‘not much’ we don’t invest.”

Next up was a fireside chat between Thomas Mastrobuoni, chief financial officer of Tyson New Ventures, venturing arm of US-based food producer Tyson Foods, and Greg Heibel, partner at US-based law firm Orrick. Mastrobuoni used Tyson’s investment in vegan burger producer Beyond Meat to explain how the company worked with startups. “We don’t tell them how to run their business because it is on a totally different scale to Tyson. But we try to help them where we can.”

David Horowitz, founder and CEO of corporate advisory firm Touchdown Ventures, then interviewed Allison Goldberg, group managing director of Time Warner Investments, where she has worked since 2001. She explained its investment strategy, which has both strategic and financial goals, with the majority of deals being B or C rounds with an average investment of $10m.

Goldberg said: “We lead about half the deals we participate in and we either take a board seat or an observer role otherwise we would not get strategic value.” Its focus is on areas of interest to the three divisions of Time Warner – HBO, Warner Brothers and Turner – while the sector focus includes content, games, adtech, eSports, virtual reality and augmented reality.

A topic of great personal interest to VCs and CVCs was then discussed – compensation. Jody Thelander, founder of J Thelander Consulting, presented the results of her firm’s recent compensation survey, which was then debated with Christine Leong Connors, a market manager at investment bank JPMorgan Private Wealth Management, and Melissa Taunton, a partner at VC firm New Enterprise Associates.

In total, 838 companies responded to the survey, 30% of which were VC firms and 28% corporate VCs. Nearly half, 45%, of corporate venturers received corporate stocks as part of their compensation package, in addition to salary and bonus. Only 8% receive carried interest, a way of rewarding long-term financial results which is widely used by traditional VC firms.

However the panel seemed unanimous that carried interest was not necessarily as attractive as it may seem because in many cases it was never realised. The predictability and reliability of corporate compensation, while not necessarily offering as much potential upside, could be more appealing to many. Young employees, in particular, could be put off by a carried interest scheme that might not pay out for 10 years.

John Riggs, a partner at consulting firm PwC, led a fireside chat with Carey Lai, managing partner at Conductive Ventures, the new corporate venturing arm of Japan-based electronics corporation Panasonic. Lai said: “It is a $100m fund with only financial goals, so we are using the Panasonic name sparingly so as not to create the impression that we are a strategic. We are looking at business-to-business software and hardware opportunities.”

Natalie Hwang, head of the venture arm of property developer Simon Group, and Nicole Quinn a partner at VC firm Lightspeed Ventures, took the stage. Their chat, moderated by Deborah Zajac, a venture partner at Touchdown Ventures, highlighted how the two, corporate and VC, had co-invested together and were also friends. Quinn said: “I totally respect Natalie’s vision when we have been looking at opportunities. She really understands the increasing speed of retail, such as the use of SMS to order products.”

Quinn also described her approach to working with startups, not interfering with the day-to-day running of the business. “The founder steers the car and we, the investor, provide the peripheral vision – we don’t ever grab the wheel.”

Tim Lafferty, chief operating officer of Global Corporate Venturing, presented some global data from GCV Analytics – 50% to 60% of venture rounds involving CVCs include at least one VC firm in the round. Corporates made 212 limited partner (LP) commitments in 2016. There were 69 new, relaunched or renamed CVC units last year. Download Lafferty’s slide deck.

Serial entrepreneur Duncan McCall, founder and CEO of location-based insights company PlaceIQ, explained to Ian Goldstein, a partner at US-based law firm Fenwick & West, how he had first come up with the idea for the company. “I was taking part in the Paris to Dakar car rally and we needed to cross a minefield in a desert. I did not want to pay $4,000 for a guide, so I downloaded some waypoints from the internet, using a route that a motorcyclist had uploaded after passing safely through. I realised then that location data on mobiles would be big.” Well, they do say entrepreneurs are risk-takers.

McCall has raised several capital rounds for PlaceIQ and has had mixed experience with investors, including three corporates – including France-based marketing and PR firm Publicis Groupe and China-based e-commerce group Alibaba. “One investor, in our A round, was incredibly engaged and helpful. We had the opportunity to raise the round or sell the business and he spent five hours on the phone with me over a weekend talking it through in a very balanced way. He has continued to be very helpful. Some others have been less helpful, particularly when we have hit difficult times,” he reflected. “It is important to have a good relationship with investors on your board – you are going to be working together for a long time.”

Over lunch, delegates convened at roundtables focused on a dozen themes, from quantum and real estate to blockchain and retail.

The first session of the afternoon was moderated by Steve Barsh, chief innovation officer of accelerator Dreamit Ventures, to discuss how micro-VC funds are increasingly working with corporations to support early-stage investing.

That was followed by Eric Steager, a director of healthcare group Independence Blue Cross, moderating a session about corporate LP positions. One panellist expressed shock at how some corporates lack awareness of up-and-coming competitors. Raj Singh, managing director at the technology ventures unit of airline JetBlue, explained its approach to working with startups. “We do not want technology that is specific to JetBlue. If there is not a wider need for the technology, then the company is not going to succeed.”

Spence McClelland, a general partner of VC firm Noro Moseley, revealed that its seventh fund had several strategic LPs. “We work differently with each one depending on what strategic insight they are seeking,” McClelland said.

The panel discussed how corporations could not usually react quickly to opportunities. One anecdote was relayed where a round needed to be closed within two weeks but a phone call with a potential corporate investor could not be arranged within that time window, let alone organising participation in the round.

There then followed a panel on artificial intelligence and fintech, moderated by Jaidev Shergill, head of the growth ventures division of Capital One bank. An anecdote was related by George Hoyem, managing director of In-Q-Tel, the US intelligence community’s venture unit, Miles Reidy, a partner at VC firm QED, and Travis Skelly, a senior vice-president at the venture unit of Citi Bank.

Skelly kicked off the story. “We had a problem that we were not getting the data feedback we needed from the intelligence agencies in order to combat money laundering. So we gave George Hoyem a call to see if he could help.”

Hoyem continued: “With our connections we were able to convene a group of interested stakeholders to try to nail the problem – the Federal Bureau of Investigation, the Central Intelligence Agency and the National Security Agency plus Citi and QED.” The discussion provided a unique example of corporates, VCs and government agencies working together.

After the networking break, Bobby Franklin, president of US trade body the National Venture Capital Association (NVCA), and Tony Chao, head of Applied Ventures, the venture unit of semiconductor maker Applied Materials, and also head of the NVCA’s corporate venture group, told Sandra Knox, counsel at law firm Sidley Austin, about some initiatives the NVCA was focused on.

Chao said: “We are issuing some standard models to foster best practice for corporate venturers, for example around term sheets, compliance and due diligence. Plus we are organising some industry vertical workshops around the country. If any corporates would like to host one of these gatherings, please let me know.”

Franklin, who is based in Washington DC, described the way the NVCA was trying to influence government policy to help the venture ecosystem. “There are five areas we are focusing on right now – research and development tax credits, qualified small business stock, loss limitation rules, rules around capital gains on carried interest, and immigration.” 

On the latter point, the NVCA has filed a lawsuit in federal court in Washington aiming to defend the ability of foreign-born entreprenuers to work in the US, via former President Barack Obama’s International Entrepreneur Rule. In July, the Department of Homeland Security postponed the implementation of the rule, which the NVCA is challenging.

In the penultimate session of the day, Elaine Jones, executive director of healthcare company Pfizer’s venture division, was interviewed by Neel Lilani, managing director of law firm Orrick. Jones explained how Pfizer Venture Investments was founded in 2004 and invested off the balance sheet, while more recently a second fund was created, R&D Innovate which, as the name suggests, invests in R&D-focused opportunities and requiresd the support of Pfizer’s R&D division. Pfizer never takes a holding of more than 20% in a startup, always invests as part of a syndicate and always seeks a board role, she added.

In the final session, discussing incubators and accelerators, moderated by James Piacentino, who suns software company SAP’s Leonardo program, Peter O’Neill, executive director of Cleveland Clinic Innovations, talked about healthcare company Cleveland Clinic and its new accelerator in Cleveland which has been launched in partnership with Plug & Play.

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