Corporate Venture and Corporate Venture Capital K. McNally Master in Engineering Policy and...
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Transcript of Corporate Venture and Corporate Venture Capital K. McNally Master in Engineering Policy and...
Corporate Venture and Corporate Venture Capital
K. McNally
Master in Engineering Policy and Management of Technology (2001)
Bernardo Rodrigues, Carlos Mora, Nuno Constantino
Agenda
• Definitions and Concepts
• Nature and Forms
• Venture Capital Industry
• Potential Benefits
• Case Studies
Definitions and Concepts
• Corporate Venture Capital or Corporate Venturing
A variety of techniques used by large companies seeking business growth and expansion
Nature and Forms (1)
• ICV - Internal Corporate Venturing– entrepeneurial activity within the company with
corporate sanction and resource commitment
• ECV - External Corporate Venturing– structured relationship between large firm with
small, unquoted usually innovative firm
• CVC - Corporate Venture Capital– equity stake is taken by large firm in small,
unquoted usually innovative firm
Nature and Forms (2)
• CVC - Corporate Venture Capital– Externally Managed (indirect)
• Pooled Funds (financial benefits)US increase between 1979 and 1986 up to 100 funds in 1987
US decrease from $484M (1989) to $84M (1992) because of recession
• Client Based/Dedicated Funds (financial+strategic benefits)US growth from 31 (1982) to 102 (1987) because of
strategic unsatisfaction
Advent Internation manages 14 funds (RJR Nabisco, Apple)
Nature and Forms (3)
• CVC - Corporate Venture Capital– Internally Managed (direct)
• In-House Corporate Managed Funds (strategic, structured, may involve direct support)
1990/2000 ABB, AT&T, Intel, SmithKline Beecham
• Ad-hoc/One-off Investments (strategic, unstructured/opportunistic, may involve direct support)
1980/1990 Exxon made, Apple received
1990s investments by 5 largets electronics and 10 largest pharmaceutical corporations in US
Venture Capital Industry (1)
• Venture Capital Funds– In USA focus on TBFs versus science based projects
– In UK tend to be reluctant in TBFs
– Barriers: the rigorous investee selection process
– Implications: move away from early stage deals
• Business Angels– invest small amounts, usually in startups
Venture Capital Industry (2)
• Public Markets– Disadvantages:
• High fixed costs in underwriting, accounting fees and printing costs
• criteria's for listing imply sufficient size and a trading record
Potential Benefits Large Firms
• Training – junior, middle and (“therapy” to) senior management
• New Market – new products, services and new technologies
• $$$$$$ – less costs, less costs R&D and capital gains
Fundamental reasons for CVC: Flexibility, adaptation and innovation.
Em
piri
cal d
ata
Potential Benefits Small Firms
• Financial benefits– Initial funding to investigate– Profits insufficient to meet capital
requirements– Survival
Barriers to
growth
Potential Benefits Small Firms
• Strategic benefits– Management assist (Short term problems,
recruiting, corporate assist)– Mentor or confidant - social or supportive role– Strategic network (tax lawyers, patent
agents…)
CVC gives small firms the necessary structure to compete in the aggressive market
1680
400 347 479
2551
0
500
1000
1500
2000
2500
3000
1989 1991 1992 1993 1994
UK V.C. fundsM£
Recession
(…) Venture capital depends on the alignment of incentives to VC Investors, V capitalists and Entrepreneurs
Potential Benefits Independent Venture Capitalists
Levels of CVC activity - USA
• Well-established and widely accepted
• Less concern with acquisition and more focus on strategic collaboration
• Trend to start in externally funds and move to direct investments
• Indirect CVC:• 100 US firms with $413 million
Levels of CVC activity - USA
• Dedicated funds are increasing• 31 firms (1982) to 102 in 1987• ex: Monsanto with $50 million
• Internal management programmes are common
• 72 US firms + 27 foreign investing $500 million
• Several hundred of adhoc invest. each year• Digital Equipment, Compact
• Spin-outs are flourishing
Levels of CVC activity - UK
• Extremely low level of investment of major corporations in CVC
• Indirect CVC are increasing at low rate• Foreign firms like Elf Aquitaine and Molson
Companies (in Alta-Berkeley Lmtd)
• Internal managed funds represent a low amount
• Pilkingston’s Rainford VCF with £2,5 million
Reasons for underdeveloped nature of UK CVC
• Lack of motivation of large companies• predilection for alternative strategies• concentration on core business• organisation, structure and culture
• Lack of motivation of small companies• Entrepreneurs are not aware of CVC• Loss of identity and ownership
• Lack of investment opportunities• Reluctance of sacrifying secure jobs
• Information gap
Corporate Venture and Corporate Venture Capital