Challanges in corporte venture capital. Was delivered as a discussion input for a major corporate venture capital fund based in NYC.

1. Let’s get started.
Oscar Aabech Jung
July 2014
Oscar Aabech Jung
June 2014
Trends and Challenges
in Corporate Venture Capital
--- Removed VC Fund Logo ---

2. Oscar Aabech Jung, July 2014
Credit
This deck is inspired by “best practice” from A.T. Kearney, BCG,
Booz, McKinsey, and academic research on establishing successful
corporate venture funds.
Content is for discussion purposes only.

3. Corporate Venture Capital (CVC)
1. Trends in CVC
2. Historic Challenges in CVC
3. Corporate VC Investments & Share Price
Best Practice Operating Model
1. Clear Goals and Operating Principles
2. Knowledge Transfer & Responsibilities
3. Stages of Portfolio Support
Content
Oscar Aabech Jung, July 2014

4. Oscar Aabech Jung, July 2014
Trends in Corporate Venture Capital
50
50
37
27
20
10
20
26
17
13
20
21
10
10
10
7
20
13
20
23
17
27
13
7
13
17
7
4
13
10
7
0
10
20
30
40
50
60
70
80
2012 2007
• For all industries top 30
corporations was analyzed to
calculate CVC penetration.
• Total CVC penetration
increased 63% since 2007.
• Strong growth within: Power
(270%), Machinery (85%),
Consumer (131%) &
Construction (100%).
• Corporate VC is approaching
15% participation of all US VC
deals, an all high up from 8%
in 2007.
Strong Corporate Venture Penetration % (2007->2012)
Corporate Venture Penetration % (Top 30 Selected Industries)
• CVC is on an all time high and globally, over 750 corporations are active in venture investments.
• Traditional VC industries (tech, pharma, media & telecom) see the venture process as an indispensable tool for
innovation & development. Studies show that R&D spending is inversely related to venture investments.
• Corporate VC’s invest in earlier rounds and often invest along side other non competing corporations and VCs.
• Lastly, CVC’s are mostly investing in startups within IT, media , consumer & clean tech (excluding health care and
clean tech which invest in their own industry).
Comment
Source: Global Corporate Venturing CVC Database
%

5. However, Successful
Corporate Venture
Capital Funds are
Flourishing Today
Oscar Aabech Jung, July 2014
Historic Challenges in
Corporate Venture Capital
Changing management commitment and business
unit resistance
A
Investment strategy changes (too fast)
No clear financial or strategic targets
(According to HBS study highly correlated with eventual closing of venture program)
B
C
Little or no leverage of knowledge and strategic
value
D
Unclear responsibilities between corporate and
investment team
E
Source: Collection of reports

6. Oscar Aabech Jung, July 2014
Corporate Investments & Closing Price
CVC Funding by month vs SAP 500 Avg. closing price
• Corporations tend not
to commit funding like
LPs.
• Investments are done
from balance sheet.
• Medium life span of
corporate funds are
only ~1 year (HBS
Study, 2013).
• Easy to setup and easy
to close.
• Successful CVC’s are
setup as a separate
independent entity.
Comment
• Corporate venture investments has increased considerably.
• However, investments seem to be strongly correlated with share prices.
Source: Crunchbase
Let us look over best practices

7. Oscar Aabech Jung, July 2014
Clear Goals and Operating Principles
Best Practice Objectives Best Practice Implication
Commitment from
Corporate
Management
• Buy-in from top management & leaders of business units.
• Management play active role in formulating the strategy of CVCF.
• Deploy and attract dedicated VC staff and expertise.
• Management accept and expect historic VC success & failure rates.
• Venture Capital unit perceived as independent entity.
Clear
Investment
Strategy
• Commitment of 40-200m investment for min 5-10 years.
• Clear investment focus: Geography, industries, direct- and indirect
strategic investments and non-strategic investments.
• Quantified risk tolerance: Ceilings on max investments in single
companies and maturity portfolio profile (seed vs. c-rounds).
Business &
Financial Targets
• Defined long term business success criteria and measurable KPIs.
• Defined degree of strategic alignment between SVG & SPG
Strategy (close vs. decoupled).
• Defined long term financial success criteria and KPIs.
A
B
C

8. Oscar Aabech Jung, July 2014
Knowledge Transfer & Responsibilities
Integration and
Knowledge
Transfer System
• Predetermined routines enable knowledge from investments to feed
into corporate development.
• Leverage “sponsor/guardian” within SPG for relevant investments.
• Integration: Clear process of extracting strategic value and monetize
investments.
Responsibilities
and Decision
Process
• Involve corporate stakeholders on e.g. a “Portfolio Committee”1)
deciding portfolio companies’ access to corporate resources and
help to:
• Get clear buy-in and avoid potential corporate tendency to protect
ones own turf
• Approve “sponsors/guardians” and stages of corporate involvement
• Formulate expectations and success criateria
D
E
Best Practice Objectives Best Practice Implication
1) Not the investment committee, but a post investment committee overseeing strategic cooperation between
portfolio companies and corporate

9. Oscar Aabech Jung, July 2014
Stages of Portfolio Support,
Knowledge Transfer and Integration
Stages Of Corporate Involvement
Outside
Investment
Corporate
Sponsor
Dedicated
Resources
Testing in
Malls
Integration
• Financial Return
• Knowledge transfer
• Support
• Low cost, high impact resources
• Space, expert knowledge
• Improve service & “product”
• Prepare Integration
• FOO / NOI ↗
• Integrate
where?
• Buy at market
price?
1
2
3
4
5
Time
Commitment
Strategic
Investment
Investment
Board + BU
Approval
Investment
Board
Decision?
Executive
Decision

10. Contacts
oscarjung@gmail.com
US +1 415 812 6213
405 E 14th Street # 4D
New York, NY 10009
Linkedin.com/in/oscarjung
Twitter.com/oscarjung
My
Startup
Coverage
Oscar Aabech Jung
Venture capitalist &
entrepreneur
M.Sc. Finance