@NYUEntrepreneur Spins on Corporate Venture
Capital Frank Rimalovski Executive Director, NYU Entrepreneurial Institute Managing Director, NYU Innovation Venture Fund Adjunct Professor, NYU Polytechnic School of Engineering @rimalovski April 13, 2015

@NYUEntrepreneur Agenda u Corporate venture
capital o Motivations & models o Challenges & consequences u Corporate Spinouts o Challenges o Lucent’s New Ventures Groups o New Venture Partners u Universities o NYU Innovation Venture Fund o Similarities & differences

@NYUEntrepreneur Corporate Venture Capital 101
Motivations u Strategic * o Provide a window on new technology (85%) o Support/leverage existing businesses (69%) o Provide window on new markets (58%) o Develop new products (56%) o Seek new directions (55%) u Financial o ROI Models u Direct o In-house venture teams o Separate CVC groups/ funds u Indirect o Invest as LP in externally managed funds u Incubators with or without venture funds o Spin-in o Spin-out * Source: Corporate Venture Capital Study, NIST/MIT 2007

@NYUEntrepreneur Corporate Venture Capital 201
Challenges * u Lack of well defined/ shifting missions u Insufficient corporate commitment u Inadequate compensation schemes * Source: Gompers & Lerner, The Venture Capital Cycle Consequences u Conflicting agendas with VCs/ entrepreneurs u Slow decision making u Shallow pockets u Short lived funds u Attracts ‘B’ players u Not welcome by some VCs/entrepreneurs

@NYUEntrepreneur
Corporate Spin-outs

@NYUEntrepreneur The Search for Innovation…
“The search for innovation needs to be organizationally separate and outside of the ongoing managerial business. Innovative organizations realize that one cannot simultaneously create the new and take care of what one already has...” ~ Peter Drucker, 1974

@NYUEntrepreneur Intrapreneurship challenges u R&D
not always well linked to markets u Lack of true entrepreneurs u Underestimating time & funding required u Overestimating corporate synergies u Lacked “credible threat” of discontinued funding u Different biz models make it hard to support u Different metrics lead to poor decision making u Ignores portfolio theory u Different decision making/funding timelines u Risk tolerance/acceptance of failure

@NYUEntrepreneur Intrapreneurship challenges “The interests
of a corporation and the venture capitalists are seldom, if ever, aligned.” ~ Jonathan Schwartz CEO, Sun Microsystems 8

@NYUEntrepreneur 1996: Lucent forms New
Ventures Group 1876 1947 1954 1958 1962 1969 1999

@NYUEntrepreneur 1996: Lucent forms New
Ventures Group u To commercialize “discontinuous” innovations u For strategic innovations that can be developed faster in a venture model u Mission o Leverage Bell Labs technology to create new ventures to innovations to market quickly o Create more entrepreneurial environment that nurtures & rewards speed, teamwork and prudent risk-taking o Realize value by selling ventures to Lucent BUs or external investors and/or corporations 1876 1947 1954 1958 1962 1969 1999

@NYUEntrepreneur NVG Experience u Challenges
o Finding the right people to join a startup (inside/out) o “Spotlight effect” o Ebbs & flows of macro & micro economic factors o Contributing to quarterly & annual targets o Lacked “credible threat” of discontinued funding (early on) u Critical success factors o Executive sponsorship with “use it or lose it” POV o Strong supply/deal flow with lots of pent up supply initially o Good timing = strong demand / ease of syndication o Aligned comp incentives: people do what they’re paid to o Syndication led to more entrepreneurial behavior, risk sharing, etc.

@NYUEntrepreneur 2001: New Venture Partners
formed © New Venture Partners

@NYUEntrepreneur 2001: New Venture Partners
formed u Raised fund to buy out portfolio in 2001 u Operating as independent VC fund since Dec 2001 u Focused on commercialization of corporate innovations through creation & funding of spin-out ventures u Identified, founded & funded +35 corporate spin-outs u 4 offices & 12 investment professionals in US & Europe u Experience spans materials & components, to software &services across IT, comms & cleantech u Cumulative capital under management of $800M+; closed last $300M fund in April 2006 © New Venture Partners

@NYUEntrepreneur NVP: Strategy and Focus
• Transform corporate R&D into valuable assets through venture spin-out creation • Formal & informal partnerships o 2 cornerstones o Many non-exclusives • Three types of deals o Early-stage disruptive technologies o Non-strategic commercially-ready products & services o Commercially-ready “incubands” • Provide capital & services in return for equity in new ventures—a value-added investor, not a consultant Business maturity Product maturity ? © New Venture Partners

@NYUEntrepreneur NVP: Why do Corps
do Spin-outs? u Strategic o Corporate BUs become a customer or partner o New channels to markets for tech corporate BUs can’t or won’t do o Preserves option to re-acquire or re-invest later with diminished risk u Technological o Brings culture of entrepreneurship to labs, attract young researchers o Increases clock speed of innovation o Elicits market feedback to shape project direction o Relieves researcher frustration u Financial o Creates financial gains through equity ownership o Accesses high risk capital funding otherwise not available o Complements, does not compete with, a licensing program © New Venture Partners

@NYUEntrepreneur How NVP Does it
Opportunity Iden=fica=on Market Qualifica=on Transi=on Venture Value Realiza=on Form new company New Venture Partners’ Role Traditional VC Role Go/No Go Go/No Go Corporate Decision NVP Decision Exis=ng product line © New Venture Partners

@NYUEntrepreneur What do these have
in common?

@NYUEntrepreneur
Universities

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Helping startups start up

@NYUEntrepreneur Our Playbook 20 Inspire
Educate Connect Accelerate Fund

@NYUEntrepreneur NYU Innovation Venture Fund
u Philanthropic seed fund u Evergreen: NYU sole “LP” u Active diligence u Help build smart syndicates u $100-200k direct investments u Converts, Series Seed & A u Board observer seats u Opportunistic follow-ons 21 I V F

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Fund Portfolio
22

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Select Co-Investors
23

@NYUEntrepreneur By the Numbers 24
Investments 10 Sectors Info Tech: 7* Life Sci/Health: 4* NYU Founders (School) CAS: 2 Medicine: 6 Eng: 1 Stern: 5 Dentistry: 2 Law: 1 Courant: 1 NYU Founders (Type) Students: 8 Faculty: 8 Researcher: 2 IT Investments Hardware: 2 Software: 5 Invested Capital Invested: $1,125,000 Value: $1,289,309 Female Cofounders 40% Total Capital Raised $20,490,000 (>18x)

@NYUEntrepreneur Why this investment model?
u Participate in larger rounds to achieve meaningful milestones & value inflection u Invest as part of a larger syndicate o Leverage diligence, expertise & connections o Follow-on financial support o Co-investors to serve on boards u Other sources exist in/outside NYU to fill pre-VC needs 25

@NYUEntrepreneur Critical Role of the
Fund u Return on investment u Demonstrates University commitment & importance of entrepreneurship u Raises NYU's profile amongst peer institutions & government agencies u Credibility & bridge building with NYC investor community u A catalyst for entrepreneurship within NYU 26

@NYUEntrepreneur Money not 1st item
in critical path 27

@NYUEntrepreneur Universities & Corporates Similarities
u Often based on research u Publishing & recognition driven u Gov’t & corporate grant funding u Need to evangelize entrepreneurship u Personnel not always suitable for a startup u A lot of handholding Differences u Limited development u Not measured on IP creation u Less access to commercial validation u Less aware of IP & commercialization pathways u No secondment u College is a lot more fun!

@NYUEntrepreneur Questions? entrepreneur@nyu.edu @nyuentrepreneur nyu.edu/entrepreneur
nyuentrepreneur.com 16 Washington Place 29

@NYUEntrepreneur
Helping startups start up