#corporate vc

[technofin]

شراكة Changelabs وراية FutureTECH لتعزيز الابتكار المؤسسي في مصر

أعلنت شركة Changelabs عن شراكتها مع راية FutureTECH، المسرّع التابع لشركة راية القابضة للاستثمارات المالية، لإطلاق مسرّع الأعمال المؤسسي الجديد في مصر، والذي يستهدف دعم الشركات الكبرى في الوصول إلى ابتكارات الشركات الناشئة وتعزيز التعاون بين الطرفين. جاء الإعلان عن هذه الشراكة بعد سلسلة من النجاحات التي حققتها Changelabs خلال السنوات الخمس الماضية في تنفيذ برامج ريادة الأعمال بالتعاون مع مؤسسات…

شراكة Changelabs وراية FutureTECH لتعزيز الابتكار المؤسسي في مصر

[kbspvc]

How Corporate VCs can Service Their Portfolio

With the rise of micro VCs, an increasing number of corporate VCs (CVCs), and numerous family offices investing in startups- there are several new sources of capital for entrepreneurs outside of traditional VC funds.  While there are benefits to having a mix of “hands on vs. hands off” investors, several VC funds are actively looking to define their own strategic value - often in a newly minted “Platform” role which is intended to support the portfolio in a helpful, scalable way.  Each fund has its own approach to how they’re defining this initiative – it often focuses on founder needs such as talent recruitment, community building events, BD, marketing, or accounting support, educational resources or customer introductions.

As a strategic CVC, this idea of servicing our portfolio is something we think about a lot.  Our core business is servicing Fortune 500 brands; we see our portfolio as an extension of our client roster.  Being domain experts in the advertising and media world, we believe our investment thesis should be fueled by the white spaces we identify in the market – and thus, want to partner with the entrepreneurs that are pioneering the evolution of Madison Avenue.   This connected ecosystem between our portfolio companies and our main agency business enables us to align, test, and learn from some of the most forward thinking companies in our industry.  We’ve developed several internal processes to achieve this vision – and often help other investors unlock their own unique selling points.  Below are the best practices we’ve found successful as a CVC:

1.    Create an onboarding process and company Playbook for your founders

Every CVC has numerous layers and complexities to their core business- it can be a minefield for startups to navigate.  Help founders understand the role of each department, the main points of contact (creating internal advocates is key!), and how they can leverage those skill sets.  Being part of a global advertising holding company- we want our founders to be able to efficiently identify prospective brands or mentors so we can make introductions in an effective, streamlined way.  Connecting our companies with prospective customers is our main value add. This Playbook not only welcomes the founders into our network, it gives them more transparency into the resources available as their business needs evolve.

2.    Think of your company’s employees as a massive focus group

Kbs+ has a global footprint with 800+ people with experience across all facets of media, PR, creative, content, CRM, brand strategy, web development, etc.  This creates of treasure chest of invaluable insights for early stage startups to tap into and learn from.  Leverage the company’s expertise for brainstorm sessions or focus groups for your startups – it’ll often prove to be rewarding and enjoyable for both sides, while helping your portfolio company better understand the dynamics, industry, or workflow of their customers.

3.    Schedule monthly (or quarterly) report backs with senior executives

Each month we share highlights on the progress of our portfolio, bubble up any introductions on our founders’ “Wish list”, and discuss new investment opportunities in our pipeline.  While senior leadership isn’t involved in investment decisions, it creates a more vested interest in the success of our companies and helps identify new collaboration opportunities across our brand network.  Additionally, it feeds into our own internal culture of innovation and invention, while giving our venture team a fresh perspective on the companies.

4.    Create Venture Ambassadors through grassroot educational initiatives

kbs+ Ventures Fellows is course we teach twice a year about venture capital and entrepreneurship. Employees of all levels can choose to take this 3 month class.  We recently revamped the course and made it a more authentic experience to teach the students how to turn ideas into businesses.  Throughout the semester, we weave our portfolio founders into the curriculum – so they’re able to connect on a deeper level by learning about their personal journey about the highs and lows of building a company.  We’ve found this not only helps our employees have more empathy to better understand and collaborate with startups, but creates relationships that can extend into mentoring or new business opportunities for the portfolio.

Each CVC and venture fund needs to think about what’s right for their respective organization, but with the funding landscape becoming more and more competitive for the best deals- funds need to clearly define their own unfair advantage.

- Written by Jessica Peltz-Zatulove, principal at kbs+ Ventures

[thomasgr]

The changes in the German VC scene

Lately I was realizing that there were more changes in the German VC scene happening while less people and even journalists have reported on. So I was wondering why so less people took note of that. When I started in the VC industry some six years ago I met some amazing and very skilled peopled from whom I learned a lot. Whenever there was an event it was like classmates reunion and we all came together to discuss new deals - new exits - new opportunities. We were always sure to have a fellow VC we could talk to and get some behind the scenes insides. This is still the case to some extend however I recognized a major shift in the VC scene lately and I was thinking if it is me alone who is feeling the change too.

We have seen the old guys leaving their funds like Patrick, Jan, Stefan for the most highest level to mainly found their new funds and making a fresh start based on their huge experiences. Especially Patrick and Stefan will make an impact running the most recent Corporate Venture Capital fund for Commerzbank in the high times of Fintech out of the German center of Finance. As always those new funds need to make the first bets on later stage investment to mitigate the risk and have a good standing inside a VC inexperienced corporate environment. On the contrast Jan is starting his new fund to help fueling the Berlin ecosystem with international founders giving them a head start with his huge international network and relationships in his former corporate ecosystem and other corporations to get this much needed customer base. But also on the lower level we saw some personal changes: Jan left his old role and took a long break before recently joining his new role in one of the most successful corporate VC funds to pursue his passion for tech investments. Thomas left his old fellows in Hamburg to start another Hanseatic CVC fund for media investments and Gabriel left his role in Berlin to become independent but maybe we will see some of his new activities as well very soon. Earlier this year Christian left his Venture Partner role to join as a VC the freshly funded, well-known, Berlin based VC fund. (Apologize for all the ones I missed out this time but I am sure we all will note your moving and shaking.)

With all this changes - and I am pretty sure there will be more to come during this interesting times of 2015 - I started to think why those are happening during the last year. All this well experienced and leading investors made the decision of moving on within the last twelve months. So what made them all to move at the same period or are there overlaying trends which have an influence on the German VC scene in general?

I believe in the later and those are the trends which are changing the VC industry in Germany and it will cause more moves and changes in the coming months - if my observations are true:

1.) Big funds are essential for making an impact: In times of unicorns and Mega rounds, it is hard to make an impact as an investor with a medium sized investment. Even a $10m investment is not making you an overall lead investor in a financing round anymore. Why is that a founder might ask? Because either you get a big round - and you as a founder give a damn good reason to be worth the risk - or you don't get nothing. Investors are rather pooring much money in very few deals nowadays. Investors don't give just $1m in a deal when they are not totally convinced. If they are convinced than they have no problem to go deep into the deal with big bugs. To be able to make this big beds they need to have a large fund. Keeping in mind that VCs - and not talking about accelerators - need to keep funds at hand to pay in the following rounds to keep their stake with a pro-rata at least. That leads to the need of $10m for the whole investment period until the exit even if your initial investment was just $1-2m. Having a fund of $100m that means you can do a maximum of ten deals in five years which is an average of two deals a year. To do more deals a year you need a bigger fund - ideally $250-500m. That is not happening in Germany lately or even at all. Biggest fund raised were Earlybird, HTGF, Holtzbrinck, Samwer's Entrepreneur - all of them between $150m up to $250m.  (Image source: http://www.slideshare.net/szasz1/ernst-young-venture-capital-and-startups-in-germany-2014 )

2.) Investing in Europe is risky, not talking alone in Germany: There are good companies and their founders in Germany, but in total the number is low compared to the overall number of startups in Europe. Those good ones out there have access to enough funds and can pick & chose from the best. However the best are the US and UK VCs from a founders perspective. Ask a founder from whom he rather take the money - independent from valuation and investment size. They all will prefer the top 10 US VCs including those having a UK presences as well (or vice versa). Usually those funds will not allow co-investments from smaller funds in the same round. They are happy to have you in the next rounds to confirm higher valuations and taking risks at higher prices while giving them an increase of book values of their first investments. All fair - I am not complaining hence the risk profile is lower as well for later stage investment. However those larger investment rounds come with minimum investment sum and are in competition with smaller private equity funds seeking a pre-IPO opportunity. So for German VCs it is critical to be the first in a deal - however those are risky by nature. So the overall risk profile for German VCs in German and European deals are getting higher due to the money flooding into the space from overseas. Not all VC funds are willing to follow this metrics: take higher risks in early deals or pay high prices in later stage deals pushed by bigger VC funds early investment strategy.  https://www.cbinsights.com/blog/european-startups-us-venture-capital/

3.) Coporates re-evaluating their position in Startups: Historically we had seen the number of corporate venture capital funds increase and decrease in the past since 1997. At the end of a hype cycle corporations increased their investing capacities and paid high prices to get into the game. They left the space when it was too late and loosing large funds. During the last two years they came back to the repeating high times and are in the danger of losing big bets again. However they are smarter and more careful than back in the days. Also they found the way of partnering to get involved with startups without betting money on the equity side but rather on the OPEX side. Taking note of the unicorn development it doesn't come as a surprise that corporates are tending to partner with US company rather than with local startups. When investing at unicorn valuations the potential uplift from an equity investment is very limited for those corporations. However the partnering deals with well funded unicorns can actually bring revenues for installed apps or revenue shares from transactions. In times when unicorn exits are in danger the shortcut of revenue streams are more profitable for corporations. Also corporations might not be as loyal as founders might think. One the one hand corporations cannot give exclusivity from competitors of the startup and may just implement their dual vendor strategy in this space as well. Still those partnering will ensure steady revenues for startups and bring a good reference when pitching to other fortune 500 clients. One side effect of this analysis is also the future of accelarators we will see in the coming years. (Source of image:   https://www.cbinsights.com/blog/unicorn-acquisitions-2015-ytd/

Considering all this changes in a shifting Venture Capital world it isn’t a surprise that the main movers & shakers of this industry will consider changes as well to find their position in a rollercoaster ride. Expect more changes ahead on all levels. Be prepared to keep your network up to date all the time and make new friends - you never know where your old friends end up. Next time when meeting your friends from the VC industry do not talk only about the market und your own startup. 

So keep yourself updated on the personal changes in the market and keep track who is in charge where and for what. The next fundraising is just around the corner as always and you will need this information to build your strategy.

[nicpoulos-blog]

Enterprise Innovation Through Startup Partnerships

Enterprise Innovation Through Startup Partnerships

Enterprise innovation has been a topic of academic focus since well before the MBA existed but only in recent decades has it become such an imperative. In 1997, Clayton Christensen introduced the world to his concept of the “Innovator’s Dilemma,” wherein large companies that focused too much on customer needs of today (versus their future needs) would miss out on game-changing products and…

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[thomasgr]

Top 3 most important Questions to ask before starting a Corporate Venture Capital fund

After I published my post on “The Goals for Corporate Venture Capital” earlier this month the inquiries I received dealt with the questions what to focus on when setting up a Corporate Venture Capital fund. Based on my experience and knowledge I would propose the top 3 most important topics to think about when implementing a fund structure below. This obviously follows the profound decision to start such an activity in the first place. I highly recommend to think it through before you start.

In general starting a CVC activity will involve the whole organization. So a company needs to communicate this new idea into the organization top down and it needs the involvement of the CEO himself. This is not a marketing or corporate strategy activity. The boss needs to drive this activity so everybody within the company can refer to this in times when critical discussion like investment versus budget achievements need to made. It also needs the understanding on all levels that corporates - independent from the industry they are working in - will benefit from the cooperation with startups and founders. 

We are not in the year 2000 when all corporations started investment activities and left the venture business within the next three years again. That departure - mostly through secondaries - was a negative impact on the venture scene which most of the CVCs today suffer from. CVCs still have to explain why other CVCs left the environment and damaged several of their portfolio companies with their decisions. This time all companies who think about starting CVC activities are doing a profound analysis and are careful when entering the market contacting potential target companies. The startups are well prepared when talking to VCs with a corporate background and have questions prepared which needs to be answered before an investment takes place. All in all this is a good development for the venture ecosystems. Most of the decision makers I talked to recently focus on sustainability, mainly driven by the outside and inside view on those activities. The board needs to be convinced this is not a "one-trick-pony-show" and the portfolio companies and co-investors needs to be assured that this partner will be in the market for the long run. 

As a preparation and also as an alternative strategy the accelerator model has been found as a valid model. It will offer young companies space and cooperation on a working level. It will save some valuable cash in the beginning and open doors for product validation and pilot projects. Corporates can learn how to deal with early stage startups and their processes while startups will understand that the complexity of a fortune500 company will impact sales cycle and product design. All of this benefits while not being tight to an equity investment and the long term duties of a shareholder with all legal boundaries. Even in the case of a failure of the startup as such, a fortune500 company could get access to talents from the startup ecosystem easily if employees of this particular startup are up for joining a bigger corporation to get back to a financial stable situation for the time being. 

But at the end it will come down to the top three most important questions when starting a Corporate Venture Fund:

1) How to talk to your board?

Setting up a venture fund involves a lot of regulatory and legal work so that approval from the boards is in almost all cases necessary. Such a process needs a profound information process of all stakeholders. Hence knowledge of this niche topic is not available in boards, the education process is needed for each stakeholder. Be aware that educating the goals, the limitations and the demands for implementing such a part of the business needs extensive preparation. Also external consultants for this topic are not broadly available especially hence those funds need to be integrated into specific business environments and a corporate framework, the process needs a lot of internal support. After explaining the structure of this fund and organizational setup it is most critical to communicate the goal for this fund. If the size is relatively small it will be hard to achieve a positive return for the whole fund and the costs of needed personell. Therefore the focus should not be on return and a multiple on it's invested capital. Focus will then be on corporate culture, knowledge transfer and brand marketing. Usually it will be a very good outcome to return the investment over time of all invested resources during the lifetime of that business unit. If the fund has a significant size the goals can be set higher in terms of returns of invested capital and achieve a positive return above an agreed hurdle rate to offer an attractive carry for investment professionals. Overall the goals of the fund and the targeted company it should focus on needs to be matched with the own product portfolio and business units. Involving general business goals into this fund goal setting is crucial for the success of this activity especially to present results to the board in the first years time after founding it.

2) How big needs the fund to be?

Next important questions to be answered is the size of the fund. While the answer is depending on available assets and future EBIT planning of the corporation in general it needs to be understood that sizes indicates the strategy for the fund. In case the fund is in the smaller range of $20m - $60m volume over a five years investing period the focus should be on knowledge transfer and returning invested resources over fund life time (meaning invested capital and operational costs). In terms of bigger funds from $250m to $500m this will be a VC fund focusing on returning certain multiples on the invested capital and hurdle rate covering the management costs of this fund. Additional proceeds from investment activities will be available for future fund generations and carry for fund managers. Depending on the fund size communication activities internally and with external focus will be fundamentally different. Stakeholders will need to be handled based on the expectation management set during the initialization of the fund. Changing the initial target setting over time will lead to a possible failure of the investment activities in the short term and will make future investment activities impossible. History has taught us that positive or negative press will reach the board rather sooner so make sure your PR activities are setup right from the beginning. 

3) How to set up the organizational structure for a CVC?

Many fortune500 companies believe in a principal leader structure. One person at the top of a business unit will make sure that the business runs smoothly and has a strong guidance. This is not true for Venture Capital in general and it is the most impractical structure for a CVC. Venture funds need a balance of power and a strong “propose & challenge” mentality. Whenever preparing a decision on a deal or a “live or die” of an investment it is a necessity to have a counter part to look independently on this case. Therefore the partner structure in the VC world has been the best proven model. As uncommon this model seam for a corporation it is the only way to run a CVC. It is one of the main issues to be discussed with the board during the set up process. When VCs pushing their portfolio companies to be lean and fast the same is true for the VC fund itself. Less personell insures fast and proper decision making. With two partners and a limited number of associates will be a good starting point for a CVC. Overtime some additional investment professionals are needed depending on the size of the fund and portfolio. Usually some supporting activities can be sourced from the corporation itself such as technical due diligence expertise, legal, finance and compliance. For the rest some external consultants will be useful for special activities. Following the current VC model additional resources to serve the portfolio companies during their investment phase are advisors to support those companies on topics such as HR, product design, product marketing and general internal process support. Those resources of expertise are mostly available inside the fortune500 companies and employees are often happy to get this side role to work with young founders and new technologies and business models.

What will happen in the near future?

Overall I have seen most of the corporations setting up or have set up their new venture firm are following those main guidelines. The rest will from my perspective adapt this framework rather sooner than later after they made their first experiences from markets and their internal stakeholders. The market will drive decision makers to implement the most efficient structure.  We will see more CVCs in the near future with smaller and bigger fund sizes in Europe. This is good for the investing clime overall and it will fuel the transformation processes of the industry into the digital world as we know it today.

[thomasgr]

Why VCs invest in the App economy

Feel free to ask questions via the discuss feature below this blog post.

[thomasgr]

Corporate Venture Capital is back: T-Venture Open 2014

by Thomas Grota

We had our bi-annual portfolio day last week in Berlin. With great honor we had our CEO of Deutsche Telekom as keynote speaker with a strong message to the audience. DT group is looking to enable it's partners even stronger in the future. We want to connect them faster with our networks and give them access to our customer reach more easily. Of cause we want to benefit from those partnerships as well.

There is a lot to be done in the coming months but as Tim Hoettges pointed out we are on a good track. Corporate Venture Capital is one pillar to engage with startups in the Valley as well as in Europe. He wants T-Ventures to take a more leading role, taking part in this process and become a leader in the CVC space and getting higher in the ranks as we are currently on #7 globally. 

Areas to be investing are defined as well. Foremost one topice we have been thinking for some year now: Cyber security following the NSA troubles revealed by Mr. Snowden. So it looks like we are on the right track so far, while mobile, cloud and big data are still and will be on our target list. 

Having 80 portfolio companies as our guest in Berlin was also a strong message and interesting to see how our portfolio CEOs can connect across our portfolio as well with senior management in Deutsche Telekom. 

Some German articles give some impression on the event:

Telekom umwirbt Startups (Handelsblatt) 

Wie T-Ventures mit Security größter VC werden will  (Berliner Morgenpost) 

Chaos nach Plan (Sueddeutsche Zeitung) 

“Eine gute Idee ist auch außerhalb des Silicon Valley umsetzbar” – Interview Marco Börries  (Blog Deutsche Telekom AG)

(There are more but behind pay walls so I can't provide links).

[pawelchudzinski-blog]

Thoughts on (corporate) incubators

Recently, some larger companies in Germany started opening up technology incubators at an increased pace, frequently in Berlin: Rewe, Fielmann, Coca Cola (not from DE, but opened up in Berlin), Pro7 to name just a few examples. It seems many of them have neglected the power of the Internet revolution so far and ignored the waves of innovation coming out of the startup community. Incubators seem to be a relatively capital efficient way to start participating in the movement.

At the same time, early movers in the incubator space recently made moves and announcements signalling that the incubator / accelerator model is actually pretty hard. Some local examples would be Hack Forward shutting down and publishing a long list of lessons learned, Team Europe announcing a shift in their strategy, Springstar being rather quiet and focused on supporting well funded international startups on their European expansion or Project A seemingly turning more and more into a VC with a lot of resources to support their ventures rather than a classic incubator developing own ventures from scratch.

I think that sooner or later corporate incubators will make similar experiences themselves and it will be interesting to watch how they react. My personal take is that a corporate incubator is a first step by some corporates towards participating in the innovation coming out of the startup ecosystem. The second step would be a corporate venture fund and the most advanced one (associated with largest $$$) is actually making acquisitions. Let's see how many of the companies that start incubators will make these next steps.