Brian Park and Erik P.M. Vermeulen Chasing Strategic vs Financial Returns: How Should CVCs Operate?
Nov 16, 2015
Brian Park and Erik P.M. Vermeulen
Chasing Strategic vs Financial Returns: How Should CVCs Operate?
Following the Herd! Start a CVC!
0
25
50
75
100
2010 (Est.) 2011 2012 2013 2014 (Est.)
Corporate/Direct off the balance sheet
LP in VC FundLP in VC Fund (Optimized)
Total CVC
CVCs Are Gaining Steam!419 Global CVC Initiatives 2010 (2H) to 2014 (1H)
Spin-off (1 LP)Spin-off (1+ LPs)
0
10
20
30
40
2010 (Est.) 2011 2012 2013 2014 (Est.)
Corporate/Direct off the balance sheet
LP in VC Fund
LP in VC Fund (Optimized)
CVCs Are Gaining Steam!419 Global CVC Initiatives 2010 (2H) to 2014 (1H)
Spin-off (1 LP)
Spin-off (1+ LPs)
Calculated % of Deals with CVC
National Venture Capital Association
02468
101214161820222426
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20112012
20132014
Start a CVC! Are You Kidding Me? Number'of'Startups'Founded'! Number'of'VC'firms'!' Number'of'Industries'Disrupted'!' Number'of'Unicorns'(1+'B'Valuations)'!' Number'of'IPOs'!' Number'of'M&A'Deals'!' Number'of'Media'Coverage'on'Startups'! Number'of'People'Employed'by'Startups''!'
Calculated % of Deals with CVC
National Venture Capital Association
02468
101214161820222426
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20112012
20132014
Start a CVC! Are You Kidding Me? Number'of'Startups'Founded'! Number'of'VC'firms'!' Number'of'Industries'Disrupted'!' Number'of'Unicorns'(1+'B'Valuations)'!' Number'of'IPOs'!' Number'of'M&A'Deals'!' Number'of'Media'Coverage'on'Startups'! Number'of'People'Employed'by'Startups''!'
Fundraising
ContractingDeveloping
Harvesting & Distribution of Returns
Investors
VCs
Portfolio Companies
Exit
Fundraising
ContractingDeveloping
Harvesting & Distribution of Returns
Investors
VCsExit $
Spin- Outs
Portfolio Companies
Developing
Harvesting & Distribution of Returns
Exit Open Innovation Acquisitions
0
10000
20000
30000
40000
50000
60000
70000
0
4
8
12
16
20
24
2009 2010 2011 2012 2013 2014
202 of the 419 CVC Initiatives are inactive or have made 0 investments since their fund has closed
202 of the 419 CVC Initiatives are inactive or have made 0 investments since their fund has closed
Why?
(1) Herd Behaviour (2) Lack of Focus/Interest (3) Lack of Internal Know-how/Talent (4) Internal Politics (5) Wrong Incentive Structures (6) Disappointing Performance (7) Regulatory Issues
0"
10"
20"
30"
40"
50"
60"
70"
80"
90"
Sub"(VC"Compensa9on)" Sub"(Non
0"
10"
20"
30"
40"
50"
60"
70"
80"
90"
Sub"(VC"Compensa9on)" Sub"(Non
0"
10"
20"
30"
40"
50"
60"
70"
80"
90"
Sub"(VC"Compensa9on)" Sub"(Non
0"
10"
20"
30"
40"
50"
60"
70"
80"
90"
Sub"(VC"Compensa9on)" Sub"(Non
0"
10"
20"
30"
40"
50"
60"
70"
80"
90"
Sub"(VC"Compensa9on)" Sub"(Non
Key Takeaways
1) Corporates must act like a VC.
Corporate Engagement in VC is IMPORTANT, But Highly Variable, Cyclical (Herding) Strategic Aims Must Take the Backseat to Align Incentives, Expectations, Aims w/ Startups = FOCUS ON FINANCIAL RETURNS! Corporates Can Have Role in Ecosystem, But Only Under 2 Specific Circumstances:
Fund-of-Funds
VC Fund
Secondment
Partner
Top-quartile funds often over-subscribed
Disruptive (entrepreneur-friendly) Visible
Hyper-active
Past Performance
Future Performance
Key Takeaways
1) Corporates must act like a VC 2) Otherwise, its best that they invest directly in a VC, FoF (as a real partner)
Corporate Engagement in VC is IMPORTANT, But Highly Variable, Cyclical (Herding) Strategic Aims Must Take the Backseat to Align Incentives, Expectations, Aims w/ Startups = FOCUS ON FINANCIAL RETURNS! Corporates Can Have Role in Ecosystem, But Only Under 2 Specific Circumstances:
erik .verme
ulen@philip
s.com
e.p.m.verm
eulen@til
burguniver
sity.edu