#65: Panel discussion on Corporate Venture Capital – a deep dive into how to set it up, engage with CVCs, and more

Hi, I'm Jeppe and welcome to my newsletter on Corporate Venturing. My aim is to provide a comprehensive perspective on the latest developments in the field and its related topics, drawing from the insights top management, venture capitalists, founders, LPs, and family offices. I aim to offer valuable information and thought-provoking content that will aid in understanding the importance of Corporate Venturing in business strategy.

Here we go with the new format in collaboration with Andreas Munk Holm and EU.VC.

The first version is setting the scene of Corporate Venturing in a discussion with the amazing CVC professional, Managing Partner from EnBW New Ventures Crispin Leick and Copenhagen Business School 's Francesco Di Lorenzo sharing findings from his CVC study.

✍️ Show notes

We believe in giving you our guests' thinking directly and unaltered. Therefore, no changes, no AI, no nothing has been done to the following sections.

Setting the stage - What is Corporate Venture Capital?

Jeppe:

• CVC is getting more and more common as a strategic tool for collaboration and interacting with the startup ecosystem. Cases like Blockbuster/Netflix as well as the disruption of Kodak through the digital camera has put CVC on the radar as a strategic element. 
• European CVC is still behind it’s US counterparts. It seems like we are 10-15 years behind the best, even though there are more than a 1,000 European CVCs
• The main difference between VC and CVC is that the CVCs can leverage their existing business to help start-ups grow (The A,B,C,D,E). The downside is the often pure strategic view and lack of understanding of how to collaborate with a start-ups and co-investors.

Francesco:

• CVC has established itself as a leading strategy for growth among the primary corporate venturing activities, along with acquisitions of startups and corporate accelerators/incubators.
• From a startup perspective, CVC has established itself as the 2nd ranked source of financing, 1st being VC (of course!), representing a 20%+ of the total # of investments received by or $ equity invested in startups, around the globe in the last 20 years.
• The “CVC effect”, as I call it, makes corporations and startups better-off. Corporates can open windows to new technological opportunities to both strengthen their core business and diversify in new technological space; startups can tap into corporate resources (market channel, legal services, manufacturing and R&D facilities, for example) improving quality and quantity of innovation output (patenting, for example) and their overall evaluation.
• In the Nordics, my recent survey on the status of CVC in the Scandinavian countries, corporates do invest mostly to “explore innovative or specialized technologies, products, solutions.”, proving mostly to their portfolio companies “opportunity for a proof of concept, capital, and know-how”.

Crispin:

• Our corporate backer has initiated the CVC for strategic reasons looking for
• But our unit is a pure profit center, driven by the success of the startups in our portfolio
• Our CVC approach is as close as possible to a classical VC setup, however I am convinced that CVC has an advantage over VC when it comes to deep insights into the business models, customer pain points and the markets of the startups

• EnBW New Ventures

Challenges and opportunities: The dual role of CVC

Jeppe:

• The answer is yes. But only if you do your preparations right. Constructing a Venture Program as a starting point getting insights from C-suite, Board and owners is essential for the survival of a CVC. 
• I think we where a bit lucky at Maersk Growth doing some financially strong investments early on that got as going. We where struggling doing the right strategic investments as collaboration with core Maersk lagged a bit. But as we changed managing partner this became a lot easier. We constructed a team only focusing on the collaboration between our investments and Maersk as well as a strategic insights team. This gave us a clear position where we could talk about the startup ecosystem and potential disruption to the Maersk business.

Francesco:

• This is one of the most exciting yet difficult tasks for a researcher on CVC! Define what is strategic vs financial goal, and collecting systematic data across industries and time on this important aspect is quite a challenge. Exception is Chesbrough (2002).
• Yet, most of the CVCs are assumed to have a strategic goal for their CVC, and this assumption is regularly validated in interviews and public statements. The point here is not strategic vs. financial, as most of the CVC are strategically oriented (meaning, either provide access to new technology or to open new market opportunities); the point is what is the level of tolerance for financial risk and (low or lower!) financial returns in order to achieve the strategic goals. In this aspect, corporate can be different (see BMW ventures, Google Venture or Salesforce Ventures as examples).
• In my recent Survey, 61% of the respondents declared to be purely strategic and an additional 26% to be balanced between strategic and financial goals.

Crispin:

• C Level managements understanding of CVC business model is key
• CVC is linked to the CFO
• Access of CVC to Top Management was established on day one
• Financial success AND strategic impact are both relevant for the CVC success
• Financial return is license to operate
• The strategic part is reflected only in the frame = the investment strategy, not in the individual investment decisions
• In our case, we do not invest in hard assets, this is core business of our corporate backer, but in startups, that scale and enhance the sustainable infrastructure roll out often with digital business models

CVC’s role in corporate innovation: success and failures

Crispin:

• Very different types of corporates need different answers to innovation
• CVC is best initiated when real disruption stress is imminent in the corporate
• CVC is an investment tool
• Structurally separate corporate business development/internal innovation from the CVC unit
• CVC needs an engagement management, that is not transaction oriented, but corporate pain point focused, to open the doors to the corporate for cooperation and to give input into the deal team about the possible startup impact on the core.
• Recent example where pain points meet CVC invest: 
• What to keep in mind to make CVC an innovation success

Jeppe:

• We often struggled when our internal due diligence on potential collaboration between our investment target and Maersk did not materialize. This was no ones fault but we often saw that what we thought to be a strategic opportunity was not a strategic opportunity within the core business. This led to us not being able to drive significant value for our start-ups on a commercial basis. What we always did was to secure that the startup gained significant value from other parts of the business at the same time (A,B,D,E)
• I think that had we developed more internal processes in agreement with the core business of what successful KPIs would be, we would have been more successful in creating value for Maersk

Francesco:

• Let’s start acknowledging that innovation is a complex process, so it is to measure. Thus, looking at the direct impact on corporate innovation of investments in startups is not an easy job. This is why most of the attention has been primarily given the how CVC impacts investee ventures. In any case, there is a general agreement that CVC investments have a positive effect on corporate innovation; like increases in explorative learning, R&D productivity…
• More recently, in a study of AI investments in the last 10 years done by leading worldwide publicly traded corporations I found that corporate tends to substitute internal effort in AI R&D with investment in AI startups via CVC (-14.8%), yet these CVC investment in AI startups increases significantly efficiency KPI, like ROA.
• This results show a more nuanced picture of how CVC investments can play for firm performance.
• The key element that emerges from the literature to sort CVC initiative between success and failures seem to be commitment/involvement. In other words, corporate needs to interact and collaborate strategically and effectively with their startups to create the desired synergies. When the goal is strategic, actively collaborating and working with the startup is the key for successful CVC initiatives. In this sense, observing more and more CVC taking a lead position in investors syndicates seem to be promising.

The future of CVC: trends and predictions

Francesco:

• Corporate have started their journey back to the core when looking at CVC. CVC needs to create value for their parent. This is why Venture-Client model as well as corporate incubators are representing growing and dominant logics in the current CVC scene.
• Deal sourcing is and will be still a challenge for CVCs. How to address it? New trends show that corporate are willing to use intermediaries to improve their dealflow quantity and quality, like PnP or Touchdown Ventures.
• Improving the internal governance of CVC initiative. CVC is still challenged by the “Not Invented Here” syndrome when it comes to create synergies with the parent, especially the R&D unit, from their investee startup. A stronger early on involvement of key actors coming from the Operations is a fundamental opportunity to not be missed to extract more synergies from CVC.
• Integrate CVC in a more general framework for Corporate Venturing, and focus on what a corporate knows at best, which is not investing in startups. In this sense, hybrid models are emerging and they represent a great new CVC model opportunity, where the corporate manages at the strategic side and a VC takes care of the financial side of startup investing. This new mix is very promising, as Velux or A2A corporations are showcasing.

Jeppe:

• For European CVCs we will be more used to C-suite understanding how they leverage CVCs as a strategic tool. There will be more and more corporations with CVCs that engages with the ecosystem. 
• More and more Corporations will create Corporate Venturing Programs through a collaboration with boutique consultancies ensuring long term strategic survival of their CVCs.
• Maersk Growth continues to do some direct investments as a CVC but is now more engaging in the Corporate-Client model.

Crispin:

• Pure strategic CVC approaches will disappear
• Evergreen will increase in popularity, as it provides all VC KPIs 
• CVCs will play an even more important role in the overall VC community in the future
• Corporates that are able to synergetically combine different innovation tools based on their needs will be most successful regarding impact on their core business, e.g. combining CVC with Venture Clienting

A look at the person behind - Crispin Leick

Who’s Crispin and what are the life learningsthat guided him through life?

• Start into something that is a small minority view and still convinces you 100%
• Pursue your conviction even through difficult times, built knowledge around it, and find partners and mentors that support you and share your vision
• Find a team that shares your conviction and can execute on each aspect even better than you can on your own, empower them!
• Engage in something you are proud of when you explain what you do to your kids

Advice to young people in the industry?

• Think about your strengths and focus on them
• Don’t try to excel in an area that is not close to your heart
• Decide which sector you are deeply interested in and built knowledge in it
• Try to get deal exposure as early as possible

A look at the person behind - Francesco Di Lorenzo

Who’s Francesco and what are the life learningsthat guided him through life?

• Impact. From early times, I have been very much interested in and driven by impact. To say, building something new that can add value to a group of people or organizations of reference. I did it by co-founding the first university group to discuss non-profit economics topics at Bocconi University, I did it by co-founding the first fair-trade shop in my neighborhood in Milan, I did it by working for UNICEF as a student first and as a new recent graduate later. I did it more recently by conducting the first comprehensive survey on CVC in the Nordics. All these, among others, are simple and small but relevant examples of my driven for impact, so create value for the Others (with capital O).
• Entrepreneurial thinking. I have been interested and fascinated by entrepreneurial thinking. If something is not there? Well we create it! This has been my approach when I created a small business on data analytics training programs back in 2009, my first startup, or when I have recently founded the Copenhagen Sailing Community, first sailing community of expats in Copenhagen. These examples, among few others, reflect my principle of looking for opportunities to create something new that responds to a demand for an unmet need, which I try to address working hard in the frontline.
• Well, CVC for me is very fascinating and full of personal drive topic because it brings together elements of entrepreneurship, innovation, strategic thinking, all oriented to create an impact and tap into new opportunities. I feel very identify by it!

Most counterintuitive learning.

• How much organizational resistance there is in corporations to change their modus operandi when engaging with startups, despite such need for change is among the primary driver for engaging with them!

I hope you enjoyed this week's newsletter. If you have any suggestions or contributions that you would like to share with me, please do not hesitate to reach out. I would be delighted to hear from you