Brian Park and Erik P.M.

Vermeulen

Chasing Strategic vs Financial Returns:

How Should CVCs Operate?

Following the Herd! Start a CVC!

CVCs Are Gaining Steam!

419 Global CVC Initiatives 2010 (2H) to 2014 (1H)

100

Total CVC
75

50
LP in VC Fund
LP in VC Fund (Optimized)

25
Corporate/Direct off
the balance sheet
Spin-off (1 LP)

Spin-off (1+ LPs)

0
2010 (Est.)

2011

2012

2013

2014 (Est.)

CVCs Are Gaining Steam!

419 Global CVC Initiatives 2010 (2H) to 2014 (1H)

LP in VC Fund

40

30
LP in VC Fund (Optimized)
Corporate/Direct off
the balance sheet

20

10
Spin-off (1 LP)

0
2010 (Est.)

Spin-off (1+ LPs)

2011

2012

2013

2014 (Est.)

Start a CVC! Are You Kidding Me?

Number'of'Startups'Founded'!
Number'of'VC'rms'!'
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

26
24
22
20
18
16
14
12
10
8
6
4
2
0

14

20

13

20

12

20

11

20

10

20

09

20

08

20

07

20

06

20

05

20

04

20

03

20

02

20

01

20

00

20

99

19

98

19

97

19

96

19

95

19

National Venture Capital Association

Start a CVC! Are You Kidding Me?

Number'of'Startups'Founded'!
Number'of'VC'rms'!'
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

26
24
22
20
18
16
14
12
10
8
6
4
2
0

14

20

13

20

12

20

11

20

10

20

09

20

08

20

07

20

06

20

05

20

04

20

03

20

02

20

01

20

00

20

99

19

98

19

97

19

96

19

95

19

National Venture Capital Association

Investors

Harvesting &
Distribution of Returns

Fundraising

Exit

VCs
Developing

Contracting

Portfolio Companies

Investors

Harvesting &
Distribution of Returns

Fundraising

Exit
Developing

Contracting

SpinOuts

Portfolio Companies

VCs

Harvesting &
Distribution of Returns

70000

24

60000

20

50000

16

40000

12

30000

20000

10000

2009 2010 2011 2012 2013 2014

Exit

Open Innovation
Acquisitions
Developing

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)
(2)
(3)
(4)
(5)
(6)
(7)

Herd Behaviour
Lack of Focus/Interest
Lack of Internal Know-how/Talent
Internal Politics
Wrong Incentive Structures
Disappointing Performance
Regulatory Issues

How to Excel as a CVC?

80"
70"
60"
50"
40"

SUCCESSFUL
T R A N S F O R M AT I O N

30"
20"
10"
0"

Direct
Sub"(VC"Compensa9on)"

(VC Compensation)

Traditional CVC (off the balance sheet)

90"

Sub"(Non<VC"
Direct
Compensa9on)"

SUCCESSFUL
T R A N S F O R M AT I O N

Spin<o"(1"LP)"

Spin-off (1 LP)

Spin<o"(1+"LPs)"

Spin-off (1+ LPs)

How to Excel as a CVC?

80"
70"
60"
50"
40"

SUCCESSFUL
T R A N S F O R M AT I O N

30"
20"
10"
0"

Direct
Sub"(VC"Compensa9on)"

(VC Compensation)

Traditional CVC (off the balance sheet)

90"

Sub"(Non<VC"
Direct
Compensa9on)"

SUCCESSFUL
T R A N S F O R M AT I O N

Spin<o"(1"LP)"

Spin-off (1 LP)

Spin<o"(1+"LPs)"

Spin-off (1+ LPs)

How to Excel as a CVC?

80"
70"
60"
50"
40"

SUCCESSFUL
T R A N S F O R M AT I O N

30"
20"
10"
0"

Direct
Sub"(VC"Compensa9on)"

(VC Compensation)

Traditional CVC (off the balance sheet)

90"

Sub"(Non<VC"
Direct
Compensa9on)"

SUCCESSFUL
T R A N S F O R M AT I O N

Spin<o"(1"LP)"

Spin-off (1 LP)

Spin<o"(1+"LPs)"

Spin-off (1+ LPs)

How to Excel as a CVC?

B E T T E R U N D E R S TA N D I N G O F T H E
V E N T U R E C A P I TA L E C O S Y S T E M

80"
70"
60"
50"
40"

SUCCESSFUL
T R A N S F O R M AT I O N

30"
20"
10"
0"

Direct
Sub"(VC"Compensa9on)"

(VC Compensation)

Traditional CVC (off the balance sheet)

90"

Sub"(Non<VC"
Direct
Compensa9on)"

SUCCESSFUL
T R A N S F O R M AT I O N

Spin<o"(1"LP)"

Spin-off (1 LP)

Spin<o"(1+"LPs)"

Spin-off (1+ LPs)

How to Excel as a CVC?

80"
70"
60"
50"
40"

SUCCESSFUL
T R A N S F O R M AT I O N

30"
20"
10"
0"

Direct
Sub"(VC"Compensa9on)"

(VC Compensation)

Traditional CVC (off the balance sheet)

90"

Sub"(Non<VC"
Direct
Compensa9on)"

SUCCESSFUL
T R A N S F O R M AT I O N

Spin<o"(1"LP)"

Spin-off (1 LP)

Spin<o"(1+"LPs)"

Spin-off (1+ LPs)

Key Takeaways
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:

1) Corporates must act

like a VC.

Fund-of-Funds

Secondm

ent

Partner

VC Fund

Past Performance
Top-quartile funds often over-subscribed

Future Performance
Disruptive (entrepreneur-friendly)
Visible
Hyper-active

Key Takeaways
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:
1) Corporates must act like a VC
2) Otherwise, its best that they
invest directly in a VC, FoF (as a
real partner)

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