#17: What's going on in Corporate Venturing with James Mawson
Hi, I'm Jeppe and welcome to my weekly newsletter on Corporate Venturing, released every Tuesday. My aim is to provide a comprehensive perspective on the latest developments in the field and its related topics, drawing from the insights of 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.
In this edition of my newsletter, I had the pleasure of interviewing James Mawson, the founder of Global Corporate Venturing (GCV), to gain valuable insights into the dynamic world of corporate venturing. James shared his expertise and provided thought-provoking responses on various aspects of this rapidly evolving field. Let's dive into the highlights of our conversation.
James's Background and Interest in Corporate Venturing
We began by exploring James's background and his interest in corporate venturing. With a background as a private equity/venture capital editor at Dow Jones, he recognized the potential of strategic investments and started focusing on corporate venturing instead of independent venture capital by handing in his notice and setting up Mawsonia as the publishing company behind GCV in 2010. Innovation is strategic for governments, corporations and individuals, he said.
James emphasized that innovation can be performed both internal and external to the benefit of corporates. GCV is also working with governments to answer questions about corporate venturing, such as who participates and what do they invest in. This is complemented through benchmarking studies that GCV does on a regular basis through its professional development Institute as well as its news and information service through www.GlobalVenturing.com. The current CVC market shows more resilient corporates compared to the past and startups benefiting from the financial and strategic fit of corporates.
Exciting Developments and Trends in Corporate Venturing
James provided me with insights into some of the most exciting developments and trends in corporate venturing. Despite initial concerns in the ecosystem about the reaction of CVC in the current downturn, James noted that corporate venturing has displayed resilience, with a 2% increase in deal volume in Q1-23 compared to Q4-22.
CVCs demonstrate resilience in the current market
Compared to the first tech bubble, CVC has shown remarkable resilience in the current crisis as back around the millennium it was seen as the last in and first out. More corporates are supporting venture capital by becoming limited partners (LPs) through Fund of Fund investments, aiding the overall ecosystem as institutional LPs, the pension funds and life assurers, etc, retreat.
He also highlighted the shift in focus from solely providing capital to portfolio companies to actively contributing to their development by being customers and suppliers. James pointed out that while only 38% of corporates engaged in corporate venturing have business development or engagement teams specifically to connect portfolio companies to their parents’ business units, more are going in this direction as they mature (CVCs generally need to get through their first inflection point of surviving 3-4 years before they recruit a BD team). This is leading to increased success both strategically and financially.
Evolution of the Corporate Venturing Landscape
We discussed the evolution of the corporate venturing landscape over the past few years and the driving forces behind these changes. James highlighted the rise of Chinese corporate venture capital (CVC) players, such as Alibaba and Tencent, up to 2016-2017. However, geopolitical factors and reduced risk appetite have led to a decrease in their international and local activities in the past couple of years.
He also mentioned that the substantial increase in deals and volume in 2021-22 – the bubble era - will soon have an effect as these companies will be out fundraising soon if they can and at lower valuations.
We have also seen a notable shift towards sectors like artificial intelligence (AI), healthcare, and education. James predicted that the coming years will witness a push away from software or SaaS investments and into real products – a move from so-called bits to the atoms economy. Innovation here is likely to be harder for VCs to tackle than SaaS businesses are as it takes longer to see success and they are more operational challenges, which favours CVCs taking more of a lead.
The increased investments and developments within AI will change the investment strategies of the future
However, digitalization and the future of artificial intelligence (AI) will make humankind able to develop new molecules quicklier than we have seen in the past, whether for new drugs or bioengineering and for other parts of the ‘atoms’ economy. The development speed will increase.
Key Challenges and Best Practices for Corporate Venturing Professionals
James emphasized the difficulty of CVC survival, particularly during the third and fourth years and later in the sixth and seventh years. In the first period it’s crucial for CVCs to survive by showing some strategic and financial performance. Often times C-level forget that value is created over a much longer lifecycle as their own careers are measured on shorter time scales.
In the second period another challenge lies. If a CVC survives the first inflection point then they are often given broader mandates and resources, for example to expand into different sectors or regions or maturity stages than previously, as well as greater encouragement and BD folks to help land the value of corporate venturing inside the parent company. Retaining a dedicated team, however, is harder to do unless the remuneration and support is provided to the CVC team through industry-weighted salaries, perhaps including carried interest and higher basepay to limit poaching by VCs. All this while at the same time securing that the CVC is receiving support from the core organization is crucial to the survival.
Notable Success Stories and Impactful Corporate Venturing Initiatives
When discussing notable success stories, James highlighted companies like Siemens, Intel, Salesforce, and Tencent, all of which have made significant impact through their corporate venturing initiatives. One of the most notable CVC investments is Naspers investment in Tencent.
Naspers investment in Tencent is probably the best CVC investment ever
He acknowledged that Europe has generally underperformed in this area due to a lack of commitment from national governments and a failure of corporates to understand the inherent challenges and embracing the risk. However there are some notable ones, such as BP, Shell, Evonik, BASF, Bosch, with more going through the GCV Institute and attending the GCV Symposium to move more quickly up the curve of success.
Adapting to Impact Investing Trends
Impact investing, sustainability, and decarbonization are prominent trends in the corporate venturing landscape. James acknowledged the growing focus on these areas by both corporates and corporate venture capital. For example, Sony has set up a sustainability fund to incorporate sustainability goals into its investments.
We had a good discussion about avoiding the challenges of Climate tech 1.0 where CAPEX funding for scaling startups when product was developed. In Climate tech 2.0 we need to secure that this is available to not make too many losses second time around.
Future Predictions and Opportunities
Looking ahead, James expressed an optimistic view of the future of corporate venturing. He emphasized that conditions are ripe for significant advancements in the field, with numerous success cases and shared best practices available. James believes that corporates need to embrace corporate venturing and, if executed correctly, can extract significant value and scale massively from such activities.
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.
/Jeppe