Tuesday, December 5, 2006

The 9th Annual MIT VC Conference, Corporate Venturing – Present and Future, panel

This blog was started in the aftermath of the 9th Annual MIT VC Conference. See agenda. I both attended the event and served on a panel: “Corporate Venturing – Present and Future”. I realized afterwards that I had more to say on several subjects and I needed to express myself.

The panel I served on included two guys from the non-technology, Global-100 world (Keith Gillard from BASF Venture Capital America and Ricardo Rodriguez from Shell Technology Ventures) and three guys from the software/technology world (Dave Husak, CTO and Founder of Reva Systems (), Steve Eichenlaub from Intel Capital and me). Bill Aulet, Senior Lecturer and Entrepreneur in Residence, MIT Entrepreneurship Center, was the moderator. He did a great job moderating the panel; his presentation was minimal and he coaxed great answers out of the panel.

There seemed to be a big difference approach and sensibilities between these groups on the panel. The crowd (many entrepreneurs, MIT Sloan and other students) responded well to the software/technology side of the panel, but it was great to have different perspectives and balance on the panel.

I explained my rationale for including corporate investors in Black Duck. It was planned from the inception of the business plan and founding of the company. I also explained that corporate investors had to be factored into the investor fabric early-on: Not all conventional VC like corporate VCs not just because of onerous terms but also because of negligible value added contributions over time. It’s important to differentiate between corporate investors as observers with minority investments and corporate investors with major investments. But most of all it depends on who are your investors. I am exceptionally lucky, and I really mean it, because I have Lucy McQuilken from Intel and Jennifer Scholze from SAP Ventures. They’ve added value from the inception of their involvement in BDS.

I also said that venture founders should know that there are differences in the color of corporate and VC money. Entrepreneurs should know that corporate investors have different motivations – information and strategic edge – whereas VCs are driven by mainly by IRR, but of course ego plays a major role.

Roger Krakoff, Venture Partner from Sigma Partners – Boston, said something to me as I was walking into the session that I used during the panel discussion: “Corporate Venture investing is driven by the seasons”. That is to say, corporations have variations in profitability, changes in management and direction, funding and especially, personnel. Seems that most corporate venture arms has high turnover. Turns out that Intel has low turnover according to Lucy.

One think I did not mention during the panel is that CEO events vary greatly between corporate and VC investors. For example, Intel held whopping big CEO events in China and India over the last two years with upwards of 150 CEOs in attendance. Typically, CEO offsites or other events have 75% +/- attendance of their portfolios, with 50 +/- attendees – at least among BDS’ VCs.

I did emphasize to the audience of mostly B-school future entrepreneurs that VCs and Corporate investors are similar at investment time thinking about terms, goals, etc. The old IRR pov comes across loud and clear at that time.

One thing to be hyper-aware about when considering an investment by corporate investor consider information rights and rights of first refusal. These are driven by the gaps the corporate investor is filling. Venture founders should determinate what are the strategic goals of the investor before tying-the-knot.


Hemant said...

I thought the panel was insighful and Doug did a great job. The only point I would add is that entrepreneurs often incorrectly assume that the "corporate investment" is linked with a business deal with the corporation. It is important to understand that often corporate investment arms have very little influence on business units.

Jennifer Scholze said...

While corporate venture arms normally do not control business units they can provide huge help by being on the inside to translate a start up's message into language the corporate will care about and navigate the organization to find the people who think that this start ups' solution is something they need right away.
One other comment about whether corporates add value over time - the key in picking any investor (corporate or institutional) is 100% the individual who will be at board meetings and their network and willingness to get involved. VCs build up a reputation over time for value-add that can easily be checked out.