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Agenda

Corporate Venture and Corporate Venture Capital K. McNally Master in Engineering Policy and Management of Technology (2001) Bernardo Rodrigues, Carlos Mora, Nuno Constantino. Agenda. Definitions and Concepts Nature and Forms Venture Capital Industry Potential Benefits Case Studies.

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Agenda

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  1. Corporate Venture and Corporate Venture CapitalK. McNallyMaster in Engineering Policy and Management of Technology (2001)Bernardo Rodrigues, Carlos Mora, Nuno Constantino

  2. Agenda • Definitions and Concepts • Nature and Forms • Venture Capital Industry • Potential Benefits • Case Studies

  3. Definitions and Concepts • Corporate Venture Capital or Corporate Venturing A variety of techniques used by large companies seeking business growth and expansion

  4. Nature and Forms (1) • ICV - Internal Corporate Venturing • entrepeneurial activity within the company with corporate sanction and resource commitment • ECV - External Corporate Venturing • structured relationship between large firm with small, unquoted usually innovative firm • CVC - Corporate Venture Capital • equity stake is taken by large firm in small, unquoted usually innovative firm

  5. Nature and Forms (2) • CVC - Corporate Venture Capital • Externally Managed (indirect) • Pooled Funds (financial benefits) US increase between 1979 and 1986 up to 100 funds in 1987 US decrease from $484M (1989) to $84M (1992) because of recession • Client Based/Dedicated Funds (financial+strategic benefits) US growth from 31 (1982) to 102 (1987) because of strategic unsatisfaction Advent Internation manages 14 funds (RJR Nabisco, Apple)

  6. Nature and Forms (3) • CVC - Corporate Venture Capital • Internally Managed (direct) • In-House Corporate Managed Funds (strategic, structured, may involve direct support) 1990/2000 ABB, AT&T, Intel, SmithKline Beecham • Ad-hoc/One-off Investments (strategic, unstructured/opportunistic, may involve direct support) 1980/1990 Exxon made, Apple received 1990s investments by 5 largets electronics and 10 largest pharmaceutical corporations in US

  7. Venture Capital Industry (1) • Venture Capital Funds • In USA focus on TBFs versus science based projects • In UK tend to be reluctant in TBFs • Barriers: the rigorous investee selection process • Implications: move away from early stage deals • Business Angels • invest small amounts, usually in startups

  8. Venture Capital Industry (2) • Public Markets • Disadvantages: • High fixed costs in underwriting, accounting fees and printing costs • criteria's for listing imply sufficient size and a trading record

  9. Potential Benefits Large Firms • Training • junior, middle and (“therapy” to) senior management • New Market • new products, services and new technologies • $$$$$$ • less costs, less costs R&D and capital gains Empirical data Fundamental reasons for CVC: Flexibility, adaptation and innovation.

  10. Barriers to growth Potential Benefits Small Firms • Financial benefits • Initial funding to investigate • Profits insufficient to meet capital requirements • Survival

  11. Potential Benefits Small Firms • Strategic benefits • Management assist (Short term problems, recruiting, corporate assist) • Mentor or confidant - social or supportive role • Strategic network (tax lawyers, patent agents…) CVC gives small firms the necessary structure to compete in the aggressive market

  12. Potential Benefits Independent Venture Capitalists M£ Recession (…) Venture capital depends on the alignment of incentives to VC Investors, V capitalists and Entrepreneurs

  13. Levels of CVC activity - USA • Well-established and widely accepted • Less concern with acquisition and more focus on strategic collaboration • Trend to start in externally funds and move to direct investments • Indirect CVC: • 100 US firms with $413 million

  14. Levels of CVC activity - USA • Dedicated funds are increasing • 31 firms (1982) to 102 in 1987 • ex: Monsanto with $50 million • Internal management programmes are common • 72 US firms + 27 foreign investing $500 million • Several hundred of adhoc invest. each year • Digital Equipment, Compact • Spin-outs are flourishing

  15. Levels of CVC activity - UK • Extremely low level of investment of major corporations in CVC • Indirect CVC are increasing at low rate • Foreign firms like Elf Aquitaine and Molson Companies (in Alta-Berkeley Lmtd) • Internal managed funds represent a low amount • Pilkingston’s Rainford VCF with £2,5 million

  16. Reasons for underdeveloped nature of UK CVC • Lack of motivation of large companies • predilection for alternative strategies • concentration on core business • organisation, structure and culture • Lack of motivation of small companies • Entrepreneurs are not aware of CVC • Loss of identity and ownership • Lack of investment opportunities • Reluctance of sacrifying secure jobs • Information gap

  17. Corporate Venture and Corporate Venture Capital

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