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3 January 2017

Editorial Part II: Professionalism after the ‘golden age’

This editorial follows December's magazine's comment piece on how the venture industry has been disrupted and is now being raised to new standards of service.

Author: James Mawson, Editor-in-chief

The start of a new year always brings hope, especially to an innovation capital ecosystem that feeds on optimism.

However, with US President-elect Donald Trump selecting fellow billionaires and investment bank Goldman Sachs alumni to his team, Europe fracturing under divergent member state aims and Russian pressure, and Asia grappling with China’s crackdown under President Xi, a panglossian degree of optimism is unwarranted about the economy or much else.

Instead, scenario planning and preparation for tougher times ahead will help sort the professional class of corporate venturers and other investors from the dilettantes that have entered the industry over the past five years’ ‘golden age’ which ended last month (see part I in December’s issue of Global Corporate Venturing).

Corporate venture capital (CVC) has broadly followed the 80:20 rule, with about four-fifths of the deals being done by the top 20% or so of firms. It is to that upper-quintile the industry is looking to for leadership and best practices.

When online startup community AngelList bought technology product showcase Product Hunt last month, Michael Coren of news provider Quartz accurately said venture capital was getting upended by its own technology.

Quartz quoted Naval Ravikant, co-founder of AngelList, who said: “The bigger picture is that the traditional things that only [Silicon] Valley startups have available to them are going online.

“Cash, customers, and talent. Those are the things companies care about.”

Ravikant is trying to combine platforms that on the one hand bring entrepreneurs together with a wider group of investors and potential employees, and on the other allow those startups’ products to be recommended and bought by customers. It is a great business model for what is shaping up to be the first mass market age in venture capital, 20 years after the dot.com bubble raised people’s consciousness to the potential of a second life available online.

Smart investors have been offering the same combination of cash, customers and talent in varying proportions to their clients, the entrepreneurs, in return for access and returns to their backers.

Wendell Brooks, president of Intel Capital, said at last January’s Global Corporate Venturing & Innovation Summit his goal was to find out “what can we do for our portfolio companies, not what can they do for us?”. This required an understanding of the unique advantages and culture within the organisation and its parent.

Roy Bahat, head of Bloomberg Beta, said when it closed its second $75m fund in July: “Bloomberg was one of the original technology startups when Michael Bloomberg founded the company in 1981, and we try to carry that spirit in Bloomberg Beta.

“In our first fund, Bloomberg supported us in creating a different kind of venture fund. We built Bloomberg Beta to treat our founders like we treat Bloomberg's customers, with great care, trust, transparency and a service driven by data. The revolutionary plan for our second fund is to just keep on doing exactly what we've been doing.”

Or, as Yao Xia, executive director for Tencent Investment, a nominee for this year’s Global Corporate Venturing Rising Stars 2017 awards, put it: “Similar to other industries, CVC needs to have a clear understanding and also the good execution on its competitive advantage and differentiate itself from other investors.

“Investment is a red [ocean] market, with too many investors and too much money. Although everybody is talking about post-deal management or value-added services to investee companies, but the key thing it can provide is still the same money.

“From this perspective, CVC naturally has the capability of differentiation. No matter [whether] it’s minority investment or acquisition, CVC should be thinking from the company’s perspective, being a trusted friend of the company, and provide its resources and expertise to back the company to grow.”

The full GCV Rising Stars 2017 list, with more of his insights and the chance to hear Xia’s boss, Jeffrey Li, will be revealed at the GCVI Summit in California later this month.

The feedback from GCV Rising Stars 2017 provides insights that complement the statistical analysis and qualitative feedback from GCV’s annual survey of more than 200 industry leaders – carried out in conjunction with professors from Stanford, Harvard and Chicago universities – which will be published in the World of Corporate Venturing 2017 at the summit.

But beyond just putting entrepreneurs first, there has to be better communication with them in addition to other VCs and senior management in order for the message to come across, as well as the networking and execution of best practices to deliver.

Professionalism and recognition of the industry as a service is a hallmark of these top firms. From a cottage industry of VCs following “pattern recognition” to select former colleagues, fellow university alumni and sons of friends, the newer breed of venture investor has emerged with the brand, marketing and support-beyond-money that entrepreneurs want, offered by units that can hire externally experienced and mixed teams.

The future, therefore, is not a golden age reaping rewards from information asymmetry and against lifestyle-business peers; it is professional.

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