15.369 corporate entrepreneurship: strategies for

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15.369 Corporate Entrepreneurship: Strategies for Technology-Based New Business Development Fall 2007

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Corporate Venture CapitalStudy Project

Dr. Andrew Wang, NIST/ATPDr. Val Livada, MIT Sloan

Study TeamIan MacMillian Wharton School of Business

Edward Roberts Sloan School of Management

Val Livada Sloan School of Management

Andrew Wang National Institute of Standards and Technology

Objectives

Create knowledge base of CVC best-practicesStrategy and structureManagement and processOutcomes and metrics

Assess funding landscape for early-stage technology

Assess interaction between large and small companies in the innovation ecosystem

Primary source data

Qualitative interviews30 companies

Survey of CVCs48 CVC respondents

Case studyCVC and stakeholders

Survey RespondentsAir ProductsApplied MaterialsAscension HealthAstraZenecaBASFBDBlueCrossChevronDisneyDowDuchossoisDuPontEastmanEasenergyGenzymeGlaxoSmithKlineHondaIBMIn-Q-TelKodakLillyMichelin

MicrosoftMitsubishi PharmaMotorolaNECNokiaNovartisPanasonicPhilipsSAPSiemensSilicon Valley BankSouthern California GasSunTakedaTELUSTexas InstrumentsTurner BroadcastingTycoUnileverUPSVisa

Survey Data

1 1

2

1

4

5

3

8

6

8

1

2

3 3

02

46

8N

umbe

r

1980 1985 1990 1995 2000 2005Year

CVC Organizations - Year Established

Survey Data

65%

35%

NoYes

Independent Subsidiary Company

63%

38%

Discretionary FundDedicated Fund

Type of Capitalization

CVC Organizational Form

Survey Data

102

03

23

212

510

2

0 5 10Number of CVCs

CVC Reporting Relationship - 1

CEO

CFO

CTO

Corporate - Strategy/Development

Corporate - Finance

Corporate - R&D

Business Unit - Head

Business Unit - Strategy/Development

Business Unit - Finance

Business Unit - R&D

Other

Survey Data

65%

15%

21%

CorporateBusiness UnitOther

Company Organization

8%

29%

23%

19%

21%

ExecutiveStrategy/DevelopmentFinance

R&DOther

Company Function

CVC Reporting Relationship - 2

Survey Data

73%

27%

NoYes

Other CVC Units at Company

69%

31%

NoYes

CVC Engage in Internal Venturing

69%

31%

NoYes

CVC Invest in Spin-Outs

CVC and Corporate Venturing

Survey Data

17%

83%

NoYes

Corporate

73%

27%

NoYes

Business Units

96%

4%

NoYes

External Investors

CVC Source of Capital

Survey Data

15%

15%

50%

21%

StrategicFinancialStrategic w/FinancialFinancial w/Strategic

CVC Investment Philosophy

Survey Data

8%

38%40%

15%Not important

Somewhat important

Very important

Extremely important

Seek new directions

6%

25%

17%

52%

Not important

Somewhat important

Very important

Extremely important

Support existing businesses

15%

31%54%

Not important

Somewhat important

Very important

Extremely important

Provide window on new technology

4%

38%

31%

27% Not important

Somewhat important

Very important

Extremely important

Provide window on new markets

10%

33%

31%

25% Not important

Somewhat important

Very important

Extremely important

Develop new products

65%

29%

6%Not important

Somewhat important

Very important

Extremely important

Improve manufacturing processes

CVC Strategic Aims

Survey Data

10%

6%

4%

19%

21%

40%

$0

Less than $1M

$1M to $3M

$3M to $5M

$5M to $10M

$10M to $20M

Over $20M

Direct Investments

40%

2%8%

13%

17%

17%

4%

$0

Less than $1M

$1M to $3M

$3M to $5M

$5M to $10M

$10M to $20M

Over $20M

Limited Partner Investments

CVC Investments - Total Amount 2004-2006

Survey Data

13%

10%

23%35%

15%4%

0

1 to 3

4 to 6

7 to 15

16 to 30

More than 30

CVC Direct Investments - Total Number 2004-2006

Survey Data

29

8

4

1 1

010

2030

Num

ber

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0Share of Investments (2004-2006) - Concept Stage

CVC Organizations - Concept Stage Investments 2004-2006

Survey Data

16

9

6

3

54

1

05

1015

Num

ber

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0Share of Investments (2004-2006) - Outside of USA

CVC Organizations - Non-U.S. Investments 2004-2006

Survey Data

17

1

5

7

43

23

1

4

05

1015

2025

3035

Num

ber o

f CVC

s

0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1Share of Outside Hires

Hired from Outside Parent Company34

4

1

3 3

1 1

05

1015

2025

3035

Num

ber o

f CVC

s

0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1Share of Temporary Assignments

Temporary Assignment from Parent Company

Senior Personnel - Sourcing

Survey Data

2%11%

34%53%

1 to 2 years

2 to 3 years

3 to 5 years

5 years or more

Senior Personnel - Expected Job Tenure

Survey Data

2%

98%

No

Yes

Salary

15%

85%

No

Yes

Bonus

88%

13%

No

Yes

Bonus similar to Carried Interest

79%

21%

No

Yes

Carried Interest

Senior Personnel - Compensation

Survey Data

20%

18%

31%

31%

Not important

Somewhat important

Very important

Extremely important

CVC Investment Sponsor - R&D or Business Unit

Survey Data

52%39%

7%2%

Not important

Somewhat important

Very important

Extremely important

Angel Investors

20%

50%

26%4%

Not important

Somewhat important

Very important

Extremely important

Other CVCs

4%6%

38%51%

Not important

Somewhat important

Very important

Extremely important

Independent VCs

15%

28%

33%

24%

Not important

Somewhat important

Very important

Extremely important

Direct Company Solicitation

9%

30%

32%

30%

Not important

Somewhat important

Very important

Extremely important

Parent Company Business Units

Investment Sourcing

Survey Data

2%11%

23%

64%

Not at all

Small extent

Moderate extent

Large extent

Due Diligence - Utilize Personnel from Parent Company

Survey Data

45%

23%

25%

7%

NeverSometimesFrequentlyAlways

Voting Board Member

7%

18%

29%

47%

NeverSometimesFrequentlyAlways

Non-Voting Board Observer

CVC Representation on Portfolio Company Board

Survey Data

17%

83%

No

Yes

Attendance at Board Meetings

29%

71%

No

Yes

Written Reports from Management

31%

69%

No

Yes

Phone Calls with Technical Management

19%

81%

No

Yes

Phone Calls with Business Management

35%

65%

No

Yes

Regular Site Visits

56%44% No

Yes

Feedback from Parent Company Groups

92%

8%No

Yes

Other

Communication with Portfolio Companies

Survey Data

4%18%

56%

22%

Not at all

Small extent

Moderate extent

Large extent

Scientific Support

20%

38%

31%

11%

Not at all

Small extent

Moderate extent

Large extent

Engineering Support

14%

39%41%

7%

Not at all

Small extent

Moderate extent

Large extent

Management Support

11%

33%40%

16%

Not at all

Small extent

Moderate extent

Large extent

Marketing Support

39%

30%

27%3%

Not at all

Small extent

Moderate extent

Large extent

Other Commercialization Support

Provide Support to Portfolio Companies

Survey Data

14%

45%

41%

Not at allSmall extentModerate extentLarge extent

Access to Customers

11%

27%

43%

18%


Access to Suppliers

7%

59%

34%


Access to Partners

Provide Access for Portfolio Companies

Survey Data

13%

42%20%

18%

2%4%

0

1 to 3

4 to 6

7 to 15

16 to 30

More than 30

From CVC Direct Investments 2004-2006New Collaborations with Portfolio Companies

Survey Data

26%

74%

No

Yes

R&D Collaboration

81%

19%

No

Yes

Manufacturing Collaboration

45%55%

No

Yes

Licensing Collaboration

45%55%

No

Yes

Sales Collaboration

73%

27%

No

Yes

Other Collaboration

Types of Collaboration with Portfolio Companies

Survey Data

2% 15%

41%

41%Not at all

Small extent

Moderate extent

Large extent

Senior Management

4%

24%

47%

24%Not at all

Small extent

Moderate extent

Large extent

Technical Operations

2%

30%

46%

22%Not at all

Small extent

Moderate extent

Large extent

Business Operations

56%22%

11%11%

Not at all

Small extent

Moderate extent

Large extent

Other

Perceptions of CVC Value Contribution - Key Stakeholders

Survey Data

24%

28%

35%

13%

Not at all

Small extent

Moderate extent

Large extent

CVC Activity Metrics

17%

15%

37%

30%

Not at all

Small extent

Moderate extent

Large extent

CVC Output Metrics

CVC Performance Metrics - 1

Survey Data

9%

13%

31%

47%

Not at all

Small extent

Moderate extent

Large extent

Overall Financial Performanceof CVC Portfolio

9%

38%

33%

20%

Not at all

Small extent

Moderate extent

Large extent

Specific Company Performancein CVC Portfolio

7%

24%

22%

48%

Not at all

Small extent

Moderate extent

Large extent

CVC Value Contributionto Parent Company

CVC Performance Metrics - 2

Survey Data

16%

14%

57%

5%9%

Increased significantlyIncreased moderatelyStayed about the sameDecreased moderatelyDecreased significantly

Past Funding 2004-2006

24%

43%

24%

9%

Increase significantlyIncrease moderatelyStay about the sameDecrease moderatelyDecrease significantly

Future Investment 2007-2009

CVC Trends

15.369 corporate entrepreneurship: strategies for

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