Corporate VC in 2019 and Beyond: A Driving Force of Corporate Digital Transformation
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The document discusses the evolution and challenges of corporate venture capital (CVC) in facilitating digital transformation, emphasizing the need for strategic investments that provide tangible synergies between startups and corporations. Key learnings highlight the importance of 'quick wins', ideal investment horizons, and a focus on later-stage investments to generate larger returns. The CVC's role is shifting towards being a value creation agent, aiming for substantial ownership in fewer deals while enhancing corporate enterprise value through technological investments.
Corporate VC in 2019 and Beyond: A Driving Force of Corporate Digital Transformation
- 1. Corporate VC in 2019 and Beyond A DRIVING FORCE OF CORPORATE DIGITAL TRANSFORMATION Joshua Agusta VP of Investments (Chief Investment Officer) MDI Ventures
- 2. Global & ASEAN Focus Invest in Multiple Tech Verticals Strategic Investment to Support Inorganic Agenda National Ecosystem Builder for Early Stage Startups Thought Leader in Corporate Innovation Bridge to Global Top Tier Investor Snapshot: MDI Ventures
- 3. Background: MDI Initial CVC Thesis in 2015
- 4. Startup-Corporate “Synergies” Long-Term Investment Horizon The Magnitude of CVC’s Capital Gains OUR KEY LEARNINGS - 2016-2018
- 5. Key Learning 1: Good vs Bad Synergies C H A L L E N G E S
- 6. V E N D O R I N G V E N T U R I N G ● Quick Win, yet fragile synergy type ● Telkom as tools / technology user / client ● Synergy contribute ‘Cost-Saving’ value vs. current solution ● During ‘Cost Leadership’ initiatives, Vendors are disposable ● Strategic Fit, yet time-consuming and might not be fruitful ● Startup help Telkom to grow business ● Synergy contribute ‘Revenue / Profit’ value ● New product, knowledge transfer, go-to market intangible value ● Successful synergy leads to potential M&A opportunities E X A M P L E Verification to onboard user save physical document cost Smart email marketing AI save redundant email cost and reduce churn Data management & Growth platform increase stickiness and reduce churn Digital goods - Merchant aggregator Grow a company’s market in digital goods Chatbot platform upgrade a company's capabilities to automation A2P Messaging platform expand a company’s market size Creating innovation requires both parties to commit and ready for a radical change. However, neither of the companies are ready to embrace the huge change. Therefore, most synergy cases opted into vendoring, where both parties are safe, resulting in a business-as-usual type of collaboration. Key Learning 1: Good vs Bad Synergies E X A M P L E
- 7. The typical venture capital horizon of 8-10 years is not effective for corporate VCs Annual “quick-wins” are important to manage corporate LP’s expectations as they need to consider an option to allocate the capital to other subsidiaries Main Drivers of the Mismatch Key Learning 2 - Ideal CVC Investment Horizon The Importance of “Quick-Wins” “Mark to market” isn’t sufficient as 12-15% annual return is a guaranteeBalance Sheet Investment CVCs’ nature are mainly viewed as “digital scouts” with exploration-based objectives. Their existence will become vulnerable and highly questioned when the market is declining. Market Risk vs Cost of Exploration #1 #2 #3
- 8. Series A Startup Investment: $500,000 Optimistic Equity Gain in 8 years (20x money multiple) $10 Million ??? Equity gain in early-stage investment does not bring substantial financial impact to an enterprise corporation with a market cap of billions. Key Learning 3: Low Magnitude of Investment Returns
- 9. Series A Startup Investment: $500,000 Optimistic Equity Gain in 8 years (20x money multiple) Equity gain in early-stage investment does not bring substantial financial impact to an enterprise corporation with a market cap of billions. Key Learning 3: Low Magnitude of Investment Returns $10 Million Net Profit in 2017 $2 Billion
- 10. $100 Million CVC Fund A well-performed CVC Fund that produces returns of $500 million in 5 years does not compete with Telkomsel’s Net Profit in 2017. Key Learning 3: Low Magnitude of Investment Returns Within 5 years (IRR: 37%) $500 Million Net Profit in 2017 $2 Billion
- 11. CVC = Digital Value Creator CVC = Investors REDEFINING THE ROLE OF CVC
- 12. CVC Thesis - 2019 Onwards CVC’s positioning as a “value creation agent” for corporations
- 13. Ideal roles of CVCs moving forward CVC Thesis - 2019 Onwards Driving corporate’s digital transformation efforts and enterprise value Focused investment strategy by aiming for larger ownership per startup and less deals per year Evolving role as a corporate strategist rather than “just” an investor
- 14. 1. Investing into smaller number of deals with bigger check size (>$15-20 Mn) 2. Shorter investment horizon (2-3 years) 3. Bigger opportunities for bottom line contribution through exits (FVTPL treatment) CVC Strategy 1: Investing in Later Stage with Larger Ticket Size
- 15. CVC Strategy 1: Investing in Later Stage with Larger Ticket Size Series A ($10 Million) Centaur ($100 Million) Unicorn ($1 Billion) Investment Multiple Capital Gain $500,000 $5 Million $50 Million 20.00x $9.5 Million $45 Million $150 Million 10.00x 4.00x IRR 44% (in 8 years) 55% (in 5 years) 45% (in 3 years) Directing focus on later-stage companies may provide smaller money multiple, but it will provide quicker win with larger capital gain, thus capture substantial value that may drive the corporation’s value.
- 16. Impact of Technological Investment by Market Cap May 2001: USD 0.696 billion (Pre-Tech Investment Era) Oct 2018: USD 133,75 billion (Post-Tech Investment Era) CVC Strategy 2: Tech Investments as an Important Force in Driving Corporate’s Enterprise Value
- 17. Case Study: Tech Investment Become The Key Transformation Driver Pay TV (57%) Internet (6%) Print Media (21%) Technology (5%) Book Publishing (6%) Private Education (5%) Pay TV (45%) Technology (4%) Internet (16%) Print Media (35%) Internet (45%) Pay TV (39%) Print (16%) Social & Internet Platform (61%) Ecommerce (18%) Media and other (3%) Video Entertainment (18%) REVENUE US$ 661 Mio REVENUE US$ 1.3 Bio REVENUE US$ 5.2 Bio REVENUE US$ 20.1 Bio Pre-Tech Investment Post-Tech Investment FY2002 FY2008 FY2013 FY2018
- 18. Case Study: SVF as Softbank Group’s New Growth Driver
- 19. Digital orchestration by acquiring digital capabilities 1. Actively spotting new market & opportunities 2. Picking the clear winner in the market 3. “Drag-along” growth through acquisition 4. Utilizing multiple strategic investment mechanisms (minority, simple majority, acquisition, JV, etc) CVC Strategy 3 - Taking the Responsibility as a “Corporate Digital Strategist” C A S E S T U D I E S