E355 | Francesco Di Lorenzo (Copenhagen Business School) & Crispin Leick (EnBW New Ventures): Panel discussion on Corporate Venture Capital – a deep dive into to set it up, engage with CVCs, and more

30:08Then you are there to stay, right? Because then you have kind of contributed to that. But also, you know, a lot of the corporates that of talking to, right? They did not make a plan. Like you said, right? It actually sounds like ENBW was on top of it and kind of had a process where they talked through, you know, how are we going to be successful in this? And also from, you know, both the financial and strategic perspective. Yeah, the chief investment, the chief innovation officer at the time actually went out to the market and was talking to practitioners, to CVCs, but also to investors, to the founders and so on, to understand how does this work.

30:45And there was the clear emphasis, let's hire someone who did it before, not trying it for us, our own, for the first time. And I think what is extremely important on day one of creating a CBC, as I said before, like talk to all the board members and understand what are they expecting, have they understood it, and get access to top management. And the third thing is, you have to understand really well the core business of the corporate, the core business model. Because if you want to think about how can I actually leverage, how can I support them somehow without forcing it? And I had like before that 15 years in the utility business.

31:25So I know all the different value chain steps in this. I didn't need to learn that. So understand the corpus as well. And for us, for example, our investment thesis from day one was the utilities investing into infrastructure, really billions into complex, large-scale infrastructure. So we said from day one, that's not for us. We also don't want to do deep tech because they are technology agnostic and they are a late user. They're not trying something new on the technology end. So what do you do as a VC investor with such a corporate backer? And for us, it was clear from day one, okay, let's write it down.

32:04We are looking for startup that in mostly digital business models are improving and scaling this huge asset infrastructure rollout that they need to accomplish with the energy transformation. So, for example, battery rollout. Yeah, well, they need to build many, many batteries, but this is a new asset. They don't know. So we have an investment into one company that is actually intraday trading all these batteries and another startup that is actually monitoring all the data of the batteries and ensuring that the battery is in perfect health. So you improve the operating business model of the core, but you're not stepping on day one on the toes.

32:43and you're doing something that is digitally scaling, so you're not in this death thing of let's do deep tech for the next 20 years because the utility will not wait 20 years with your CDC approach. So think about this thesis on day one. What is it? And it might fail, but at least you can say, okay, this is what we're trying to realize here and there must be the buy-in, not of one board member. Get the buy-in of all the board members. In order to get, you said three years, I think you need five years. if they are not willing to give you five years to prove the point, it's very, very difficult.

33:18But it's very interesting, Christian, that you talk about these five years. I'm very curious about, is that even possible? In the sense that I could see actually examples of very regional or international players that have been in the last five years changing two or three times the view on the CVC. So if you want also the investment thesis behind and still be successful in that change. And that changed because of the change in the corporate core business view on where the value creation was done, basically from upstream to downstream. And then you can see that you maybe have someone coming from this operations, maybe at the beginning, and then more someone was close to sale later on to lead the unit.

34:04So do you see this as something that is somehow creating more friction than benefit or is it actually an optimal response to the dynamic that actually a business can have? I think it is very, very, very difficult to build a CEC where you have every two, three years a different investment strategy. I mean, I've seen this from a couple of large energy players, oil and gas and so on, also from some others. I think you have to think about your investment thesis in a way that it should be good for a little bit longer than two, three years even for the corporate. Yes, the corporate is changing its strategy but for example, one of our core part of this we had megatrends and we said, okay, we only go into electrification stuff we don't go into all the other things.

34:52That's old stuff. We go into the new stuff electrification. We go into digital solutions because we felt like, okay, this big organization, you know, the people that are very first digital and are really developing new things, they're not really the typical sort of first one to say, I want to work for utility. So you need to make a little bit of the gap analysis in order to help the corporate really. And I think it is very different depending on, I mean, we have a utility, I would maybe say an insurance or a telecommunication is maybe a little bit the same type. But then if you are an OEM, that's completely different.

35:30If you're developing hardware technology, then of course your CVC will look different and will have a completely different proposition. And if you are an IT digital company, it will be different again. So what I'm just saying is do this in the beginning and it should be good for quite a while. We are reviewing our investment strategy every four or five years. But the changes have been absolutely minor. And there's also this thing like you are in the startups and you should not lose your interest in making them successful just because the corporate is a little bit changing the strategy. So there comes again the financial orientation.

36:10So my team will fight for the best value created. I think what is interesting here, right, if we take the helicopter view on CVC, right, and also what Crispin said earlier, right, that it was kind of a CFO decision. When you take big corporates, they are measured on the basis of their annual report. It's a 12-month cycle. And when we discuss startups and the world of funds, we're talking about at least eight years to build a startup. And most of the VCs that I know about, they're going into 14-15 years before they have closed the full cycle. So a board in a large corporation that understands that this is the strategic tool can help put it in place.

37:06But if you ask a CEO or a CFO in a company to allocate 50 million euros or in your case 100 million euros that could generate profits in other areas, remembering that their bonuses are based on a 12-month cycle, right? They are just things that do not add up. And then again, if you are a listed company and look at the stock market and the financial analysts, they don't hardly give you any value for driving a CBC. So there is something in the market that does not fit with core venture capital. And then remember, a lot of the startup IPOs that are done, all the value is based on the promise. And that is super interesting, in my opinion, to bring that into play.

37:57I think there are solutions to the issues that you mentioned. The first thing is the size. So if you start with 1 billion CBC, you get under pressure. if you like like enbw is investing 40 billion in this in the sort of this this uh 10 years into their assets um for them i mean if we invest in a year 10 15 million that's like one offshore foundation or so so it's it's really small so this is where you buy a little bit of time so i would suggest don't don't don't go big on day one but go big when you have boom your case um so that's one possible outcome. The other thing is most of the corporates are not, it depends, but they're not so much cash driven, but result driven.

38:47And if you build a portfolio, which is not a seed portfolio, but sort of a little bit like Series A plus, the probability is pretty high that your J curve is there, but it won't kill you and the losses will be not as big. As an investor, you know, you invest and yes, there's a cash flow that you need, but you're not negatively pushing down their results. So there's not always this contradiction. And yes, I must say this was just lucky that I'm working for a CFO that from day one just absolutely understood what we're trying to do, why we're trying to do it, and what effect it would have on the corporation.

39:29And this is definitely, I mean, this doesn't happen very often. so that was pure luck and what was even more luck is that the same CFO, we are now in year 9 and he is still the same so the whole board of EMBW has changed, there were four board members like three have changed, one is still there and that's the one that is actually our link so this is also you have to be lucky also on the way I was wondering Francesco, I can't remember, do you from your study look at who does the CVC refer to? What is the reference line? I can't remember. I was actually about to give this. I'm looking forward to this because I asked chat GPT the same question.

40:18So I have other numbers that we can compare here. We can do some real life comparison of AI here. Okay, I feel the pressure of chat GPT as the actual knowledge. Well, I have sources. Mine are PWC and Pitch Group and Global Corporate Venturing. No, no, absolutely, Andrea. So I was just pulling out the numbers. Again, these are numbers that are, again, very, very difficult to observe. That's why I took this initiative a few years ago, and I'm pushing forward to creating this Nordic survey to understand at least how it works here. So in the Nordics, at least, basically, so the units are average size like seven people, more or less.

41:07And they tend to report mostly to the CEO and while being the CFO and the business development unit, second Iraq. So at least in the region, it seems that the unit reports directly to the CEO as being very strategic. In fact, it speaks very much to the strategic nature that I was telling you before. When it comes to the type of employees, right, Christian was actually, and also, Jepa, you were discussing a lot about attracting talents, the talents that are coming from and with the people that compose this unit. And again, from the survey, I can see here that, you know, like 50 % usually come from business development.

41:54And there is another 44%, which it doesn't sum up. People can come from different units as well, to the R &D. So basically, one out of two in the unit are not necessarily from the financial background of the core, okay? And they try probably to bring those skills and capabilities needed, right, to push forward the activities in the unit. I just want to say another couple of things again, one again from the numbers. At least in the Nordics, 40 % of the responded aspect returns more than five years. And this is also their basic investment horizon. So they seem to be very patient investors in terms of when to aspect returns from those activities.

42:44right and so this speaks maybe to a nordic way of doing investments uh i understand that from the conversation that christian and jeff had uh before especially the experience that christian was bringing maybe there's a little bit more uh a faster pace right in looking at returns and investment horizon but the nordics at least seems to be um a little bit more patient uh one thing that I want to bring to... Let me keep you on that point, Francesco, because Carter just came out with their data recently saying that basically in year five, that's where we're starting to see a little bit of returns, but it's real cash on cash returns, DPI, but it's so minuscule, right?

43:30And typically it's actually the less good funds that return money already in year five. So I would think, and I'd love to ask you this question, Crispin, year five is not a good year to expect to have anything meaningful, not just in the books, but in hand. What's your reaction to the number that Francesco shared there? the first thing that you can prove and this is what you can try to prove also much earlier than actually your cash on cash exit is I think a CBC investor is smart or in my personal view it would be smart if you label yourself as a growth investor and this can be measured easily are your startups growing, are they advancing and here just to give you two numbers, our expectation for each individual we're not VCs.

44:25So we're not expecting 300 % every year. We're expecting 100 % per annum of growth for each from our portfolio companies. And we had years in the last couple of years where the average of the portfolio was hitting that. So all of them on average around 100%. But what we need to have is 50 % growth on average. And what are you counting their revenue? We are second piece. and 50 % is what we need on average and this we have hit in all the years since we have been established. Is that valuation increase or what increases? The growth that is important to us is not turnover, revenue, top line but we are looking at gross margin.

45:11Gross margin contribution. This is what we're looking at. Why? Because all the other stuff down the road how do you want to measure that? But that is also a question of the investor. So we are typically investing in B2B digital business models. So there you can measure it like that. Maybe others are doing it different. But we're using gross margin. So we want to have high gross margin businesses. And we want to see that the product is that, I mean, how do you want to measure product market fit? By the pure, okay, top line growth is, of course, nice. Number of logos and customers and so on. But also sort of we really look at the financial numbers.

45:47And, of course, at the sales part and so on. and we do customer reference calls and I don't know what. This is why I would always argue doing seed investments and many, many CVCs are doing seed. Yep. I'd love to ask you that question because we've had this conversation before as well. And you also said, I think Series A is the best place to put yourself as a CVC. It's quite easy to do a pre-seed or seed round, right? It doesn't take a lot of effort, right? Because you don't need that big of a match with the corporate strategy to make it happen. You can talk about, you know, this is going to be good in the future.

46:23You know, I've done investments for Maersk in last mile delivery, right? And, you know, Maersk is about moving containers primarily, right? So why would you talk about moving something on a bike, right? So I think when you want to be part of the strategy of the corporate and be meaningful, you need to go a little bit later stage. So I did an investment on behalf of Maersk into a company that is doing autonomous electrical trucking. That made a ton of sense, right? Because it was the green transition, lower emissions for Maersk. Also, you know, the autonomous part with time, you know, knowing how difficult it is to hire a truck driver.

47:11It made all the sense, right? And that was a serious B2, quite a significant investment for Merck's growth at the time. And then on top of that came a very, very large commercial agreement between this growth company and Merck's. And then everybody around the CBC kind of saw what you could do. And that is where it's meaningful. But it was also a bought decision to do that investment. It was not something that we could do in the CBC. I think the key word, I know the operation I'm talking about, it was very well discussed in the Nordics as being one of the largest. As you can mention, the name is not, we've spoken about it before in the back as well as public.

48:00So Einheit, right? I want to stress something about what you mentioned to me, very important, which is the commercial agreement, the follow-up. So I think if CDC wants to go into a later stage, which implies obviously double-digit million euros investment for every round, or triple at some point, if you're talking about really big scale-up, the commercial agreements or the contractual perks attached to the investment are fundamental. So the recent study that I've been doing on pharma and ICT, like, you know, the last 20 years, I've been looking at like a very one by one investment. And because having having having contractual agreement data is not really available in data sets.

48:48So you have to go to news and basically go and check one by one. So it took me a lot of time, but we actually discovered how many the kind of a strong correlation between having later stage investment from corporate by the CVC and the licensing co-development and commercial agreement attached to the investment as a necessary condition, in fact, to make the investment going through. So I think what you're pointing is something which is what we all basically are saying here is that the return, the financial return, right? So that will happen through a commercial agreement also speak to the strategic position of Merckx, in this case, in the new segment, which is E-vehicle, any tracking, right?

49:28It's extremely important for the future. So they go hand in hand, and this is what I would like to see in the discussion also we had before. So additional contracts are fundamental for the success of later stage CBC investing in my view. The interesting thing is that this is a very, very difficult spot. Why? Because if you mix up things, then you land exactly in this area where, well, you tell the startup, okay, you get the big corporate contract when we can invest. So let's get a better price or let's get some advantage or let's get some exclusivity or I don't know what. Or the other way around, the corporate might go to the CVC and say, ah, you're invested.

50:16If we are doing a big contract there, what do we get? What do we get for free? A better price? Or can you tell us what the margin of the startup is? I don't know what. You get into a very, very, very difficult spot. I call this conflict of interest because it's a huge one and if you want to be a successful CVC you should try to avoid this conflict of interest as much as you can therefore I would always suggest and of course as always there's a problem but there's a solution to it because your point is 100 % right it is very very important and that's by the way also one of the unfair advantages of a CVC that there could be this corporation that there could be growth coming from the large corporate that you know very well.

50:57So it's like you have an insight that the others maybe don't have. And I mean, many of our VC friends they call us because they want to understand. So how is your corporate looking on this? And so how we have tried to solve this is that we're strictly saying a CVC. We open doors. We moderate basically the contact but we do not mix into this commercially we don't go into this negotiation and we never connect it hardwired to any investment and so so we take our risk which is the equity side and the business units decide if they want to work with this solution but of course indirectly you know there is more higher probability if we are invested that that we can moderate and help that something happens.

51:52And there's a higher probability if EMBW is working successfully with a startup that we might call the startup and say, cool what you're doing there. Our friends from the operation units have told us you have a great product. It adds a lot of value. When is your next funding round? Let's talk. But if you connected hardwired the valuation with a corporate commercial contract, that is very dangerous. and I think also for the co-investors at the cap table. So again, there is this, you need to really think how you do it, but it's core to solve this. Maybe to give the listener a little bit more flavor, right?

52:32And disclosing a little bit that I'm allowed to disclose, right? So I think at Merck, right, we also always had this rule, right? The pitch decks that we receive, they belong to the CDC. They do not belong to Merck. Just to make clear, that's how it was operated. Then we had a special team that was more, you know, we call it portfolio management. And it was more the people that took care of the glue between the startup and the core MERSC, right? So it was people coming out of the MERSC consultancy business that did all of that. But I think it was huge to get it to work. And then I think what the listener could benefit from, right?

53:16I missed five board meetings in Enright as the commercial discussion was going on and it took six months or so, right? So it was for a long time that I left the board and did not get any information because the VCs around the table, they needed to discuss how to handle this commercial collaboration. And at the same time as an investor, I didn't get stuck in any bad situations where I could deliver information to one side or the other. We have actually only, it's only not even three years ago. And this I've learned from other CBCs because, I mean, you have already heard that our setup is quite strict.

54:02But there was something missing because my team is very small. And day in, day out, they are thinking about the startup, about the next deal, buying, growing the startup, being in the board meeting, selling. So this is where transactional team. But who has then the time to actually moderate and open the doors for a possible commercial corporation? And this is why we've actually started. It's a very small piece of the team, but we have someone in the team that we call engagement management who is not working on the transactions. And that's not only in the direction of the startups to understand what is their sort of who, maybe also to other corporates who could reopen doors, but it is also walking around in the corporate to identify pain points to say, hey, something is really not working there.

54:51Could there be a startup that actually could solve this? So it's also input for the transactional team to say, hey, I've seen this and that. And this is then sort of because getting the timing right is extremely difficult. So you could have a startup that is great, but it's currently no pain point and it takes five, six years until it is a pain point for the corporate. Then you are too early. Or the corporation has already decided that they're solving it in a different way. Then there's also no corporation. So that's also not great. So, yeah, we call it engagement management. Can I ask you guys, because we have media for growth strategies where the media conglomerates are investing basically ad points.

55:37So spend in their ad machine into companies to whom that would be valuable. And they do that at some currency exchange, so to say, into dollars. And then in the US, very significantly lately, we've had Amazon, Microsoft, Google, all investing chips, so to say, or AI power, the ability for the large AI companies to go in and use their servers.

56:14I get 100 % what you're saying, Crispin, that there's a big conflict of interest here, but at the same time, there's also a big opportunity. And I get why you've decided to say, no, we're not going to do it. But I also definitely get the ones that say, no, this is too interesting territory not to go into. Yeah, I think when you're getting this big, it's a different part of the game. And I would say then you need to talk to your M &A team and you should think about, because then when you want to have something so much and you're already sure that it's hugely important for you, then you should go fully fledged ownership control 100 % or 80 % or at least 51 % and buy something.

57:00so it's just a different avenue than CVC where we have a portfolio where we take higher risks but we're not yet, as of today, we don't know, we think it could have an impact but we don't know yet and we don't have the crystal ball to be sure, so it's just a different approach and a different tool but that's probably why that is we come back to the beginning of this rich conversation about the different models so then the CVC cannot fit all but all means all the objective and the way to operate so So I think we've been discussing for quite some time before we don't mention it, the venture client model, we solve a lot of this commercial agreement, right?

57:37And the M &A division is exactly the one, as Griffin said, that should take over when importance is so fundamental to be part of the core. So I think it's very important to see the CVC as probably the strongest weapon that at the moment has been built for corporate to deal with ventures. And that's also what the data suggests, right? In terms of how much capital is committed and how much people are committed and so on. But in the latest few years, especially right now, the conversation is really about what else is there that we can combine with CVC or instead of CVC, right, in order to keep pushing the same goal, which is growth.

58:12But I think one of the things that when we started to contribute to the strategy of MERS-GRISE was when we, I think it was in 2020, there was a strategic insights team created under MERS-GRISE. that was a real analyst analyzing the startup kind of community and finding relevant areas to introduce to the C-suite. It could be anything autonomous, right? Because that was huge, right? Anything that can transport itself. So when we started doing these 30, 40 page reports, they started to listen, right? Then we brought value to them. And that ties into what Francesco said, right? Strategic decisions to do a CVC from the start, right?

59:02And then how do you deliver on that? But I think, and also, Crispin, you were on top of that, right? It is the KPIs. What are the KPIs mentioned and agreed upon for the CVCs to be successful? And then everybody is in agreement around the board and the C-suite of the success of the corporate venturing entity. in our case actually there is a strategy team and there is a transformation team within EMBW that are really discussing the big topics and we have just a close link to them so to bring the sort of startup perspective or investor perspective what we're seeing in the markets for them so we're not sort of giving them this is the big strategy but we're more like reflecting on what they think is the big strategy what we see in in the market in on the investment side and what you mentioned here before, Andreas, with your question, also to the M &A team.

59:54There has to be and there should be a nice connection to the CVC. So the M &A team, if the company is still a little bit younger or smaller and they think about, okay, what do we do with it? Should we engage or not? We're very close to them. So because the probability is very, very high, we're running since over eight years, that this company is in our database and that we have seen, even though we might have not invested, but that we've seen a couple of the rounds that they did before. So we can give them history, or you can give them our understanding of what we think about this company. So in that sense, there should be an exchange to improve also the other functions, but always geared towards sort of what we know from the startup world and the startup market and what we see in this market, but we're in the market.

1:00:39We're not a strategy team or anything like that. And we don't qualify. We would never say we know better and we'll save ENBW, no. I think there are two topics here that is very fascinating just to, you know, conceptualize some of the things that we are, if I may, right? So to kind of have been discussed. On the one hand, there is this idea of kind of a supply versus demand-driven CVC activities. So where, you know, somehow the supply side would be kind of having a strategy, right? For somehow, that's what I want to position my company. It could be, again, you know, EMBW in five years from now, years from now, so please go, guys, and work for it.

1:01:21And guys means everybody, including the CDC unit, right? Or it could be more demand in the sense of demand of fund in this case, right? So the startup world can say, well, I set up the unit, go there and see what's going on, right? So I can clearly see, at least for anecdotes, right, that the second one tend to be a little bit more, less successful, and more costly, and eventually turn down much more sooner than the first one, because it is a backup from the strategy, right, of the general core. This is one thing. So I think corporate, especially the ones starting, has to understand how they want to deal with this, right, because the second one seems to be more like a VC type of job, right, but have the money for doing that.

1:02:00Corporate don't have those funds for doing that, right? The second point I think is very dear to me and is a message that I very much want to promote, at least that's what the research that I'm doing and other scholars worldwide are suggesting eventually, all the results speak to the fact that the CDC is defined as minority investment in young venture or young entrepreneurial ventures by incumbent firms, right? But it doesn't stop to be, and probably is mostly like a strategic organizational tool. So not having the governance, let me call it that way, right? Chris, you are somehow referring to.

1:02:37So the idea that, you know, the M &A department should talk to the CDC department and generally the operation should have a say about what do they need, right? I think this coordination, let me call it governance structures, right, should be at the core of the, including the board, up to the board, right, should be at the core of the discussion of when setting up and how setting up a service unit. And even if we set up, how do we want to run it? So my understanding is that these governance structures, at least from the data I see and the talk that I have, is among the problems, number one, when the unit goes in trouble, when it comes to be terminated or be less relevant or be less impactful, because it's probably less kind of communication and coordination effort by the different actors, right?

1:03:25To make that activities of investing in startup very, very, very important. So I think this is something that is tend to be forgotten too frequently, in my opinion, in the light of putting a lot of emphasis on the investment element, rather the governance structure and how we actually train our employees to think entrepreneurially while they actually deal with startups is a little bit less forgotten. In that sense, I want to mention an example. There is a company that I've been talking to recently before vacation, is A2A, it's a utility company in Italy, and they set up a CVC unit as well, but in a hybrid way.

1:04:07So they basically became an LP for a VC that then function as a GP for them. So it's a kind of like, you know, interesting hybrid model, which is also adopted by a few other firms, including here in Denmark, right? In which basically they say, you know what, the investing part is very complicated and returning on investment is also a matter about knowing finance, right? But I know what I want. I know what I want to position my corporate in five years from now. So let me focus on that, right? So maybe, and this is a question somehow, maybe the separation is a new perfect equilibrium here to search in the new design of CIS and UNIT.

1:04:49But everybody focuses on their own core skills, right? The operations, all the operational elements are strategic and the financial part is actually given. I wouldn't say outsourced, but in some way, right? And I can see firms going that way. So we'll let you know, guys, how do you see this? And it's promising. But I think it's a lot about the decision gates, right? It is, you know, there's a lot of literature also on, you know, should the CBC sit at headquarter or not? Question mark, right? Because it's more, do you get influenced by the normal way of running a corporation with everything included?

1:05:26Because one thing is for sure, our VC counterparts, they do not run corporations, right? They run investment teams and it's all about returns. Right. So I think also, you know, when you look at studies around, you know, how much time does CBCs use on kind of normal management? And that goes from 25 percent and up. Right. In some cases. And that is a little bit crazy. So I think that there are many models. Well, maybe I go a little back in my history because I think there's basically no operational model that I have not lived through. So when I started the first, like 16, 17 years ago, the first CVC for another utility, not ENBW, we were first starting as an internal unit.

1:06:19They had a lot of money to invest. They wanted to do crazy things. then a couple of years later they had no money of course anymore being an internal unit even though you say you need 10 years so no money anymore then we did a spin-off we took an external investor in so we had a hybrid investor structure so being partly CVC partly with a bank as an investor changing the name so being a fully fledged GPLP structure and then CVC became back en vogue and that meant that the large corporate wanted to continue in a more strategic and stand-alone way which of course was not possible for us anymore because we had these other investors in and we had keyman clauses and so on, very professional setup so this didn't work and then finally after a couple of more years I started the second CVC here in NVW.

1:07:23And thinking about what is the real advantage of the CVC and having seen what happens, if you're not part of the family anymore, then it is, in my very personal view, impossible to get the synergies right. And we do also fund investments, not just as part of our mandate to do some fund investments for the community, for deal flow for for making our direct investments better i think a corporate that is trying to be lp in a vc fund will fail because they have no clue how the vc business works and how does this all tick and so on so it's very passive so on the day where you have sent your commitment letter the gp does what it does and they don't care at all about what this corporate thinks they still talk to the corporate in order to get strategic insights or something but there is no no synergy at all in order to figure out where the pain points of the corporate and how could we help because as we said before the vc just doesn't care and he shouldn't because he's 200 just on return um and therefore so for us it's a great tool to do the fund investments in order to be better involved into the community and we learn day in day out and we also learn that we take a little bit different um but the the little unfair advantage that the cvc has gets lost in my personal view in such a hybrid model but i guess francesco as i'm running a cvc you would have not really expected me to say hey let this do external vcs so i'm a little bit biased so sorry that's one thing is that an upcoming trend has not been uh yet to be you know and i think I think for smaller corporations, I would always suggest don't set up your own CVC.

1:09:23You have to have a certain critical size because of its complexity, because of the readiness to lift this business model and to let them do it also. If you are smaller, you should really invest into other VC funds where the investment thesis gives you insights into what you are planning or what is disrupting you eventually. So it's always like a mix. And this is what I said on the very beginning. Every corporate should analyze what they want. But Crispin, on that note, right? So what would your recommendation be if you kind of had 20 million euros to do something within CVC? It's subcritical. I would not set up the own unit with 20 million.

1:10:08No, but would you then do some kind of hybrid model? maybe do an investment into a VC as a service partner or something like that? I mean, I'm not 100 % up to date with a VC as a service. I saw some of these companies five, six years ago and they were incredibly expensive and they were paid deal by deal. So completely wrong incentive. This was not a cash on cash because I strongly believe in cash on cash, not in someone makes some calculation and says they are successful. so therefore if there is the 20 million I mean I think the corporate should then really think about if I do an LP investment do I have people in my organization that get me the benefit out of it that are dedicated to look on the reports to meet with the VC to really offer the strategic insights to the VC but also connect and understand the investment thesis for every single investment from the VC in order to take this with you into your strategic meetings and discussions.

1:11:11If you don't have these people, and this cannot be someone who does 100 other jobs and then has five minutes to deal with that, so I would then take the 20 million and split it over, let's say, five VC, LP investments and really having someone in the innovation department or I don't know, to really take this know-how and learning and to the benefit of both the VC and the corporate. I think you're completely correct there, Crispin. I just pitch in on this one because we're investing as LPs ourselves, my co-founder and I. And then we've helped a bunch of emerging managers get off the ground and think about their fundraise strategies and so on.

1:11:53after 350 or so interviews as well with VCs, I kind of have a feel for what are people's fundraise struggles. And in Europe, they're massive, right? And that would be my core point here, that any corporate that could bring even a million or two million as an LP commit to a fund, as long as you're not talking the large funds in Europe, but anything in the neighborhood of 40 million, which is a very good segment of European seed funds, you definitely have a meaningful ticket there and thus a meaningful interface towards the VC as an LP. And I think that that's a big if or a big point that you're making, Crispin.

1:12:40And you need to have someone internally that knows how to work with that VC, knows how to interface in a way that a VC can interface and know what to ask and what not to ask. Because otherwise, you'll very quickly, as you said, be just turned into a cash cow and you'll try and do the minimum that will allow you to get the next ticket. So or maybe you'll even say it's not worth it. Right. I can't do this. And taking a little bit in here, Andreas, right? I think if you are a corporate and want to do it, it's a matter of setting the expectations, even from the GP side of things, right? What are the deliverables?

1:13:18What can you expect in this collaboration? Because that's super important, right? It's like when you invest into a startup from a GP, what is the expectation? What is the communication level? How much? How little? because otherwise it's going to be successful. And I think, yeah, but there's one very interesting avenue that I think has suddenly become open by the LLMs, which is that those reports that you spoke about before that would require immense analytical work to do on the whole incoming deal flow, that can be done rather efficiently now by even a one-person GP. And that's definitely a flow of information that you can give to a corporate partner that would likely be incredibly valuable, which you in no way could ever have delivered before.

1:14:19That was the purview of the very large firms to be able to service a corporate like Maybe just one more point about just circling a little bit back to the CDCs. Maybe one more point about, like I've mentioned before, a couple of points, what might help or what might not help when a corporate wants to set up a CDC. And one thing that is, I think, also something that is not sort of maturity knowledge. We actually have decided to use an evergreen setup. that's in the VC world. Of course, that is sort of not the typical VC setup with these like five-year investment period, raising the next fund and so on.

1:15:07And over the years now, I've seen that this model has huge advantages for a CVC and also for the partners of the CVC and the co-investors. Why? Because with the evergreen approach, and with evergreen, I mean that like you, of course, you're like a fund. You take the money, you draw down the money when you need it. you invest it in the startup. When you do the exit, you give it back to the corporate, but you have the right to redraw it. All of it, part of it, that depends on the setup, but best is, of course, all of it. What is the big advantage when you set up the CBC? What the board of a corporate really doesn't like, if you're coming back every couple of years and say, ah, I need more money, ah, I need a new commitment, or I don't know what, they are used, the corporate is used to closed-end business models.

1:15:52Either the business model is successful, that it's growing and it's nice or it's not successful, we close it down. That's what a corporate is doing every day. And with an evergreen, you can do exactly that. So you can say, okay, I mean, I need this one commitment in the beginning and then afterwards we grow or we shrink and I have to fire my people. But it depends just on our own success. And sort of this close setup, I think, was especially for more conservative corporates, it's much easier to grasp because if they think, oh, every couple of years, we need to recommit or do I don't know what that's more difficult especially for the second fund I think because as we mentioned before you need the second fund commitment after five years probably you don't have paid back the whole fund yet so it needs an additional commitment so there the evergreen has a lot of advantages and what I've learned over the last years is also in the beginning I thought the evergreen could lead you to less exit pressure but at the end of the day it's more because all of a sudden you're not like a VC fund who is who has some companies are not performing so well but your incentive to sell it is zero because well there's still a real there's still an option value in it that it might turn around um but if I if I sell it the money's gone I can't reuse it yeah but in the evergreen you can reuse it so you're you're you're benchmarking and really sort of pressure on okay so the ones that are not performing so well you will not wait seven, eight years to sell them, actually, you will do it earlier because you can redeploy it into other opportunities.

1:17:25So there's a lot of advantages. And another advantage is you're always on the buy and sell side at each point in time, so you see the market quite well, what is going on. So there's many advantages. So I just wanted to mention that one. I think it's an excellent way to do portfolio management, right? To make sure that you have the right incentives, right? Because you also mentioned that on earlier Crispin about they should make sure that you have enough money to follow on rounds because otherwise you'll be excluded from the ecosystem. Yes. And the way how we are dealing, for example, with other BC funds that we invest in is we tell them when we do the first fund commitment, we are an evergreen.

1:18:03So if you do well, we are your partner, not only for this fund generation, but also for the next one and the next one. Guys, we are getting close to the end. We've run for a super long time has been incredibly engaging. So, you know, I haven't been wanting to control the conversation too much, but I do want to make sure that we make it to the future of CBC, talking a bit about the trends and predictions. I realize it's going to be a bit of a quick fire format here, but Francesca, I'll let you go first. If you should give us your core takes on what we have coming for us in the CBC space. Sure. So I think some of them have been already mentioned.

1:18:46So I'm going to mention again quickly. So one is basically looking at CVC from more like a core business value creator as an initiative. And in that sense, the venture client model would probably be more primarily observed and adopted, or at least explored. going back to the core it's very important especially in kind of tough times like the one that we're seeing now it's a short economic cycle so core business goes back as a lion CBC probably will will look at a venture client in a way to align with that goal second is I think the use of more the flourishing of more intermediaries right so we know these platforms like a plug and play or touchdown ventures right I think more intermediaries of that kind, not necessarily platforms, will emerge because deal sourcing is a problem, right?

1:19:47It's a challenge, at the very least, for a lot of funds. So I see intermediaries for improving deal sourcing will be something that I will see more. The other one is about the governance, but I'm not going to push more. I just want to make sure that one of the things that I continuously hear from a lot of units is they're not invented here syndrome. So the systematic rejection of solution brought from outside from people that are in the CBC unit bringing solution. And then the R &D people, they say, but I didn't ask you to bring anything or this is not really what we do, how we do. So that usual story that if we're in corporate, I think that is something that bringing in the operations more in general, creating governance across different level is that important.

1:20:29And finally, I would say what we've been discussing from the very beginning. So CBC is just one of the corporate venturing initiatives. the integration on a portfolio of different initiatives. So if I have to nail like a mosquito, it's different if I have to bring down an elephant. And so I have to use different type of tools for that. So I think the reflection of between and within corporate venturing strategies will be a fundamental trend that we're observing more and more in the soon future. I think we will become looking much more like the American corporations investing. So my belief is intuitive that there will be more and more CVC entities across Europe.

1:21:15It is also my dream and that is why I do what I do, right? That's also why we are doing this show. It is to make sure that C-suite get an understanding of how to use this strategic tool. And it's very, very important. we have more and more startups in europe we have more and more real businesses in in europe the spotify's the clarnas and and so forth right we will have more and more talent coming out of that that understands how to work with uh with startups so you know you know i believe in a european success story uh also on on the cvc side and then i i jump in and let's be bold so i would say I would say pure strategic CVC approaches will disappear.

1:22:04That doesn't work. All the reasons we've mentioned before, especially you're getting a selection bias for founders, and it doesn't fit to the co-investors, so to the VC investors or to the institutionals, it doesn't fit. Second, and that's also a guess, no surprise, I think the evergreen model will gain in popularity. the reasons I've said before. Overall, I do hope and also strongly believe that the overall weight of CVCs in the total VC community, it has grown a lot, and I think it has still some potential to grow more. So if I have the numbers well, I think right now it's around 25 % of total, total 20, 25 % of total dollars invested.

1:22:53I think this could go also to 40-50 % over the next years because it is just so important for each and every corporation to play it. The larger ones. And, well, finally, and I think this fits perfectly to what Francesco just said, I do believe there are very specific different innovation tools and the corporates that understand these differences and really decide which ones are the right ones for them and maybe combine two, maybe even three of these different tools, while CBC is one of them, they can use these sharp approaches and they will be successful. So I think this is the best way to go.

1:23:39Gentlemen, this has been an incredible episode. So I'm so thankful that you all joined us for it. I really think that this has been one of the very best we've done. Or maybe it's just because it's a topic that I'm much less well-versed in, something that I never scratched the surface of as much as I did here. So guys, thanks so much for joining us. Thank you for the invitation. Here's a few words from our beloved sponsor. How to Web Conference is the leading startup and technology conference in Eastern Europe. You're shitting me! The 2024 edition takes place on October 2nd to the 3rd in Bucharest.

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