E528 | Florian Noell, PwC: Reinventing with Venture: How Corporates Can Actually Innovate

0:00Nearly half of the world's largest companies are staring down the barrel of obsolescence. The clock is ticking. 42 % of CEOs don't think that their business model is reliable for the next 10 years if they don't change. So they pour millions into corporate venture capital. But here's the brutal reality. That's the value of debt for all CBCs. 3.7 years. That's how long the average corporate venture fund survives before getting shuttered. But what separates the winners from the write-offs? In this perfect world, common understanding that corporate venture capital and venture venture capital in general, by the way, is only working with a strong portfolio approach.

0:37If you don't have 20 or something startups in your bucket, then it can't work on the long term. While European corporates hesitate, their American counterparts are already dominating the game. I think they invest more in venture capital than any European corporate is doing right now. The question that should terrify every boardroom. Name me an example of a large company which was able to reinvent its business model out of itself without working with M &A or venture or startups. Can't think of one? Neither can we. Join us as Florian Noel of PwC reveals the mindset shift that turns corporate venture capital from expensive experiment into strategic lifeline.

1:16This is the European VC Podcast.

1:25Tear down this wall. It's more than just an alive. This is a union of values. Let's start acting. This show is not investment advice, and the hosts of this episode may be invested in the funds and companies featured. Welcome back to another episode of the European VC podcast, where we connect and champion the voices that shape European venture. And as you know, we're zooming in more and more on the CVC landscape. And to do that today, we have Florian Noel, PVC's global venturing and EMEA startups and scale-ups leader. That was difficult for me. He's obviously a figure uniquely positioned to talk about the intersection of global consulting, corporate innovation, and the startup ecosystem.

2:12So Jeppe, other than what I just said, why did you think that we should bring Florian on for today's conversation? I've met Florian a couple of times in the German ecosystem and in the European ecosystem. Then myself started my career at PwC, where Florian is now working. So for that reason, it's super interesting to have him join us. Then Florian is a former founder. He has also been engaged in the ecosystem on a more political level. So that is super interesting. And now he's in a position where he leads across Europe. So I'm looking forward to, you know, State of the Union from Florian, what's going on out there.

2:52So welcome on the show, Florian. Thanks so much for having me. Good to see you again. So there's so many different ways that the different firms similar to PwC, or at least that work as advisors to the venture ecosystem, engage with venture. Let's just lay it out for everyone that's listening. How does PwC engage with the ecosystem? Yeah, so we do it like you're already pointing on in two ways. First hand, I joined the firm five years ago with the mission to make PLRC itself a good partner for startups and technology companies when it comes to collaboration. What does it mean? We set up PLRC's first venture capital fund globally, being the first big four, starting investing in startups with our own money to put our own skin in the game.

3:46we continued with investing in venture capital funds that we are building our own ventures and joint ventures so this is in place and is still one part of my responsibilities but of course yes we are a global advisory firm and it makes so much fun that we support many many clients globally if they want to set up their corporate venturing activities corporate venturing is for me in venture investing of course but it can be venture clienting and venture building as well and this that is aligned to our startup and scale-up network. We are proud advisor of many, many founders across the globe. In my home country, in Germany, at this moment, we serve 85 % of Germany's unicorns.

4:25But the most successful ones, of course, we support hundreds of founders per year with knowledge about how to engage with large enterprises, how to find enterprise clients, and of course, you connect them. And that's maybe the most fun of my role today, being a former founder who experienced how difficult it is to find the first clients and to do sales for a startup. That's really great to see how we can leverage PwC Salesforce database and our network to make it easier for today's founders. Maybe here, Florian, could you share a little bit on what has surprised you the most from being a founder to now being on the other side of the table?

5:06Well, five years ago it was kind of walk the talk moment because you mentioned that I did some politics. So I've been founder and chairman of the German Startups Association and I've been co-founder of the European Startup Network. And I was not really happy about the way European corporates engage with startups. In Germany today, 96 % of R &D spending are spent internally. and I strongly believe that you can't reinvent traditional business models while not working with external innovators like startups. And after complaining so many times about the role of the European economy with regard to innovation, yeah, it was this walk-to-the-talk moment to be asked to do this for a corporate for the first time in my life.

5:57what's the difference right yep i think um having your own startup is a management of a lack of resources all the time you are personally reliable for a lot of stuff including the office rent and and stuff like that so i don't miss those things to be honest it's quite convenient that i get a new laptop within an hour if mine is broken and um to be able to work with really smart people and we have more than 380 ,000 across the globe. And they're all very smart. That's a great privilege and something which is like a superpower of a company like Brasswater or Scoobrest. When you then look across the corporates you have been able to help, are there success stories you can share with us?

6:44You know, who out there is really good at nailing this, right? Because it's not an easy task for corporates to engage with startups. Yeah, of course, we could talk hours because we could discuss, are we talking about venture investing or is it venture clienting, right? Maybe the most general topic is the mindset, right? And the question is the leadership commitment on doing that, on opening the firm for external innovation. um if the mindset is in place and you need this mindset in the c-suite you need a ceo in best case or another c-suite member who is driving this who is pushing boundaries and um who is committing the firm to to do this i think that the the most important step and then again we can we can talk a lot about way of working how way of doing this i think it starts with a good strategy it starts with a good foundation it starts with knowing where to go so for example where to invest or what are the main topics you want to drive and if the strategy is in place maybe you hire a former founder or somebody who was in venture capital and then this could maybe a good starting point for what to do this i think it's true right the combination of having somebody internally that leads the effort and i fully agree with you that leadership support is key to a successful corporate venturing setup.

8:17So no doubt about that. Despite all this and that it is quite self-evident that, of course, you want that. We still have this situation of the average lifetime of a CVC being 3.7 years. Where are you seeing the mistakes being made? Yeah, that's the value of death for all CVCs. why is this the reason i think you can put it in relation to the average term c-suites are serving on boards um on public desert companies it's it's even a shorter period they they stay on board sometimes and after three or four years you can't show up with successes right there is no success story in a portfolio most cvcs we see in the early stage in europe maybe in the us it's a bit different right but in europe we see most early station in most times early stage venture capital investors in this corporate space so it takes five years seven years ten years to um to see the first exit in your portfolio uh while you already have faced some white also of course within the first three four five years and um when then there's a management change and a lack of commitment maybe when the external environment is changing as every day at the moment based on geopolitics and I don't want to put the full list of disruption stuff on the table right now but everybody is aware of this then it's tough times for venture units.

9:50Of course you can try to think about this already when you set it up we try to do this with our clients to make our clients venture units more resilient. But that's, that's from my experience. What are the key things that you do, the key steps that you take? Perfect world, a management team decides to put a strong capital commitment in place, which is not depending on a yearly budget or even on single deal decisions, deal by deal. in this perfect world. A common understanding that corporate venture capital, venture capital in general, by the way, is only working with a strong portfolio approach.

10:37If you don't have 20 or something buckets in your bucket, then it can't work on the long term. And that's the perfect situation. How do you broach this topic in the best way with your clients. Because as always, I was at the E-Band Congress the other day, which is of course a group of angels. And I came with a provocative statement that there is a lot around portfolio modeling that you guys need to understand and you need to understand that this is the truth. Sometimes, like I also had in that presentation, a disclaimer saying, don't shoot the messenger, because it's of course not how most angels invest.

11:28How do you best talk to corporates that have been hugely successful in everything they do? And that's what have brought them to the position where they can now start thinking about doing corporate venturing. How do you make them understand these very different rules of venture? We are talking a lot about best practices, of course. Of course, in any industry on any continent, you will find good examples for companies doing venture investing for many years. And some are doing this in a successful way of doing it and others failed in the past, of course. And if looking at the best practices and worst practices, it's very helpful.

12:08We are operating a global convention capital round table with 150 professionals at the moment who are meeting on a regular basis and those people i love to invite to clients who think about setting up those funds and units because i have my experience i can aggregate my experience with many many situations i i worked with but that's that's one way and of course no ceo or no cc wants to fail right and if you look at the numbers if you look at success stories you see common patterns um why why ventures had been successful or why not and typically this leads into a better strategy and better better structure for for the future unit there's one professor that says a successful venture unit is one that has survived three ceos then you know you have the right strategy that fits with the culture of the corporations.

13:05And I think there's some truth in that. And Florin, to one of the things that you mentioned before, I think the holy grail in corporate venturing is corporate startup collaboration. What I see a lot in the Nordics when I go around, I see a lot of the CVCs doing balance sheet investments. And I think that's mainly due to the size of the corporations in the Nordic region. And I do, however, also when we talk to CVCs that are single LP entities, they seem to behave a lot more like straight VCs, where I sometimes get the feeling of how, you know, how much have they turned VC compared to CVC and how much can you actually benefit from the corporate if you are a single LP?

13:56Do you have comments to that? what do you see on on the collaboration between corporates and startups in in the two different scenarios yeah yeah but holy holy grail is a nice term for it uh maybe i use it sometimes as well um because uh it's really hard for those uh cvc units to check all boxes right to to to match the expectation because again most venture funds we see in the corporate space are investing early stage saying that these startups are too young to collaborate with um they they need maybe three or five years of development before they are a partner for for a large enterprise to to work with and um for this reason it's it's quite tough to match those expectations and of course you have a different set of kpis if it's if it's if it's a single lp corporate venture fund um even if the management team is talking about strategic returns they will once a quarter or every every year they will look on the numbers first um on the on the return on invest and for this reason um i like setups in which you have a kind of kind of separation um i like a combination for example of venture investing and venture clienting teams there's one team with the financial focus and one a strategic focus which is taking care of of the value creation and collaboration and um i like setups we've seen that in the market with two sets of kpis and some people are mainly driven financially like a real we see um and others are just looking at at the again at the value creation and more working on the qualitative side of startup collaboration i I really like that you split the teams also because it is different work.

15:57And then I think for the corporates out there that are starting to go into corporate venturing and direct investments, study portfolio theory because there's something when you start with your first couple of investments to go later stage, to get an exit sooner rather than later. And that grows as well for VCs as it goes for CVCs. I was actually about to ask about that. So why do you think that corporates, maybe particularly in Europe, but corporates in general, end up picking an early stage strategy instead of a Series A onward strategy? One year have this situation where you just know that the strategic value is very hard to get out of a seed stage firm.

16:42Yeah, that's always when reality hits, right? What's the amount of money available to invest? of course when i when the c-suite is asking me where to go i would say go for for growth and late stage investments your term is for four years or something like that you want to show up with results pick some some growth or again late stage investments so maybe you can you can even go public with this with this investment during your term on the on the board right but um see how many how many European corporates are committed and or able to invest more than 100 million per year or something like that to be able to do this.

17:29We see those corporates, a lot of them in Silicon Valley and the US, and they are quite successful, I think, with this strategy. But that's the main reason. Of course, when it comes to strategic returns, you can say, if you want to set a CVC for this water function to see what's going on in the market, to have this early indication about new trends, then you'd have to go early stage. But I think you could cover this with LP investments and venture capital funds as well and track the idea flow instead of building your own one. One of the things that I've seen, right, why corporates don't go later stakes in Europe is that they're super afraid of the valuations, right?

18:10the enterprise value multiples that you see in startups compared to their normal business, it is so different, right? So they don't really understand why they have to pay that much. Yeah, of course, fair point. And it's even worse or even stronger when you see it when it comes to family businesses, right? So they invest their own money out of their family's pockets. And then And for them, sometimes I do get support, right? It's sometimes hard to believe why a three-year-old startup should be more and more and more valuable than the business units they are operating for 50 years or something like that.

18:52And then even when you see kind of the hot sectors, right? So right now, those sustainabilities, they are priced fairly high. And then we have dual-purpose, right? Defensive tech that is just skyrocketing and the valuations are insane. So for the corporates looking at that, And it's like, well, they don't even have revenue. And then they go around with those multiples. So that's a scary part. Florian and Jep, I'd love to ask both of you, how do you help? So we've just nailed down, probably would be smart to do growth stage or at least Series A onwards. Money is very big there for corporate. There's many good reasons for that to be difficult for many.

19:32So how do you then help a corporate think through, should I do early? Should I do seed and pre-seed as a corporate VC and set that up? Or should I do some type of corporate clienting, corporate venturing, other engagement models? Or should I do an LP model instead? How do you kind of juxtapose these and the values that you're able to get and what you need to think about when you set it up? Yeah, so with regard to your more general question, we have a small framework in place, which is quite well explaining differences and different goals between different venturing approaches like venture building, venture clienting, venture investing.

20:20And of course, you can add M &A to such a discussion as well, because sometimes it's, sometimes often I'm the first discussion is with the M &A team, having the task from the bought to make an evaluation on venture investing. So that's the first thing. Of course, it's like questions about what's the time to market, what's the amount to invest. Venture clienting is producing fast results with slow invest, of course, while venture capital investors, of course, based on the stage, have a higher amount of invest and long-term, to long-term perspective. So that's a general perspective or general way of doing this.

21:06And when it comes to setting up a corporate venturing unit, we have our own framework with 10 building blocks. And of course, it starts with the corporate strategy. What's the purpose? Is it for financial purposes? Is it for strategic purposes? Is it for... And most times it's at the moment for strategic purpose. Then you look at the capabilities, you look at the investment areas, where to invest is maybe indicating if you can go early stage or if you have to go more and more growth in late stage. But many, many times the available bond to invest is driving some of those decisions, of course. And other parts of this 10 building blocks framework are, of course, structural governance, who's making decisions, who's on the investment committee, how does the reporting look like, what kind of people do we need?

21:59and everything you need to operate a venture unit or venture fund. I think, you know, just like, you know, adhering to what Florian said, right, it comes from the strategy and it comes from the foundation that you set up for your corporate venturing entity. And there is something about, you know, speed to relevant KPIs. And when you do the corporate clienting piece, you are more likely to get something out of it that you can use internally. I think a lot of the early stage approaches from the European corporates also comes from what we see in venture capital in Europe. It tends to be smaller funds doing, you know, spray and pray models.

22:43There are a couple where they do, you know, 12 investments in a 100 million euro fund. And maybe that is something for the corporate to look at. treat it more like private equity, but that also means that you need to solve the complexity around corporate startup collaboration. Because if you go in there and figure out how to work with that holy grail and you understand how you can unlock all the value triggers from a corporate and put that into a startup that is at Sirius A and actually help them without going the other way around because it tends to be a group of FTEs from the startups that tries to solve the problem for the corporate.

23:33But if we could find a level playing field where it was both parties that on an equal basis tried to solve those problems, I think it would take quite far going a little bit later stage with fewer investments in your CVC. Yeah, maybe nothing to add here. So I think I could say only the same thing with other words, maybe, but I agree on that. Florian, I'd love to ask you a bit about, because you had the background in politics, policy, representing the startups. And you jumped to the other side, hoping to probably also make a change there. I'd love to ask you, what's your observation when you look at the path forward to getting more corporates and startups collaborating?

24:30Is there something to be done on a policy level or is it purely driven by the private markets here and a sophistication or just further development of how we think about this in Europe? Well, I think you can't fix everything with politics, right? um yes there are some things happening i think politics can be supporting in in funding ecosystems like like especially in the early stage um uh that's this question who is starting those associations and how to fund them and who's committed to do that i think european politics is doing good stuff when it comes to backing the venture capital ecosystem with the European Investment Fund and National Development Banks and some countries who are doing the same thing, being investor in venture capital funds, anchor investor most times.

25:32And we do have some direct investing units as well around, which are quite successful in what they are doing we have a new government in germany since since four weeks or something right three weeks not sure um therefore a nice plan they want um to introduce uh text decorations on digital investments so for me it's a key question how to enable the traditional companies to buy more from startups to buy more technology to invest more into ai adoption and all kinds of of cloud and digital solutions and to um provide the the chance to write those investments off faster is something i like and i i opted for in the past already but at the end i think it's at the end it's it's remains the mindset question for the corporate leaders when i see that in the urs close to 50 percent of venture capital investments are backed by corporates and in europe it's what is it 20 25 or something like that um then there's a lot of way to go and of course u.s corporates don't invest in the status for for um charity reasons um that's that's business and that's how they reinvent their traditional business models and stay at the wave, the curve.

27:03And I hope that more and more European corporates and, of course, family businesses understand how important this is. Many would say that part of the reason here is that the corporates in the US are just much larger. And for that reason, there's more activity and they will also then be able to go late stage instead of early stage, which also affects how much money is deployed. Is there truth to that or do you think it's much more a mindset thing? Of course, there are some advantages, right? If you see those high margin technology companies like Apple, Microsoft, they have, of course, much more liquidity compared to some traditional business models in industrial or other spaces.

27:50We do have more or less all of them are publicly listed. They can acquire companies with their shares to make share deals. something which for example family business can't do um partnerships like quite first of course by the way can't do as well um and of course there are some reasons but one once a year i am i am joining the global corporate venture summit in monterey california and i always use this visit for for many men for meeting many many corporate recs in the bay area and um for example i've met this year AMD ventures and I think I must check GPT but I think they are at 22 billion in revenues at the moment and I think they invest more in venture capital than any European corporate is doing right now so I don't want to disclose the number because maybe it's confidential but it's impressive and you would find many companies in Europe being above 20 billion in revenue on an annual basis, but you will not find many investing, maybe not any investing the same amount of venture capital.

29:00So it is, in other words, very much a mindset thing. What can we do on a narrative level as an ecosystem, as actors that are trying to talk to corporates? Where should we focus our efforts when it comes to changing this mindset? Because we have a ton being done by policymakers towards getting founders more active or getting more people choose the path of entrepreneurship. We don't have a similar approach to trying to get corporate leadership engaged more with the startup ecosystem. pwc is publishing um a global ceo survey so we are asking the author of the largest companies across the globe for on their opinion and published it once a year at davos economic forum and roughly 40 i think this year's report says 42 of ceos don't think that their business model is reliable for the next 10 years if they don't change so we can ask why it's only 42 percent percent what to the other thing but um um there are answers on that which maybe we don't have time for this one or this another discussion but i like to ask the question for example name me an example of a large company which was able to reinvent its business model out of office itself without working with with m &a or venture or startups and um reinvention in today's terms is close to disruption sometimes yeah is the traditional company able to disrupt itself i have a strong opinion on that and even i don't know many examples yes yes yeah now we can talk about amazon with kindle and ebooks and but i think that's the luxury situation if you are amazon and introducing digital books while while may be disrupting your your printed ones but Please, I could ask you the same question right now.

31:04I think I don't meet many CEOs having an answer to that one. And that should be the starting point because there's so much in the chain. There's so much ways of getting disrupted by regulation, by geopolitics, by general customer behavior, by climate, by software stock, right? We could continue this. And I think you can put many numbers on the table, but even those examples, which will invent questions, which create the need of thinking about how to innovate a traditional business, about how to reinvent it. I fully agree with you, Florian. It's super difficult to reinvent yourself, and it's seldomly seen.

31:50What we see a lot in the U.S. is that they have done a lot of innovation. So when you look at the big companies in the U.S. now, A lot of them are former startups, right? So they come from that and have been. And they are not that old as they are here in Europe, right? So the European companies are super old. One of the things that I can't stop thinking about, right, is that also the way we remunerate C-level in Europe is not to take that big risks, right? The amount of stock options that they get, and even if they are part of a family-owned business, right, That's not where it is, right? It's normally bonuses that are tied to what's going to happen the next 12, 18 months, right?

32:35But have you looked into that in your survey or anything, Florian? Not in that one because it's general businesses and not sharing the survey. But I think we are talking the whole time about collaboration with startups, right? But when it comes to this mindset thing, even if you don't collaborate with startups, which would be stupid by the way, but if you don't, you have to adopt a way of working, right? And it's about working agile, of course. But then it comes to the risk-taking culture. It comes to incentivization. And incentivization, I would look at the incentivization of venture capital, general partners, for example.

33:25How do they take decisions on investments? What's their skin in the game? And what can you adopt from those structures on the corporate structures? And there's something you can do if you want to go this way, of course. I'd love to ask you, Florian, this is a question that both goes to corporates but also goes to the ecosystem and those of us acting in the ecosystem. You just had Superventure happen and Super Return happen in Berlin this week. And now that I sit here and think, there's not a lot, if any, corporates part of Superventure. Superventure is a GPLP thing, and it's honestly the only group that's there.

34:12There's another group that we here at this, as the CBC podcast, are trying to champion that this partnership is incredibly important, both for your value and all this, but there's also a lot of money to unlock, potentially, if you figure out how to work correctly with the corporate. So my question here goes, of course, on the LP angle. on the one hand side, when does it make sense for a corporate to do these investments? How much? So on and so forth. Is it a good way to start exploring doing a venture fund or doing a CVC? That's the one question. And the other is, do you think that there's an increasing, because that's obviously Yabba's in my view, there's an increasing role to be played for the ecosystem I mean, bringing together the corporates and the VCs in the same rooms, talking about the same things so that they get more familiarity with each other.

35:11And not only the CVCs, honestly, because the CVCs are already committed and doing it, but also the corporate executives. If I have the numbers right, two-thirds of corporate investors investing in venture capital are limited partners as well. so i think that's that's um a quite good number and underlined that there's a huge need for for lp investments or a huge need or advantage in it maybe that's a better explanation what's what's a good reason to do that um i think yes it can be with starting point setting up a venture unit often takes a year finding the right structure strategy team um that's the year you can already start learning while working with with gps of venture capital funds while being the limited partner for this reason this could be a good step um building up a cvc unit with with your deal flow and everything maybe takes more than a year right and how you how you can wait to accelerate your access to the floor is being limited partner then quite often um We see this strategy, of course, when it comes to scanning other regions for many European family businesses and smaller corporates.