E603 | EUCVC Summit | Gina Domanig, Emerald Technology Ventures & Nicolas Sauvage, TDK Ventures: Evolving CVC Programs

0:00Building a corporate venture capital program is more than a financial exercise. It's a cultural shift. Gina Dominic of Emerald and Nicolas Sauvage of TDK Ventures join us to explore how corporates can design, launch, and evolve CVC arms that deliver more than just returns. Market demand is key. It fuels innovation. We need a bigger spectrum of technologies for us to bring better, greener technology solutions for us. From governance to deal sourcing, this session is about laying the foundations for a CVC program that lasts. Some brains are big enough to deserve to be heard twice. Besides me and Yapa, of course.

0:48That's the two of you. So we spoke before about the importance of financial returns and strategic returns, trying to balance that. and the fact that venture returns come very, very late, and that can be a conflict with corporate's goals. However, now we're going to talk about evolving programs in a way where you can continue to be, as a CVC, actually additive to the corporate and aligned. I'd love to ask you because venture is incredibly cyclical. We've seen it now with AI. Last time, we go through cycles very quickly. That can be quite tough, I imagine, to get the corporates to understand and kind of match up with the corporates' timelines and thinking.

1:36Is that the question? Yes. Tell me, how do you solve that? Yes, it's very tough. But I think you have to first differentiate between corporate VCs, which have an exploitation mission, which is a current business, current market, current product, and exploration. And exploration is much more linked to long-term strategy, And that's what we do at TDK Ventures, which is looking at these big megatrends that looks really attractive and then decide to go or not to go. I mean, strategy is about deciding what not to do. And so we try to help understand what the future might be by investing in the entrepreneurs who want to build that future.

2:14Yeah, I think for us, we have a lot of Asian LPs. They're acting very different than the rest, I have to say. the Asians kind of have their plan, they stick to the plan, kind of regardless of the cycles, more or less. The others, I would say, I say it's the reign of the CFO, right? The CFOs now dictate what happens in the big corporates. And it's either you're contributing to the core business or your head, you know, your head's on the line, right? So yeah, we try to balance those to and because as I mentioned before we've got this flex term structure we're not as exposed as a VC to having to ask them for money in bad times.

2:57What structures are imperative here? Well I think so that's interesting Mike we just spoke was more balance sheet I think you're on the evergreen model I think you have found based I think the value of fund is that you have this long-term setup you do capital calls of course but you have so we've built four funds one of them is actually a multi-lp fund and it helps to make sure that you can commit to the entrepreneurs you have reserve for follow-on actually three of our funds is 50 reserve and one is 60 i don't think it's critical that you can't do without a fund base but i think it's really helpful to act like a financial VC, which makes you more friendly and a real partner with other financial VC when you support your portfolio companies.

3:49Gina, with your model of having multiple LPs that you have a CBC as a service model, how do you engage with them? Could you talk a bit about how you ensure that you understand their strategic plans plans and trends that they're seeing that you should try and cover. Right. And they do change. One of our materials corporates told us the other day, it's all about robotics and we almost fell off our chairs. Right. But yeah. So I think that I think when when corporates we try to explain to them, look, when you're starting out, you know, there's the finance. If you're going to be making direct investments, there's a financial returns part.

4:30Otherwise, you're not going to be a credible investor out there. But there's also the strategic part. And there's a certain amount of work that needs to be done, regardless of whether you make or buy, right, whether you decide to outsource part of it or not. You need investment people and you need business development people. And you probably need about the same number of each. And you have to be focused on delivering value to the corporation, whether that's new businesses or the core businesses, preferably both. And as somebody earlier said, start with the people who already believe that this is going to be, you know, something that's going to be additive for them as a business unit and, and hope, you know, communicate, communicate, communicate the successes, and then you'll, you know, hopefully get the others on board as well.

5:16So I think that that is important that they understand that you, you need to dedicate resources to both with like, whether you decide to outsource part of it or not. Both parts need to be done. What are key processes to ensure that you're aligned with the corporate's view on trends? So we have an engagement team that's in charge of these equal win partnerships. And of course, they have KPIs that are all about ensuring that these engagements are well-designed from the start and then lead to tangible outcomes. But we always work backwards from that long-term strategy, which is how do we help TDK and our limited partners to build first-to-market solutions in these new megatrends?

6:01Because, at least in electronics, being first-to-market is probably 90 % of the margin. So it really has a premium. But it takes five years to develop the product. And so for us to work with entrepreneurs who are building the future four, five, six years in advance helps us to be first to market if it works out. And I think from a process point of view, and it was mentioned before, it's not just the portfolio companies. Because just because I think something is a good financial investment doesn't mean that my LP would think that that's a good partner or that's exactly the solution they're looking for.

6:37So I think the VCs that kind of commit to working with corporates have to also find a way for them to mine your deal flow. Because we invest in maybe 10, 15 companies a year. That doesn't mean the others are not good companies. They may be too early, over, you know, we think overvalued. The alignment isn't there about the exit. There's a lot of other VC financial reasons why we won't invest. And I think it's really important that you develop processes to help the corporates to match with your other deal flow that you're not investing in. That's important. You have a quite fascinating modus operandi when it comes to that.

7:20I actually, after our conversation on the podcast, have mentioned this many times to VCs that look to raise capital from corporates, saying you've got to know what you're getting into because they're not just expecting to put money with you and then come back in 10 years and hope they got something out of it. So could you talk a bit about the setup, both internally but also your deliverables when it comes to deal flow to your corporate? So it's deal flows, it's pilots. We have kind of a whole menu of KPIs we let them choose from, but we force them to choose, right? And I think it's, you know, we have got every six months, we've got meetings.

8:02Once a year, we've got meetings with their senior leadership because it's also important that their senior leadership puts a little bit of pressure on the business units to cooperate, right? You can't expect the CBC guys to do this all on their own. They really do need help. So it goes from, you know, understanding what their profile is, doing the matching with the deal flow, having monthly calls with each one of them individually with our sector specialists, making the introductions to deal flow companies, following up, because a lot of times the startups tell us afterwards, yeah, you introduce us to them and like crickets, we didn't hear anything from these guys.

8:41And then kind of helping them with the pilots. We have to watch a little bit. We, you know, we, we almost, it's a slippery slope there. We're going into consulting, right? And I'm not set up to be a consultant. I was just about to ask the both of you to give a really quick reaction to round us off to the statement that being a CVC is a bit of a marriage between being an investor and a consultant. Am I being facetious or is there truth to that? That's 100 % my problem. I never thought of it that way, so I'm probably disagreeing with that. I think the CVC is a combination of being a really good financial VC and a really good strategic VC.

9:25And I think if you can combine the two and refuse a false pretense or false choice of being financial or strategic, you can go really, really well. And I want to say this is a golden nugget from Gina again, which is forcing the corporate to choose between different KPIs versus no KPIs. So that was really good. Beautiful. Thank you both. Thank you.