Kai Bond started a company inside the Samsung accelerator - a Smart TV app called Pixie - sold it to Samsung and has watched it evolve into Samsung Extra, embedded in every Samsung Smart TV. “We were reaching some few thousands. Now we are reaching tens of millions,” he says. "We certainly could not have done that without the distribution and expertise of Samsung's TV team."
Bond’s strategic focus is on software that “builds the right end-user experience.” He doesn’t want his investee companies to be focusing on building for a solution – that would be too limiting. He has made six investments in virtual reality (VR) and believes Samsung offers the best user experience of all its competitors as a result. Other investment focuses are Internet of Things and wearables.
In addition to finance, Samsung offers its entrepreneurs help with all those “components that distract you from your core mission” - accounting, finance, payroll - and, critically, physical space. The accelerator occupies a pre-war building on 26th Street and Broadway in New York City. "You need to keep resources bountiful but also you want them hungry,” he says.
Bond sees corporate investment in innovation as many see personal finance. “You should have some bonds, some cash, some equities. Companies need to diversify their portfolios when it comes to innovation too.”
Diageo, the premium drinks company, whose brands include Johnnie Walker, Smirnoff, Tanqueray, and Guinness, is a Fortune 2000 company with a US$71b market capitalization (May 2015).
The venture approach is channeled into two streams: one invests in the spirits industry (in craft startups such as Starward, an Australian single malt whisky maker); the other in technology through Diageo Technology Ventures.
Venky Balakrishnan, who heads the fund, says, “Our technology ventures activity is to ensure we remain at the cutting edge of all the disruptive technologies unfolding in front of us.” Investments range from “small checks” to “double digit million dollar equity stakes.” Some involve a “light level of involvement” while others are closely managed.
“Our R&D - and this is true of most companies - is tightly focused on the products we make and the business we are in,” says Balakrishnan. “It is extremely useful and critical but it’s one piece of how we respond to much bigger disruptions happening across the world. Our venturing is complementary: it doesn’t compete.”
All investments are focused on solving a business challenge; “the business unit has a massive skin in the game, even if the outcome isn’t predetermined.” Diageo looks at plays in online shopping, the user experience and “anything that removes friction from all stages of the discovery journey.”
“The answer to the innovation paradox - how to bring that innovation from the edge back into our business - is a million dollar question. We ask this every day,” he says.
Caterpillar is a US-headquartered global manufacturer of construction and mining equipment, engines, turbines and related services. The company has its roots in California in the 1920s: its tractors erected the original Hollywood sign.
Caterpillar Ventures’ model is always to co-invest, never to lead and never to take a seat on the board. The corporate venture arm is a financial investor, but supports portfolio companies through a partnership with business units to plug them into the parent organization, “to help the guys succeed,” says Michael Young of Caterpillar Ventures. Investments are in US$500,000 - US$5m range and always in early rounds.
“I want to know about stuff I don’t know about,” says Young, who joined Caterpillar from Dell Ventures. His investment focus is on startups in 3D printing, robotics, analytics, digital and energy. “We’re very plugged in to the venture capital community in Silicon Valley,” he says.
Any financial return on investment over the six or seven year horizon is good, but the real payback is this: “business units want to learn what is happening. We can plug them into innovation at the edge.”
Caterpillar exercises no preference rights or first refusal rights over its investees. “If we really want a business to be proprietary then we should buy it - that’s not a venture deal,” Young says.
IBM Venture Group was formed in 2000. In terms of corporate venture groups, IBM was an early mover. The IBM venture group sits within Corporate Development, the part of IBM responsible for its M&A activity. This formalizes what has been a clear result of IBM’s approach to venture - since 2000, half of IBM’s acquisitions have been venture-backed companies.
“We identified early on that the value we would glean from the startup community would be strategic insights more than financial returns. For a near US$100b company, it can be difficult to move the financial needle,” says Wendy Lung, partner in IBM’s Venture Capital Group.
IBM launched a worldwide program, IBM Global Entrepreneur, that targets early stage entrepreneurs with less than US$5m revenues. The program offers mentoring, US$10,000 per month for a year of IBM Cloud Credit and introductions to VC firms that can help them scale. To date US$180m of venture capital has gone to program participants.
“Through our venture connections, we can identify great innovative startups that either become an IBM business partner and complement our solutions or become part of our acquisition pipeline,” says Lung. “By becoming an IBM business partner and rounding out our solution portfolio, we also build an ecosystem around platforms. Watson, our cognitive computing platform, is one such focus. We have built communities around our cloud, our Bluemix platform and ecommerce platform,” she says.
IBM’s internal innovation is managed through 12 research labs, networked together “to share knowledge and resources,” says Lung. “Our focus is on external innovation.”
For investee companies, not only do they get access to IBM’s technologies and platforms but also to its extended network of Fortune 500 customers.
“One portfolio company is operating in the area of mobile enterprise,” says Lung. “I had them speak with our CIO who has to manage over 400,000 employees and their devices. Operational experience can be of great value to a startup company.”