| The boom of the dot-com era in 1999 brought the | | | | Access to external talent |
| emergence ofcorporate venture capital as a major | | | | Participation in emerging markets |
| source of funding to theprivate equity markets. | | | | Entrance into new markets or industries |
| Corporate venture investments peakedin the third | | | | Priority exposure to the development of disruptive |
| quarter of 2000 with 608 deals totaling a combined | | | | technologies that could substantially change the |
| $4.9 billion. A few of the top corporate venture | | | | industry |
| capital investors of 2000 included Nokia Corporate | | | | All of which a smaller, highly entrepreneurial company |
| ($500 million), Oracle Corporation ($400 million), Intel | | | | may be able to offer in exchange for your |
| Corporation ($300 million), Sun Microsystems, Inc. | | | | investment in this company, such as: access to your |
| ($300 million) and Daimler Chrysler ($100 million). | | | | management and technicalresources; cash; intellectual |
| But as we all know, the dot-com balloon burst in the | | | | property; sales; marketing and distribution channels; |
| second half of 2000. By the second quarter of 2001, | | | | or, operational facilities. As a larger company agreeing |
| corporate venture capital activity dropped to just 172 | | | | to enter into a strategic alliance with asmaller |
| deals worth approximately a combined $845 million. | | | | company, you must be committed to: |
| Not surprising because corporations historically jump | | | | The long term relationship |
| into venture investments when times are good and | | | | Allocating the necessary resources to assist in the |
| exit quickly when times get rough. However, when | | | | smaller company's operational and product |
| compared to past decades, corporate venturing | | | | development needs. |
| investment activities are still significant. Why? Though | | | | Methodology |
| companies can readily pull back when necessary, they | | | | Evaluate corporate venturing based upon your |
| understand the value in pursuing new opportunities | | | | company's strategic long term needs. |
| with strategic partners. Consequently, industrypundits | | | | Secure the absolute support from key top |
| expect corporate venture investment activities that | | | | executives for the corporate venturing initiative. |
| show a financial return in addition to a strategic fit to | | | | Get the buy-in and commitment of all members of |
| rebound over time as economic conditions improve. | | | | your leadership team to pursue corporate venturing |
| But what about corporate venturing for emerging | | | | opportunities on a regular basis. |
| growth companies -- companies that are not awash | | | | Establish a clear and concise company corporate |
| in cash or the beneficiary of an inflated stock value | | | | ventures' mission statement, such as we will "invest |
| to use as currency for equity investments? Is | | | | and partner with innovative companies that will |
| corporate venturing available to them and is cash the | | | | successfully bring tomarket new solutions strategic to |
| only currency used for investment? | | | | our core business." |
| Definition | | | | Appoint a team with cross-functional capabilities and |
| Corporate venturing provides an alternative to | | | | resources to pursue and evaluate corporate |
| traditional methods of growing a company and is an | | | | venturing opportunities. |
| alliance formed between two [or more] independent | | | | Decide on an investment focus. Acquisitions require |
| companies. Typically, a larger,more established | | | | the most amount of capital. Participation in venture |
| company invests resources directly into a smaller | | | | funds may also require significant cash. Direct |
| company, and through the venture the two | | | | investments may require less initial capital but allow |
| companies share the commercial risks and resultant | | | | the company to establish a relationship with a |
| rewards for mutualbenefit. | | | | company of its choosing. |
| Many companies due to their size, cash availability or | | | | Take inventory of your company's available |
| even their structure can find difficulty in allocating | | | | investment tools and needs. For example, cash isn't |
| appropriate funds, time or internal resources to | | | | everything. Do you have IP, products, people or |
| developing products or services in-house. | | | | services to invest in the strategic alliance? You may |
| A smaller company entering into a strategic alliance | | | | find that there is considerable investment value in |
| with a larger company can often times achieve a | | | | non-cash items. Or, you will be seeking access to |
| faster and higher growth rate than a company | | | | new technology, distribution channels or product |
| electing to move aheadindependently. While larger | | | | funding? |
| companies frequently find the strategic alliance a | | | | Establish and detail in writing an initial due diligence |
| more effective means of nurturing business growth | | | | process that mirrors the company's strategic |
| outside of organic development and the more | | | | corporate venturing initiative. For example, if the |
| risky,expensive route of mergers and acquisitions. | | | | opportunity is engineering oriented, have your |
| Benefits | | | | engineering industry experts evaluate the |
| Is your emerging growth company interested in | | | | investment's potential strategic benefits. Will it result |
| accessing funding and resources from another | | | | in an expansion to the technology base? Will it give |
| company to help revenue growth? If so, your | | | | you access to external talent? Will it allow you to |
| company could benefit from a strategic alliance that | | | | participate in an emerging market? |
| brings: | | | | Establish your due diligence team and provide them |
| Short or long term financing | | | | with the necessary resources to do the job. |
| Access to sales, marketing and distribution channels | | | | Establish a review process for all corporate venturing |
| Management and technical skills | | | | activities and evaluate quarterly with your leadership |
| Manufacturing facilities | | | | team. |
| All of which a larger already established company | | | | Conclusion |
| may be able to offer your company in exchange for | | | | Whether you are an emerging growth company |
| a negotiated agreement to share in the planned | | | | seeking the alliance of a larger company or a larger |
| development of current or future products. | | | | company searching for priority access to new |
| Therefore, your company must be willing to: | | | | technologies under development by smaller |
| Enter into a detailed strategic alliance with the | | | | companies, corporate venturing may offer your |
| corporate partner | | | | company new ways to realize long term growth. |
| Agree to work productively and openly with the | | | | Through corporate venturing your technical team, |
| company | | | | sales and distribution channels, management |
| Is your emerging growth company successful but | | | | expertise, technology base and access to capital may |
| looking for innovation, additional channels of | | | | be expanded significantly thereby positioning your |
| distribution or technical know-how to expand and | | | | company for the future. |
| grow your business even further at anaccelerated | | | | Good luck and good venturing! |
| rate? If so, perhaps your company can benefit from: | | | | |