Venture Arms of Samsung, Verizon, & Others Hungry for Deals with Hot Ideas
If startups want to seek funding from venture capitalists linked to major companies, they face a few different considerations compared with making deals with other types of backers. So on Tuesday, venture capitalists from Verizon, Shell, Samsung, Applied Materials, and other companies at the annual New York Venture Summit discussed the mojo they want to see from startups that may be investment opportunities.
The panel, moderated by Ingrid Vanderveldt, entrepreneur-in-residence at Dell, convened at the tail end of the daylong event presented by youngStartup Ventures. During the discussion it became clear that the venture arms of massive companies often look to startups for innovation as well as potential financial returns. Sebastian Titz, investment manager for new ventures with 3M New Ventures headquartered in Munich, Germany said his company looks for new ideas from outside of its own research. “For us, energy storage is a big trend,” he said
Henrik Holland, venture principal with the Cambridge offices of Shell Technology Ventures, said is company is looking for novel approaches to energy.
Daniel K. Keoppel, executive director with Verizon Ventures, said backing startups helps drive fresh thinking at Verizon Communications. “The original idea was to understand what is happening in the innovation community,” he said. “Venture capital is more than just investing,”
Verizon Ventures has offices in Albany, NY, and Basking Ridge, NJ. Keoppel said Verizon tends to develop strong relationships with the companies in its portfolio, yet it has not sought to acquire any of them. “We want to have the first bite at working with them, but to be successful the company it needs to serve all the [telecom] carriers,” he said. “That makes them less interesting as an acquisition target.” If Verizon were to acquire a company, he explained, business relationships with other carriers would end.
Entrepreneurs can benefit, he said, from Verizon’s resources in technology and distribution. If a startup wants to provide services to Verizon, Keoppel said having the venture capital team onboard can also help navigate the company’s intricacies.
He encouraged startups to have their affairs well in order and to be realistic when approaching corporate venture capitalists. “Don’t have the wrong expectation about the value we both can bring to the table,” Keoppel said. “Don’t come in with a messy syndicate that you think we’re going to fix for you. If we fix it, you’re going to have to explain it to the people who invested in you in the past.”
Sometimes trends in corporate venture investments develop in response to action in other parts of the market, according to Jeffrey Moore, vice president with Boston’s MP Healthcare Venture Management. “From 2004 to 2008, a lot of traditional venture capital firms were really backing away from innovative new drugs because it was taking too long to develop them,” he said.
The shift led to increased licensing of older compounds from pharmaceutical companies, Moore said, in the hopes of securing good financial returns. “That frightened a lot of pharmaceutical companies,” he said, “because they thought if the VC firms aren’t investing in these areas, where is that innovation going to come from?” MP Healthcare Venture Management is a biotech venture capital firm funded by Mitsubishi Tanabe Pharma and its parent, Mitsubishi Chemical Holdings. Moore said corporate pharma-backed venture capital firms starting in 2008 began to commit more to the development of new products.
Some entrepreneurs, he said, might be under a misconception that making deals with corporate venture capitalists always means handing over the right of first refusal or licensing rights. “The market drove that out of the system pretty quickly,” Moore said, “Corporate venture capital firms in pharma would be excluded from the most exciting deals if any sort of rights were tied to the investment.”
Reese Schroeder, managing director with Motorola Solutions Venture Capital, said his company backs startups as a way for Motorola to avoid becoming too insular and internally focused. “Our management recognized that a ton of innovation was happening outside of the company,” he said. Motorola Solutions Venture Capital is based in Schaumburg, IL.
Before consumer electronics powerhouse Samsung considers backing startups, it wants to be sure it can validate the proposed technology, said Hyuk-Jeen Suh, director with the Cambridge, MA, offices for Samsung Ventures. Samsung pays attention to a variety of categories, he said, including computer processors, chipsets, and battery technology. “As we consume more video content on our smartphones, battery is a huge area of interest for us,” he said. Development of new electronic displays is also of significance to Samsung. “The next generation is flexible displays and wearable devices—these things are very interesting to us,” he said.
The focus on display and battery technologies should come as little surprise given that Samsung sells two televisions every second and 13 phones per second, according to Suh. The company also seems to want to tap into the data and information sectors. Although Samsung sells TVs so rapidly, Suh said the company does not know what viewers are watching because set top box manufacturers are tapped into that content. He said Samsung is interested in innovations on this front, including metadata aggregation and search recommendations.
Creating whiz-bang ideas is not enough to keep most investors interested and this is especially true among corporate venture capitalists. Lou Steen, venture partner with Applied Ventures, said his firm focuses on the staying power of technology. “We’re looking for things that address a fundamentally high-value problem with a solution that is unique and protected enough so that it’s sustainable,” he said. Applied Ventures is the venture fund of semiconductor and electronics display maker Applied Materials in Santa Clara, CA. The company has commercialized technology from startups it has invested in, Steen said, which helps put entrepreneurs in touch with hard-to-reach clientele. “The barriers to entry for our customer base are extremely high,” he said. “Most startups can’t realistically climb that barrier.”
Steen said Applied has invested in companies developing organic LED (OLED) technology, which is increasingly being built into electronic devices such as smartphones and televisions. “We recognized that the LCD display business was going to transition to OLEDs,” he said.
As important as sustainability may be, Steen said capturing the entrepreneurial energy of third parties is also essential for his industry given the warp speed evolution of innovation. “Two-and-a-half years is an entire technology generation,” he said. “Just chasing our existing business keeps our people really occupied.”