12 APRIL, 2017

HAMMOUD.TAWFIK@BCG.COM

Canadian Corporate Innovation SummitTawfik HammoudSenior Partner and Managing Director

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Agenda

Corporate Venture Capital in the Canadian context

BCG perspectives on Corporate Venture Capital

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BCG perspectives on Corporate Venture Capital

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Corporate venturing is here to stay

Note: VC deals include seed stage, early stage VC, and later stage VC; location is defined as domicile of investorsSource: Global Corporate Venturing; PitchBook; BCG analysis

26%30%

38%

48%

23%

Top 300 Top 200Top 400 Top 100Top 500

13% 13%15% 15% 16%

19%

13%

2012 2013 2016 20172014 2015 2018

Share of Fortune 500 companies engaged

in corporate venturing

CVC investments % of total VC investments

(North America)

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Large breadth of external innovation vehicles used by corporates

Smart Lens

Corporate Venture Capital

Events

Scouts

Accelerators and incubators

Strategic partnerships

Licensing

Acquisitions

University/research partnerships

Innovation Labs

Spin-off programs

Technology to Business

Centers1

Mark

et

matu

rity

of

innovati

on

High

Low

Outs

ide-i

nIn

side-

out

UnGrounded

In field of data

analytics

Focus of today1. Offer scouting as a serviceSource: Press clippings; company Web sites; BCG analysis

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Corporations applying especially three types of venturing tools to act fast & agile

1. MVP = Minimum viable productNote: Sample includes TOP 30 companies by market value for 7 industries, n=210 (Technology, Communication, Media & Publishing, Automotive, Chemicals, Consumer and Financial Institutions); 1. Accelerator and Incubator counted as one single vehicle and include partnershipsSource: BCG analysis

Penetration of vehicles in top 30 companies

of 7 focus industries (cumulative)

0%

10%

20%

30%

40%

50%

20151995 201020052000

40%

44%

19%

• Minority equity investment in start-ups

• Gain early understanding of

market/technologies

• Create mid-term option room

• Internal innovation team outside of

traditional R&D

• Rapid delivery of prototypes

• Fast testing of MVP1 in market

• Fast scan of new business ideas

• Look into broad array of search fields

• Structured program with start ups

Corporate Venture Capital

Accelerators and Incubators (incl. partnerships)

Innovation Labs

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Largest companies leading the way

Excluding

Partnerships

Corporate

venture capital Accelerators and incubators Innovation labs

Including

Partnerships

1. Sample includes TOP 30 technology companies by market value n=30 2. Sample includes TOP 10 technology companies by market value n=10 3. Number of companies within the sample that have at least one vehicle in the respective category 4. Including accelerators where the corporation partners with others in an accelerator Source: BCG analysis

57%

41%

16%

TOP 301

40%

27%

13%

Penetration

in 2010

TOP 301

44%

2%

42%

TOP 102

39%

4%

35%

TOP 301

29%

2%

27%

TOP 102

Change

2015

vs. 2010

TOP 102

41%

16%

25%

TOP 301

19%

5%

14%

TOP 102

66%

4%

62%

~1/3 of Acc./Inc.

in partnerships

40 2983 40 60 27 93 46# of units3

Number of companies from each sample

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Six findings from analyzing venturing vehicles and search fields of the top 30 companies across seven industries

Strong

increase in

Accelerator/

Incubator

partnerships

CVC

investments

shift to

Software

Strategy

determines

venturing

approach

Customer

loyalty/

proximity

matters

Vehicle/

search field

combination

differs

by industry

Four distinct

CVC Models

evolved

• Strategic corporate center-led or business unit-led vs. financial return-seeking corporate-led or independent model

• Across 7 researched industries, Financial return-seeking independent model accounts for 12% of CVC units but higher share of invested US$

• Chemicals and Media companies focus on core with CVC

• Techand Telco companies use combination of CVC and acc./inc. or core and adjacencies

• FS, Automotive and Consumer companies mainly use acc/inc. for adjacencies

• Accelerators set up in partnership with other entities have rapidly become more popular in the last 3 years

• Today, almost a third of the accelerators/incubators in our 7 focus industries are in partnerships

• CVC investments strongly increase and shift towards software, doubling in last 5 years

• First, derive venturing search fields vs. internal innovation topics

• Second: Decide what type of venturing vehicle is best suited for each search field

• Last: Venturing strategy and vehicles determine operational design

• Customer loyalty a factor for Financial Services, and (very limited) for Consumer, Media and Publishing, Technology companies

Source: BCG analysis

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What's your venturing opera-

tional design?

Venturing strategy and vehicles determine

operational design

What is your venturing strategy?

Decide what type of venturing vehicle is

best suited for each searchfield

Successful corporate innovators have one thing in common: From innovation strategy to venturing strategy to op. design

What is your innovation strategy?

Derive venturing searchfields vs. internal

innovation topics

Source: BCG analysis

Strategic objective

determines

operational design!

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Four questions corporates should ask themselves

Which search fields can we address internally, and for which search fields should

we engage with the entrepreneurs, researchers, and companies that constitute

the start-up ecosystem?

Have we determined which venturing tools best support our innovation strategy

and spur fast and agile innovation?

Does the proposed mix of venturing tools and their operational design fit our

search fields?

Should we create our own tools or work with partners?

Source: BCG

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Corporate Venture Capital in the Canadian context

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Canada is lagging in CVC activity

Note: VC deals include seed stage, early stage VC, and later stage VC; location is defined as domicile of investorsSource: Global Corporate Venturing; PitchBook; BCG analysis

13% 13%15% 15% 16%

19%

13%

201820162015201420132012 2017

While CVC investments is high across NA …

… there is a large discrepancy between Canada

and the U.S.

13% 14%16% 16% 17%

20%

8%

4%

7%

3%5%

2%

2017201620132012 20152014

CanadaUS

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Backup: In fact, Canada's total R&D spending has stagnated with virtually no growth in real terms post-2000

10

0

30

25

20

15

48%

32%

5%

12%

1996

$15B

46%

34%

5%

12%

1995

$15B

46%

36%

5%

12%

1994

$15B

44%

38%

11%

1993

$14B

41%

42%

5%

10%

1992

$13B

39%

45%

5%9%

1991

$13B

R&D Funding in Canada (B$ chained to 2010 dollars)

39%

3%

7%

2007

$26B

49%

32%

6%3%

9%

2006

$26B

51%

31%

7%

3%

8%

2005

$25B

49%

32%

7%

3%

9%

2004

$25B

50%

38%

46%

4%9%

1990

$13B4%

46%

4%9%

31%

7%3%

9%

2003

$24B

50%

31%

7%3%

9%

2002

$24B

51%

32%

6%

8%

2001

$23B

50%

29%

6%

13%

2000

$21B

45%

29%

6%

17%

1999

$19B

45%

31%

6%

15%

1998

$18B

46%

30%

6%

16%

1997

$16B

+86%

+2%

Business enterprise

Goverment

Higher education

Private non-profit

Funds from abroad

2014

$24B

45%

35%

10%

4%6%

2013

$25B

46%

35%

10%

4%6%

2012

$26B

47%

34%

9%

4%6%

2011

$25B

49%

34%

7%

4%6%

2010

$25B

47%

35%

8%

3%

7%

2009

$25B

49%

35%

7%3%

7%

2008

$25B

49%

34%

6%

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Anemic levels of

corporate R&D and

research collaboration• Canada bottom

quartile in OECD; 2.5X below US

• Top CAD corps. with 40% less spend than in 2002

• Some, but not enough research collaboration

Startups exiting earlier,

smaller• Successful Canadian

startup exit valuations 2.5–4X lower than U.S.

• Fewer Canadians IPOs/capita over last decade (vs. US)

Significant brain drain to

US• > 300K CAD expats in

S. Valley; 68% successful startup exits to US corps.

Toronto with 2nd-tier

supply of risk capital• Within the last 5

years, Toronto-Waterloo with just 5% of venture capital in the Bay Area,10% of NYC, 25% of London and 50% of Berlin

• Gap widens in later-stage deals ($25M+); startups forced to look abroad for these rounds of funding

• While many exist, Toronto lacks a globally leading accelerator (e.g., Y-Combinator)

Toronto with poor

conversion to "unicorns"• Despite many

startups; only one startup valued at> $1B (Kik Int.)

• Bay Area with 50+, NYC with 12, Shanghai with 9

Canada with key gaps along the value chain

Summary

of Toronto/

Canada's

key gaps

Sources: StatsCan, Globe & Mail, Politico, Thomson Reuters, CB Insights, OECD, Web Summit, SXSW, Atomico, BCG Analysis, Expert Interviews

Losing pace in pipeline of

talent for the future• 20% of Canadian

grads in STEM; China with 40%

• UofT only university among world's Top-100 most innovative

Skilled immigrants not

well integrated• 2.5–4X higher

unemployment rate

Lack of marquee

celebratory event in

Toronto• Lacking a globally

recognized event celebrating innovation (e.g., Web Summit, SXSW)

• Innovation wins not broadcast loudly

Low direct gov't support

for R&D• CAD gov't has

historically not picked winners as actively as the U.S.

Lack of corp. innovation

champions• Only one corporate

among worlds top-100 innovators

• High cash reserves

• Lower appetite for risk among Canadians execs

The

Innovation

value chain

The Talent Pipeline Mindset & Culture Growth & Risk Capital

Corporate Innovation

championsStartup Ecosystems

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Summary of profiles from around the world

Made in NYCross industry, city wide branding campaign to connect local startupsNew York

8200 EISPZero equity accelerator founded by military alum; extensive mentorshipTel Aviv

Y-CombinatorBest in class accelerator

that has produced 6

Unicorns

Mountain

View

Skolkovo~ $4B government funded innovation space and new technology universityMoscow

SXSWWorld leading tech/music

festival; historically home

to many product launchesSXSW

X-PrizeIncentivized global public

competitions that encoura-

ges tech development

Culver

City

Web SummitWorld renowned techno-logy festival drawing top names and branding Dublin's hub

Dublin

École 42Private funded non-for-profit tech school offering free top-tier tech educationParis

Torch Program25+ Year program by Chinese Government that has shaped Tech spaceBeijing

Tesla Bond$450M gov't loan to support

Tesla's early stage growth

Silicon

Valley

ShanghaiTechMunicipal government funded University in the R&D district of Shanghai

Shanghai

startup ChileAccelerator targeting int'l

entrepreneurs; offering

incentives to base in ChileSantiago

HAX AcceleratorPartnership between Shenzhen (Manufacturing) and Silicon Valley (Funding)

Shenzhen

Barclays AcceleratorCorporate accelerator in

partnership with Tech-

stars; 4 locations offeredLondon

Future Fifty Government program that prepares later stage firms for IPOs, M&A or global expansion

London

CEO DinnerSalesforce CEO has

monthly dinners with

entrepreneur CEOs

Silicon

Valley

Make in IndiaCampaign to promote FDIin the manufacturing sector; focus on Innovation

Bangalore

Singapore NRFGovernment funding for local startups and foreign successful entrepreneurs

Singapore

TechstarsInt'l startup accelerator

with strong mentorship;

~ 90% success rateBoulder

Denver

GalvanizeFor profit technology edu-

cation alternative to trad'l

university; 7 locations

Note: Additional initiatives that have been profiled but not included in this deck are startup Brazil, startup Institute, Cornell E-Labs, NASA Patent Program, TEKES and Google Bus