12 APRIL, 2017
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