As Artificial Intelligence, Machine Learning and other emerging technologies develop, with the far-reaching impact they are going to have on business and society at large, how are corporates and big business preparing for the Fourth Industrial Revolution?
Product life cycles are being drastically reduced – from years down to months and even weeks, driven by the pace at which new technology is being developed. In the US, we are seeing an ever-greater push towards Venture Capital by publicly traded corporates. Some are choosing to house their own venture arm, with others going the Venture as a Service route, leveraging off professional VCs that are already in the market. All this to meet the ever-increasing need for corporates to integrate technological innovation into their businesses. This can be seen in the numbers: 2018 was a record year for Corporate Venture Capital (CVC) in terms of both quantum of deals – 1065 – an increase of 11.3% and value of deals – $61B – a very significant increase just north of 100%.
And this is for good reason – in order to sustain the growth these businesses need to achieve for their stakeholders, they need to aggresively pursue new market channels and revenue streams. This marks a significant shift away from the strategy of acquiring established businesses to add synergy to a group – rather gaining a stake in early stage disruption. This narrative can be seen playing out in the decrease of net business acquisitions for publicly traded US CVC parent companies from $121B in 2017 to just $7.9B in 2018 (Source: Pitchbook).
Some of my reading attributes the outperformance of Companies with VC exposure (they have a mean of 30% higher share price growth vs market index in the US) to a corporate culture of innovation or even a market perception of the company as an innovator. While I believe these hold true, in my experience, the value is generated by the startups (their innovation) brought in by the Corporate VC, rather than within the corporate itself. The disruptive way these startups impact the corporate value chain and open new markets is by far the most significant aspect.
This works well with US corporate giants, but how can we apply it to a South African context, where markets are smaller and more conservative? Further to this, some entrepreneurs are cautious of the conflict of interest that can exist between their startup and a possible corporate investor. The converse of this is that startup companies with CVC backing tend to have higher exit profits and lower rates of bankruptcy than those who don’t have CVC investors.
Kingson Capital offers Venture as a Service, allowing for the alignment of our investment mandate to a Corporate Investor’s long term business strategy, and includes a debt guarantee backed by USAID (US Treasury) as a capital preservation mechanism. Kingson is well positioned to execute on the investment strategy with a solid business track record, strong deal flow, and a professional team able to source the right portfolio businesses. Kingson can create the exposure to innovation required for a corporate investor, without having to set up their own VC arm to do so.