The evolution of the Italian corporate venture market ... · Luca Seletto, Manager of Enel Boston Hub ... business.”(British Private Equity & Venture Capital Association) CVC is

April 2, 2019The evolution of the Italian corporate venture market

The evolution of the Italian corporate venture market:last trends and potential developments

PANELISTS▪ Maria Ameli, Head of Corporate, Real Estate and Art Advisory at Banca Generali▪ Andrea Cotrufo, Chairman Quantum Investments and G20 Italian Delegate▪ Sharon Gazit, Head of Corporate and Technology Department at Goldfarb Seligman & Co, Law Offices in Tel Aviv▪ Luca Seletto, Manager of Enel Boston Hub

MODERATOR▪ Antonia Verna, Partner at Portolano Cavallo Studio Legale


An introductory overview on:

▪ What does Corporate Venture Capital (CVC) mean?

▪ Traditional models of CVC (BVCA report)

▪ CVC goals and benefits

▪ CVC investment activity in US, Europe and Italy

▪ What’s next?


What does CVC mean

“This is a special form of venture capital in which non-financial firms invest in target companies such asstartups or buyouts. These investments often follow not only purely financial interests, but also pursuestrategic goals in developing new or complementary technologies or business fields to those in whichthe firm is already active.” (Financial Times)

“Corporate Venture Capital (CVC) is a catch-all name used to describe a wide variety of forms of equityinvestment exercised by corporations. At the most basic level CVC describes an equity investment madeby a corporation or its investment entity into a high growth and high potential, privately-heldbusiness.” (British Private Equity & Venture Capital Association)

CVC is the term to describe the investment of corporate fundsdirectly in external start up companies. Our definition excludesinvestments made through an external fund managed by a thirdparty […]. It also excludes investments that fall under the moregeneral rubric of “corporate venturing” - for example, the fundingof new internal ventures that remain legally part of the company.”(Professor Henry Chesbrough – Making Sense of CorporateVenture Capital, Harvard Business Review)


Different models of CVC

1. Corporate/Direct Investment

CVC Company

Start-up

Source: BVCA – Guide to Corporate Venture Capital

Model Direct investment of thecompany into start-ups, withoutad hoc funds or vehicles. Thecompany becomes an equity-holder of the start-up

Purpose Gain direct business andtechnology experience inemerging areas through directstrategic inputs. Usually one-shotinvestments

Pros Simple investment structure

Cons Rigidity and slowness of thedecision-making process

Example Bosch, Panasonic



2. Internal Dedicated Fund

CVC fund/vehicle

Start-up


Model Indirect primarily financialinvestment of the company intostart-ups through an ad hoc CVCfund/vehicle, which is 100%controlled by the company

Purpose Multiple investments intoemerging businesses and newtechnologies

Pros Greater strategic and decisionalautonomy

Cons Incorporation and managementcosts of the fund/vehicle

Example Unilever Ventures



3. External Fund

ExternalCVC fund

Start-up


Model Indirect primarily financialinvestment into start-ups throughan external CVC fund, where thecompany is one of severalinvestors

Purpose First approach to CVC with theaim of developing internal VCcapabilities whilst gaingingmarket awareness andunderstanding

Pros Little costs and speed of theinvestment process

Cons No involvemnet into thedecision-making process

Example Siemens Venture Capital


CVC goals and start-up benefits

Source: 2018 Open Innovation and Corporate Venture Capital Report – Report AIFI 2018

GOALS

1. Increase and consolidation of own business strategy

2. Expansion to new businesses

BENEFITS

A. Business growth throughconsolidated experiences

B. Faster achievement of break even point

C. Lower mortality rates

D. Higher turnover and value added

3. Enlarging to side-businesses

4. Financial return


Global CVC investment activity

“CVCs around the worldparticipated in 2,740global deals worth $53Bin funding throughout2018.2018 CVC investmentactivity increased 32%over 2017 in terms ofdeals completed, and47% in total capitalinvested.The largest CVC-backeddeal was a $2B round totrucking logisticscompany ManbangGroup backed bycapitalG.”



“CVC investorsparticipated in 23% of allVC-backed dealsthroughout 2018, whichincreased by 3percentage points over2017.This continues a trend ofgrowth for CVC dealshare as a percentage ofoverall VC deal activity.This share has grown by7 percentage points since2013.”



“In 2018, the averageCVC deal size reachedan all time high of$26.3M, exceeding theformer peak of $24.1Min 2015.Similarly, the averageVC deal size (that didn’tinclude CVCparticipation) reachedan all-time high of$21.8M, growing 35%over 2017.”



“Investment fromcorporates (directly offthe balance sheet)reached an all-timehigh of 3,820 deals in2018, 33% higher thanthe 2,881 deals in2017.Deals with bothcorporate and CVCparticipation alsoreached an all-timehigh of 563 deals, 34%higher than the 420deals in 2017.”



“CVC deals to companiesin the internet sectorgrew by 36%, from 879deals to 1,199 deals,year-over-year.Funding also grew by80% from $11.8B in 2017to $21.2B in 2018. Thisjump can be attributedto an increase in largerdeals, including a $1Bdeal to virtual hospitalitycompany Oyo Rooms.”



“Deals with CVC-participation tohealthcare companiesincreased by 23% YoYto 298 in 2018.Funding also increased,growing 51% from$7.2B in 2017 to$10.9B in 2018.This increase in fundingwas primarily driven bylarge rounds toModernaTherapeutics,Samumed, and RelayTherapeutics.”


CVC investment activity in US



“Corporates participatedin 1,443 venture deals in2018, totaling $66.8billion, an incredible83.2% increase from2017. In terms of dealcount, 16.1% of venturerounds included acorporate investor, upfrom 15.0% in 2017 andjust 11.6% five yearsago.”






CVC investment activity in Europe

Source: Pitchbook – European Venture Monitor

“More than one-fifth ofEuropean deals included acorporate investor in 2018.2018 saw greater CVCpresence in fewer but largerdeals than 2017. As ventureecosystems throughoutEurope have matured, sotoo has corporateinvestment, with CVCsshifting toward fundingmore late-stageinvestments. Late-stagedeal count trended upapproximately 20% fromthe previous year,countering the 25.8%decline in angel & seedrounds and 19.1% decreasein early-stage deals from2017 levels.”



Source: Pitchbook – European Venture Report



Source: Pitchbook – European Venture Report



Source: Pitchbook – European Venture Monitor




CVC investment activity in Italy

“More than 50,000individuals (family &friends) made direct orindirect VC investmentsin Italian innovativestartup-ups, while CVCinvestors are 7,654 ofwhich 3,708 are directinvestments.”

Source: 2018 Open Innovation and Corporate Venture Capital Report


“CVCs made directinvestments into 2,329innovative start-ups,with an increase of 428start-ups from 2016 to2018 (+22%).Innovation-specialistinvestors made directinvestments into 331innovative start-upswhile individuals (family& friends) into 6,625innovative start-ups.”




“CVC investments ininnovative start-upsincreased of 48,6% from2016 to 2018 and of 14%from 2017 to 2018.Direct investmentsincreased of 58% from2016 to 2018 (about 29%each year).”





“All-sized companiesmake CVC investments.The major increase ofinvestments is for smallcompanies (+22%), butCVC investments aremore common for bigand medium sizedcompanies (respectively7.8% and 2.4% of overallbig and mediumcompanies).”





“CVCs come from allbusiness areas.Most CVCs provides non-financial services (31%)and financial services(29%): they invest mainlyin IT or softwaredevelopment start-ups.11% of CVCs areindustrial companies,which are mainly focusedon software and R&Dstart-ups.”




“Based on financial data,startups with CVCinvestments produce onaverage more turnoverand more added valuethan other innovativestartups.Such results highlight agreater growth of startupsinvested with CVC.”




“The number of innovativestartups that wentbankrupt, openedinsolvency procedures orstarted a voluntaryliquidation is lower forthose with CVC investors asmembers.This may depend in partfrom a lower-riskinvestments of CVC thanthose investors specializedin innovation and in partfrom a greater marketproximity of CVCs.”


What’s next?

The main questions are:

Can foreign investors help our corporate venture capital market to grow?

What are the main characteristics of the other more evolved venturecapital market?

What improvements should be made to our system?


ANTONIA VERNApartner

Mail [email protected] +39 333 2819121Office +39 02 722341

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https://it.linkedin.com/in/antonia-verna-a1a77a/it

Documents

The evolution of the Italian corporate venture market ... · Luca Seletto, Manager of Enel Boston Hub ... business.”(British Private Equity & Venture Capital Association) CVC is