Part 1

Question 1

4 Themes of CVC

Answer 1

• Entrepreneurship
• Strategy
• Innovation
• Finance

Question 2

What is Corporate Entrepreneurship? Definition

Answer 2

Diversification through internal development, requires new resources combination, to extend activities in unrelated areas.

Question 3

The sum of elements of Corporate Entrepreneurship

Answer 3

1. Innovation: create and introduce
2. Renewal: revitalizing by changing scope of business, competitive approach, or both. Building or acquiring new capabilities
3. Venturing: enter new business by expanding operation in existing or new markets.

Question 4

Engagement Model: Start-ups & Corporates

Answer 4

Equity Involvement:
Yes= Corporate Venturing (Outside-In)
NO = Start-up Program (Outside-In)
Yes= Corporate Incubation (Inside-Out)
No = Start-up Program (Platform)

Question 5

External Venturing

Answer 5

Searching for ideas and learning from knowledge sources outside the firm

Question 6

CVC in the 1960s/70s

Answer 6

CVC for diversification.
Very different approaches, often simultaneously= ventures by own employees, external ventures
Exxon as largest investor
Approx. 4 years duration

Question 7

CVC in late 70s/90s

Answer 7

CVC for participating in technological advancements , to not “miss out.”

Question 8

CVC in Mid 90s/2001

Answer 8

The rise of Gloval CVC. Internet as the driver of the ‘thrid wave’ of CVC.
+ Internationalization of CVC, tapping into international markets
+ as an alternative form of R&D: access to technological innovations of start-ups

Question 9

Balance Sheets (+/-)

Answer 9

+
Flexibility and Control
Strategic Alignment
Simplicity

• Risk Exposure
  Resource Intensive
  Potential for short-term focus

Question 10

Dedicated Funds Investmetns (+/-)

Answer 10

+
Risk Management
Professional Management
Long-term Focus

• Complexity and Cost
  Potential Misalignment
  Less Control

Question 11

CVC Team

Answer 11

Average size of 9 people ( 6 in investment, 4 senior managers on average)
On average, 10 portfolio ventures per managers.

Question 12

Endo vs. Exo-isomorphism

Answer 12

Endo:
- Align with corporate parent
- “mechanistic system”

Exo:
- Align with VC world
- “organic system”

Issue: stuck between two worlds. Legitimacy-seeking and professionalisation of TMT members as crucial determinants.

Question 13

Corporate vs. VC compensation logics

Answer 13

Corporate: salary & corporate bonus and venture performance bonus
VC: carried interest or “carry” (capital gain from the fund or per deal)

–> 15% of CVC with “carry”

Question 14

Performance-based pay for a CVC investor

Answer 14

–> increase of the CVC-VC performance gap
–> Without performance pay, CVCs will avoid highly risky investments with greater potential for larger returns
–> on average, exit rates of CVCs are 9.7% higher than VCs.
–> This gap increases to 20% when CVCs are awarded higher performance-based initiatives

= carried interest compensation positively influences CVC financial performance

Question 15

The 4 Motivation factors of Investors

Answer 15

1. Gap Filling
2. Environment Scanning
3. Efficiency Enhancing
4. Ecosystem Building

Question 16

Gap Filling

Answer 16

Of…
- Non-financial resources
- Technology and Capabilities

–> Relatedness between firm’s capability sets and venture’s is crucial!
–> Venture-level learning

Question 17

3 types of Gap filling investments

Answer 17

1. Promoting a standard (Driving)
2. Stimulating demand (Enabling)
3. Leverage Underutilised, Non-strategical technology (Emergent)

Question 18

Environment Scanning

Answer 18

Scan the environment to scout for new technologies and markets.
–> market-learning level
–> To access potentially disruptive technologies, investors must invest in ventures unrelated in their own capabilities

Question 19

Growing Future business with CVC, 3 investment strategies

Answer 19

1. Experimenting with new capabilities (Emergent)
2. Developing a backup technology (Emergent)
3. Exploring strategic whitespace (Emergent)

Question 20

Efficiency Enhancement

Answer 20

Investors can enhance their internal efficiencies by providing ventures access to corporate resources (unused plant capacities, people, etc).

To better utilize slack corporate resources and generate financial returns.

Question 21

Ecosystem Building

Answer 21

Firms use CVC investments to stimulate demand for their own product!
- Complementary products
- “Synergistic” demand
- Build an ecosystem of products
- Promote core products as industry standard

Question 22

Why do some firms prefer CVC over acquisition?

Answer 22

(U)ncertain strategic initiatives
(P)ayoff hard to evaluate in advance
(I)ntegration level low
(C)heaper
(C)ommitment low
(C)hoice / Comparison of initiatives

Question 23

Corporate Investor characteristics

Answer 23

• Rapid technological change
• High competitive intensity
• Weak appropriability

(- strong tech resources
- marketing resources
- diverse CVC experiences)

Question 24

CVC vs. Alliances

Answer 24

The number of CVC increases and then decreases with the number of Alliances formed.

The positive relationship between CVC investing and Alliances diminishes as firms invest in their own internal resources and gain experience

Forming too many alliances may drain a firm’s resources, making it difficult to grow CVC activity.

Question 25

To who does CVCs report?

Answer 25

1. CEO
2. Head of Strategy
3. CFO

Question 26

Investment Approval Process

Answer 26

0. Deal Sourcing (CVC Team)
1. Decicison to forward deal (CVC Team)
2. Evaluation and approval/vetoes (Investment Committee)

Question 27

Contractual Preferences

Answer 27

• Pro-rata rights - 92%
• Venture Board Rights - 77%
• Right of First Notice (ROFN) - 50%
• Right of First Refusal (ROFR) - 12%
• Investment Position - lead 10%