Allegis Capital

July 13, 2012  source: Bloomberg News

Robert Ackerman, founder and managing director of Allegis Capital, talks about venture capital investment opportunities in technology in an interview with Deirdre Bolton on Bloomberg Television’s “Bloomberg West.” Ackerman also discusses the impact of the Obama administration’s Jumpstart Our Business Startups Act on investment.

Bob Ackerman Interview Video

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This article was written by Tim Devaney and Tom Stein published in ReadWriteStart, June 18, 2012

After funding a boom in sketchy startups targeting heavily hyped consumer categories such as social media and mobile, smart venture capitalists are returning to their senses and investing in companies that emphasize solid fundamentals, like paying customers and profits. That’s why enterprise software companies are finally getting the attention – and dollars – they deserve.

Venture capitalists are armed to the teeth with analytical tools. And they should be. Their careers depend on making intelligent investment decisions. And yet, against reason, VCs often behave like teenagers, throwing their money at companies simply because they’re in fashion…

Social Is Overcapitalized

“I see some people looking at the enterprise space again, probably as a reaction to areas like social being overcapitalized,” says Bob Ackerman, managing director at Palo Alto-based Allegis Capital. “The logic in the venture herd seems to be, ‘If five companies in an area are gaining traction, let’s create 500.’ But at some point reason prevails and people say, ‘Hang on, that’s not going to work out. What are other areas that are not as excessively capitalized?’ There’s some of this phenomenon from a venture perspective as it relates to the enterprise.”

Allegis Capital has long invested in enterprise startups, whether they’re trendy or not, targeting companies aimed at business problems that require high-value, technology-based solutions. These companies may not be sexy but they pay the bills, because enterprises have problems and they will spend money for solutions.

Avoiding the Herd Mentality

“Part of the challenge in the venture world is that people want to hitch their wagon to the fastest-moving star,” Ackerman says. “The problem with that approach is that when you see the herd moving in a given direction, it’s probably too late. So we tend to be counter-cyclical at Allegis. We don’t want to be running with the herd because it tends to pull down returns.”

It’s not only VCs who travel in herds, he adds, but entrepreneurs as well. Ackerman has watched a lot of talented engineers shift their focus to social media and other consumer internet startups in the past few years. Enterprise software is hard, and a lot of entrepreneurs these days are impatient.

Fighting Immediate Gratification

“This is a change,” he says. “Go back 15 years – people were more studied about identifying an opportunity and building a company for the long term. But when you get into these boom-and-bust cycles, with people trying to capture the boom, it’s driven by a desire for immediate gratification. That has sucked some of the air out of the enterprise space.”…

The Laws of Physics Still Apply

As the investment data indicates, VCs are once again recognizing the fundamental strength of enterprise startups – and putting more money into them.

“Some investors left the enterprise for the promise of faster returns,” Ackerman says. “But you will see more people waking up to the realization that the streets aren’t paved with gold, the laws of physics still apply, and let’s go back to doing things the old-fashioned hard way.”

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(Originally published at June 11, 2012)

by: Robert Ackerman, co-founder, Allegis Capital

Venture capital is not dead. Despite the protests from the Kauffman Foundation and others about its demise, it is very much alive.

To continue reading this post and see the comments from readers, please continue to peHUB.com.

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On February 6, 2012 I will be giving a keynote speech at the IBF Corporate Venturing and Innovation partnering conference. I will discuss the best practices and pitfalls organizations can face in the Corporate Venturing arena. As readers of this blog, here is an advance look at my slides. Here is the link to the conference in case you want to sign up. It is going to be an amazing conference with lots of corporations there looking to build partnerships with startups and companies looking to grow their business.

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January 9, 2012  source: Xconomy

Corporate partnering is the keystone of Allegis Capital’s investment strategy. Given my 15 years as an investor, I recently put together these thoughts on partnering which were distributed by XCONOMY and Global corporate venturing publications.

Fifteen years ago, the expansion model of a startup was fairly linear: The first three years were dedicated to building the business domestically. Year four generally saw European expansion. And by year five, the company was starting to explore the Asian markets.

The emergence of the Web as a viable commerce vehicle, though, brought about a paradigm shift in the startup world that obliterated that model—and forced entrepreneurs to change their plans. Rather than ignoring the global marketplace, today’s smart startups need to think with an international perspective from Day One—and work quickly to expand their footprint.

Of course, becoming part of the global network during a company’s formative days (when budgets are tight and research and development is crucial) isn’t easy, even with the advances and inroads the Web has introduced. At Allegis Capital, where I am managing director, many of our portfolio companies have found that the surest path to becoming an international company is by partnering with large, multinational corporations.

It’s a strategy that might sound curious at first. Big business works at a different speed and with different priorities than the startup world. But the backing of a large corporation can not only supplement a startup’s bottom line; it can also open doors that might otherwise remain firmly shut.

Beyond that, this sort of strategic partnership can provide market analysis that is impossible for startups to gather on their own, acting—essentially—as the ultimate focus group…

Read the rest of the article at XCONOMY or Global corporate venturing publications.

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December 23, 2011 source: New York Times

… a venture capitalist at Allegis Capital who specializes in cybersecurity. “Companies don’t want to talk about cyber attacks,” Mr. Ackerman says. …

Bob Ackerman was quoted in Nicole Perlroth’s article about cyber attacks.

Insurance Against Cyber Attacks Expected to Boom by Nicole Perlroth, New York Times

Sony is still awaiting the final tally for losses related to its data breaches earlier this year. At last count, it had compromised 100 million customer accounts, and Sony anticipated the debacle would cost $200 million. With 58 class-action suits in the works, that may be wishful thinking.

Now for the really bad news: Sony’s losses aren’t insured.

In a lawsuit, Sony’s insurer, the Zurich American Insurance Company, reminded the company it does not own a cyber insurance policy. Sony’s policy only covers tangible losses like property damage, not cyber incidents.

“That’s cyber insurance in a nut shell,” said Jacob Olcott, a principal with Good Harbor Consulting’s cybersecurity team. “Everybody needs it, and most companies don’t realize they don’t have it until it’s too late.”

Despite high-profile cyber attacks at Sony, Google, Epsilon, RSA and others this year, only a third of companies surveyed by Advisen, a research group, say they have purchased a cyber insurance policy.

Experts say that more companies will buy policies in the coming year because of new Security and Exchange Commission requirements. Last October, the S.E.C. issued a new guidance requiring that companies disclose “material” cyber attacks and their costs to shareholders. The guidance specifically requires companies to disclose a “description of relevant insurance coverage.”

That one S.E.C. bullet point could be a boon to the cyber insurance industry.

Cyber insurance has been around since the Clinton administration, but most companies tended to “self insure” against cyber attacks, says Robert Ackerman, a venture capitalist at Allegis Capital who specializes in cybersecurity.

“Companies don’t want to talk about cyber attacks,” Mr. Ackerman says. “All of a sudden, breaches are now going to be more visible and people are going to have to start estimating their costs.”

There are no statistics on the size of the cyber insurance industry, but Peter Foster, a senior vice president at Willis North America, an insurance broker, estimates there may be $750 million worth of premiums placed. With the recent S.E.C. measure and the frequency and severity of cyber attacks growing, Mr. Foster predicts that figure could grow by 50 percent over the next 12 to 18 months…

Read the full article and comments at the New York Times

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download a pdf copy of the Report

What’s Left to Know? A report by Orange Silicon Valley, the Group’s development center in San Francisco, raises new questions about the direction of IT/Internet tech research in Silicon Valley

As more and more corporate giants move their research centers to the Silicon Valley, a new study from Orange raises questions about the current patterns of academic research in IT and the Internet. In-depth interviews with leading technology and academic researchers reveal changes in attitudes, methodology and motivations that are impacting the way information technology research has been quietly but massively transformed by the unpredictable and disruptive growth of the Internet

Interviews between veteran Silicon Valley reporter Lee Gomes, and researchers from Google, Facebook, Microsoft, UC Berkeley, Stanford and more, were conducted in the spring and summer of this year. The results are being made available to the public for free as part of open dialog about the evolution of the industry.

According to one of the themes of the report, the emergence of research centered on so-called Big Data – the digital exhaust of massive platforms like Facebook and Twitter – has given corporate players an edge over academic institutions lacking the data and the infrastructure to crunch these massive data sets. New technical challenges are revealing themselves continuously to internet firms as the scale, speed as well as nature of the gigantic and chaotic real-time data flows require new solutions and approaches that do not exist today. The growth in the Internet is amplified by mobile, social, and connected TV applications that, together with their worldwide reach, are dictating which tech advances matter.

Here is a selection of Bob Ackerman’s observations. To read everything, download the full Report.

Answer by Bob Ackerman: Venture capital is a club, a tight little club, organized around managing risk. As a VC, I want to invest with people I’ve invested with in the past, because I know how they’re going to be there when times are good and when times are tough. We syndicate. We share information. I’ve got everybody calibrated.

But a corporation is different. The corporation walks in and says, ‘Hi, I’m from a big global company. Perhaps you’ve heard of us. We operate in 110 companies around the world. We have 140,000 employees. We have a market cap of $42 billion. And we’re inviting ourselves to your party.”

The polite venture capital response to them is, “Fantastic, let’s find things we can collaborate on.” But what the venture capitalist is actually thinking is ‘Okay, what can I sell to this guy? How do I pull money out of his pockets and use it for whatever I need to get it into?”

Ackerman: Companies who think they can use occasional venture investments to gain access to Silicon Valley research will be greeted with open arms. Then, the trouble will begin. They should keep an eye on their wallets.

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November 28, 2011  source: peHUB

The American economy is a mess. Growth has been stuck at a tortoise-like pace for years. The unemployment rate continues to hover at nine percent or higher. And faltering research and development threatens not only innovation, but our future.

The good news is there’s a fix for this: The U.S. government simply needs to invest more in research and development, with a particular emphasis on fundamental scientific research. This specialty field is both the seed for innovation and the key to healthy, long-term economic growth.

Why the government and not the private sector? Attractive startups need the opportunity to build advancements in areas like energy, next-generation Internet, secure communications and nanotechnology. This requires patient capital, something the government has and the private for-profit sector doesn’t. While venture capitalists are capable of allocating investment capital when the risk/reward ratio is appropriate, only the government has the resources to support a multi-year, multi-decade commitment in scientific research.

The need for this sort of investment is compelling. The Information Technology and Innovation Foundation, a Washington-based policy think tank, recently measured “the rate of change in innovative capacity” over the past decade among the top 40 industrialized nations. Essentially, that’s a look at how countries were preparing themselves to be more innovative in the future – and the U.S. ranked dead last…

Read the full article and comments at peHUB

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Cyber security venture capital investing isn’t quite as hot as investments in social media and related areas. But the opportunities are still enormous today because government entities and companies have no choice but to continually update their security protection against ever more sophisticated and determined hackers.

This is why Allegis Capital has investments in two security startups – Solera Networks and Symplified – and is rigorously investigating additional security startup investment possibilities.

It’s hard to believe, but the Department of Defense’s U.S. Cyber Command says that the U.S. government alone is subjected to about 6 million computer network probes daily by some 2,000 originators, including foreign spy organizations. Perpetrators are seeking information they can steal and monetize in the global economy, such as intellectual property and trade secrets, and this is obviously a gigantic and growing threat.

The number of acquisitions in security technology has been growing steadily and isn’t limited to the startup world. Last year, there were 150 deals, including Intel’s $7.7 billion acquisition of McAfee and Hewlett-Packard’s $1.6 billion acquisition of ArcSight, up from 69 in 2007. Forrester Research says that security now accounts for 14 percent of information technology spending, up from 8.2 percent in 2007.

Cyberspace attacks grow not only because of advances in technology but also because it’s a lot easier to steal in cyberspace. It’s about manipulating 1s and 0s; attackers don’t have to worry about getting past guards and dogs to break into the vault. The vast majority of government and corporate-directed attacks are stopped, of course, but more are getting through because hackers are constantly innovating – and because much more always has to be spent on defense than offense.

Think about it. While attackers only have to be right periodically, potential targets have to be right every time. It’s an arms race, and it will not stop because the hackers will not stop and the cost of cyber security failures is much higher than the cost of new cyber security investments.

Another factor certain to spark near-perpetual growth is the explosion of wireless devices, which greatly expand the size and complexity of computer networks and introduce billions of additional points of vulnerability. There are about 2 billion wireless devices in use today, and I see the number exploding to 50 billion by 2020.

This isn’t a good scenario for the country overall but it presents a strong and persistent opportunity for VCs and others who focus on cyber security investments. The “good guys” will eventually close the security gap against the “bad guys” – but things will get worse before they get better, and constant vigilance will always be required.

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July 29, 2011 source: Wall Street Journal by Scott Austin

If you’re keeping score at home, a group of Silicon Valley venture capitalists are collectively losing their confidence again in the entrepreneurial environment.

As he does each quarter, Professor Mark Cannice of the University of San Francisco emailed venture capitalists in the San Francisco Bay area and asked them to estimate their confidence in the industry over the next six to 18 months. On a five-point scale, with five being the most confident, 35 VCs registered an average of 3.66. That’s lower than the first-quarter reading of 3.91 and it ended three quarters of growth.

Cannice attributed this drop to concerns over macro economic trends, capital availability and inflated valuations.

Of course, it’s hard to fully gauge the true confidence of VCs based on such a small survey — we saw a big dip in this index last summer, too — but it’s worth paying attention to any trend lines over time. If you look at the graph on the right, you’ll see the big collapse in confidence starting in the fourth quarter of 2008, not surprisingly during the U.S. economy’s meltdown.

Perhaps more interesting are the quotes that Cannice collected from the VCs in the survey, especially this money quote from an anonymous investor:

“2011 will be remembered as the year that everyone went nuts and overpaid — $1B is the new $100M valuation. For most, this will end in tears.”

Ouch. There are some more warnings, too, as the industry gets caught up in bubble fever:

Bob Pavey, Morgenthaler Ventures: “We are still in the early stages of an upturn…but there will continue to be many downs as well as ups. And some of the downs will be painful.”

Bob Ackerman, Allegis Capital: “A capital shortage in very early stage investing is over shadowed by exuberance in the social media sector. While disruptive innovation is alive and well – many investors in venture capital funds are still on the sidelines. Capital inflows need to strengthen in the near term to restore overall balance. Liquidity is the key to re-starting the investment cycle on a broader basis.”

Joe Mandato, De Novo Ventures: “Funds are reluctant to commit to early stage deals and many are altering their investment objectives and are looking for later stage deals.”

But it’s not all dire — there are some positive comments, too…

Read the full post at the Wall Street Journal.

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July 14, 2011 source: this post was originally published on peHUB

After decades of on-again, off-again forays into corporate venture capital, companies have turned their engines on again. Last year, technology-oriented corporations invested $1.9 billion in venture capital deals, up from $1.35 billion in 2009, and this brisk 40 growth rate is on track for a repeat performance this year.

The corporate world realizes it has little choice but to be a venture capital player. Whether it is hot new mobile or social media applications, better ways to expand Internet infrastructure or the latest medical device or healthcare IT technology, startups are far more likely than established companies to be on the vanguard of change. Corporations have to pursue investments in entrepreneurial companies as outside R&D labs to add new technologies into their DNA.

Just like VCs, they have to play the game right, however. If they are to be successful in venture investing, they have to time their investments well, deliver on their commitments, add value, check their egos and make sure their bureaucracy doesn’t stifle the startups in which they invest. If you’re a corporate VC, here are some top tips:

• Know when to invest. In most instances, the best time to invest in a startup is when it has actually developed a product and is ready to ship it. This is when startups can best leverage corporate distribution channels and the corporation’s installed customer base to boost sales. Periodically, corporations do invest successfully at an earlier stage. But the odds are not good because the startup’s business model is often still evolving, requiring a lot of ongoing hands-on work and give-and-take. This very early investing is most often the domain of traditional venture capitalists that focus on early stage investments and have more experience and resources to support companies at this stage of development.
• Make synergism a priority. Corporate culture is a lot different from startup culture. Corporations measure themselves by their brand recognition, revenues, stock market value and number of employees. And they’re cautious. Startups are exactly the opposite. They are small, fast, efficient, untethered and irreverent. Understanding and working through the cultural mismatch is often the biggest challenges in corporate-startup relationships. Corporate VCs need to be able to smooth the inevitable friction associated with these two disparate cultures working together.
• Be a long-term partner. The corporate venture investor community has a track record of jumping in and out of venture capital. Venture investing is an environment where reputations are built over extended periods and where predictability and trust are the watch words to help successfully manage risk. If you wanted to be treated like a trusted partner, you will need to be around for the long term and work through the inevitable tough times that accompany investment cycles. This is where investors prove their mettle and earn the respect of their co-investors. Investors who move in and out of the market in search of short term gains or in response to their own economic cycles are perceived to be “hot money” and ultimately are not wanted. If corporate venture capitalists don’t stay the course going forward, they will be viewed as unreliable investors who increase, rather than lower, risk.
• Do no harm. A small move magnified by the mass of a large corporation can have a hugely disruptive impact on a small startup. A corporation needs to understand the implication of its actions on its startup partners – negative as well as positive. Young startups often chose to partner with large corporations as a way of accelerating their growth, erecting competitive barriers to entry, lowering capital requirements and de-risking their operating plan. On the flip side, a corporation’s action can, even inadvertently, have a severe negative reaction on a small startup partner. Building a reputation as a true value-added investor is not an easy thing for a corporate investor. But it is crucial; a successful reputation built from years of successful work with young startups can be quickly undone when a corporation takes an action that puts their “startup” partner at risk. Bad news spreads faster than good news.
• Add value beyond capital. Capital is a commodity – though an essential one. A successful startup will usually have no problem raising critical investment capital from the venture community. To be successful, corporations should focus their investment activities by providing critical resources that are expensive and difficult to develop – market knowledge, access to distribution channels and customers, brand leverage and support networks. Delivering resources that can lower the risk and improve the magnitude of success for a startup is the key to being perceived as a true value-added investor – one that will be welcomed by startups and venture capital investment syndicates alike.
• Focus on managing internally, as well as externally. Corporate venture investments often fail due to a lack of internal support. If a corporation funds a new research program, it takes on a life of its own because an internal ecosystem is built up to protect the project. But an ecosystem seldom develops to support a startup investment. People in R&D typically view the startup investment as dollars they would prefer to spend and the CFO views the startup as a source of financial volatility he or she cannot control. Corporate venture capitalists must work to enhance the internal visibility of the startup and build the critical linkages into their corporate DNA.
• As part of internal management, make it a priority to secure executive level and line of business support. To mitigate the tendencies cited above, corporate venture capitalists must spend a lot of time building supportive constituencies inside corporate walls. They should also recruit a line-of-business sponsor for the startup, perhaps for a spot on the startup advisory board, and find multiple ways to measure and communicate the startup’s “soft” value until its bigger strategic benefits begin to materialize.
• Corporate VCs should not “pound their chests”. In fact, they should be humble. They should not expect special treatment and avoid boasting about their company’s brand, stock market valuation or size. Too often, corporate VC investors fail to appreciate that Silicon Valley innovation is about two people in a garage trying to reinvent the future. Established companies, at least to some extent, are viewed as yesterday’s news. Approaching the corporate – startup relationship from a position of “equals” will likely generate greater returns over the long term.

You can read the original post and comments at peHUB.

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July 13, 2011  source: GigaOm

Use secondary markets sparingly

Who: Robert Ackerman, Founder, Allegis Capital:

Bubble Cred: Ackerman was the CEO of UniSoft Systems, a UNIX systems house operating, and a founder and Chairman of Internet appliance company InfoGear Technology Corporation, which was acquired by CISCO in 2000. Mr. Ackerman appeared on the 2007 Forbes MIDAS list.

Interviewed by Cortney Fielding

Lessons Learned:

• Enthusiasm isn’t enough to build a company. As an investor (or a founder), you must avoid getting swept up in it all. Stay focused on startups where an ROI can be measured. It is a much more sober approach to building companies. In the social media sphere, more than 500 startups have been funded, but probably only a dozen are of merit.
• Where’s the business model? Today, the common refrain is, get the data and the revenue model will follow. This is a mistake and eerily reminiscent of the first dot.com bubble.
• Don’t get caught believing the laws of gravity don’t apply. We are not in a special or unique age, so don’t use that excuse to justify crazy bets. People tend to underestimate the magnitude of the change and underestimate the time it will take. The whole world doesn’t just flip over night.
• If it seems to be good to be true, it probably is. This goes for VC’s and founders as well. Truth be told what we do is hard and it should be hard. It’s when things get too easy that all the excesses kick in. It should not be easy to get rich.
• Valuations don’t mean anything. You feel good in the moment, but until it’s money in your bank account it’s not real. Don’t get sucked in. And even in an IPO situation, if you are a founder or investor you are looking at a couple years to get out. By that time, you could have nothing.
• Use secondary markets sparingly. As a founder, selling stock on the secondary market signals that all is not well and you don’t have confidence in your company in the long term. And it’s happening a lot lately. That signals the social media sphere is not stable. At the same time, as a founder, it’s not so terrible to sell up to 10 percent of your company on the secondary market in order to float money to yourself, pay a mortgage or pay salaries.

Read the full article and see the comments at GigaOm

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June 7, 2011  source: This post originally appeared in VentureBeat Entrepreneur Corner

The technology IPO market is clearly on the rebound now – and there are strong odds that it will strengthen. With luck, this will help to begin reversing troublesome trends in the venture capital ecosystem and give more worthy entrepreneurs at shot at securing financing from those companies. This would be a huge benefit to the still-struggling U.S. economy.

According to Renaissance Capital IPO Home, there have been more than 19 U.S. technology IPOs this year – the most of any sector. This is in addition to the more than $94 billion in U.S. technology M&A deals, already the highest total since 2000, according to Dealogic. (That’s up from $71B for all of 2010 and $40B in 2009, by the way.)

This is the first extended period since the 2008 financial crisis in which there have been a sizable number of significant technology liquidity events. The latest wave is highly concentrated among select social networking and other relatively high-profile companies, but it may spread to other technology companies and, eventually, perhaps even to more main street firms and brick-and-mortar entrepreneurs.

The ball started rolling again in April, when web-based car sharing service Zipcar and software mortgage maker Ellie Mae went public. May saw LinkedIn, Russian Internet search engine Yandex NV (Russia’s most popular search engine), and Freescale Semiconductor Holdings. Groupon filed for a $750 million IPO last week. And coming soon are likely offerings from players such as online real estate company Zillow, Kayak Software, HomeAway and online music startup Pandora Media.

The long-term goal of venture capital has always been to help bring seasoned startups to the public markets, but the end game has been highly elusive in recent years. As a result, fundraising has been well below investment outflow, sharply undermining the opportunity for a vigorous market. This also makes it much harder for entrepreneurs to attract capital and can gives a handful of marquee venture firms far too much leverage – even over entrepreneurs who can attract funding.

Sometimes, you have to scratch the surface a bit to appreciate this deteriorating picture. In the first quarter, for example, venture capital firms raised $7.1 billion, the best start to fund-raising since 2001. But only three firms – Bessemer Venture Partners, Sequoia Capital and J.P. Morgan’s Digital Growth Fund – raised 58 percent of that money.

A number of venture capital firms appear to be biding time to stay alive by selling shares of their startups in secondary markets like Sharepost and SecondMarket, or at least they are overly relying on this strategy. At some point, this becomes rife with problems. It may, for example, incentivize talented lower-level employees to leave the company so that they can get off the payroll, avert stock sales restrictions and also cash in their stock.

An IPO is a financing event, not a liquidity event, and even startups with the option of going public are not necessarily better off doing so if they have the option to be acquired. Because CEOs and other early investors typically face a lock-up period on their shares, they take the risk that an adverse development can occur before they are allowed to sell their shares.

More significant are the costs and burdens of Sarbannes-Oxley compliance and the rigors of running a company in the public spotlight, which requires a heavy short-term orientation and can be counter-productive, particularly for a smaller public company that still has much work to do to build its market share.

For many startups, however, the option of going public, if available, is the much-preferred route. Successful IPOs tend to maximize returns for stake holders and provide the capital necessary to support prolonged growth. And from a macro perspective, start-ups companies tend to generate 80 percent of their job growth post-IPO – jobs that are desperately needed to support a rebounding U.S. economy.

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I recently attended the Global Corporate Venturing Symposium and banquet in London on Wednesday May 18. This was the first gathering for this event and it brought together a number of leading corporate venture capital, venture capital and private equity executives. Conference content was excellent with Gary Dushnitsky, Associate Professor at London Business School and a keynote speaker, describing the impact of corporate venturing on innovation and unveiling his just completed statistical research demonstrating that corporations with corporate venturing programs outperforming their peers without such programs in key business metrics. Senior executives from both the European Investment Fund and the UK’s Tech City stressed corporate investors’ importance to an innovation ecosystem. Danny Truell, chief innovation officer at Welcome Trust provided a compelling look at the importance of innovation and long term investing.

On a personal note, I was honored to be asked to recognize Intel Capital with the Venture Capitalist Perfect Partner award as voted selected by the membership of the European Venture Capital Association and the National Venture Capital Association.

The heart of the Symposium were the three panels of corporate venturers, expertly moderated by Stephen Ziff from Coller Capital, Neil Foster from sponsor Field Fisher Waterhouse and Gerald Brady from sponsor SVB Financial Group. This led nicely into a black-tie banquet where, in association with partners Frost & Sullivan, Start-Up Britain and H-I Network, representatives of the best practices and industry awards picked up their certificates of success. The lessons from the best practices are captured in James Mawson’s the Global Corporate Venturing Best Practices and Awards supplement.

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May 11, 2011  originally published in: VentureBeat Entrepreneur Corner

Two years ago, I wrote a column for VentureBeat that warned that America’s innovation engine was running out of gas because American corporations had been slashing long-term research and development for decades and, in more recent years, investments in venture-capital startups. To turn things around, I argued, corporations had to re-invest aggressively in venture capital and rely far more on leading-edge startups for outside R&D.

Today it’s a different story. Corporations are seeing the light and reinvesting in venture capital. They have an incentive to stick with this strategy, and I’m optimistic that they will and materially strengthen the venture capital ecosystem and, for that matter, the U.S. economy.

Last year, corporations invested $1.9 billion in venture capital in America, up 33 percent from $1.35 billion in 2009. That worked out to nearly 9 percent of all VC investing, approaching the historical high-water mark. Corporate venture capitalists also invested in 20 percent of all venture deals. The message is clear: Corporations are moving into the VC world in force.

Driving the trend is unusually strong balance sheets and a tectonic shift in where innovation now occurs – inside small companies. Corporations know they must tap into that.

Startups, of course, are all about innovation and are much more efficient innovators. If you give a dollar to a big corporation and a dollar to a small company for R&D and measure how it is spent in terms of cost and efficiency, the small company will win every time.

The list of companies jumping into venture capital keeps growing. It includes General Motors, Google, Juniper Networks, Kaplan Inc., Nvidia Corp. and Verizon Communications. The latest newcomers include The BMW Group, which this year launched a $100 million New York-based fund to invest in young companies to expand BMW’s expertise in sustainable and mobile technologies.

In addition, in February, EMC Corp. launched EMC Ventures. The EMC corporate development team invested for years in startups related to the company’s core IT infrastructure products. EMC Ventures has a bigger scope, however, and will invest in broader categories of companies. For example, it recently joined a venture syndicate to invest in Aria Systems, a cloud-based billing company.

A fair question, of course, is whether these corporations will stay the course in venture capital investing this time around. They have a history of jumping in and out of the field, often because they have a short-term, quarterly financial results focus, which contrasts with venture capital’s long-term, multi-year focus.

The length of this focus is a challenge, in particular, and not just because of the corporate focus on quarterly results. In a typical 10-year life span of a VC investment, you’re likely to see as many as three different teams of senior management at many corporations. They almost always have different priorities and goals. And, too often, the experience and relationships needed to do VC investing are never developed. Of if they are developed, they tend to get lost.

It is also true that there can be an impedance mismatch between a major corporation and a startup. Large corporations tend to be slow to move and cautious about new technologies. Startups are almost exactly the opposite. They are small, fast, efficient and untethered.

A partnership can create huge frustrations because the startup and the corporate partner operate at different speeds. To be successful, each company must acknowledge what it does well and what it does not.

Personally, I believe the growing partnership between corporate VC arms and startups will prove lasting. Corporations are still relatively cautious, which is good. They are investing far less in VC than they did in 1999-2000 (the last time they revved up significantly in this arena), and there are very few signs of irrational exuberance, at least outside of social media investing. More than ever, corporations need to develop a strong handle on all the rapid-fire innovation underway in small technology companies.

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