Egbert Bierman: A look inside the first 18 months of a corporate venture fund

Egbert Bierman, Investment Director of Transamerica Ventures, shares insights into how their team set up an agile corporate venture fund and what they have learned in 18 months.

We want to share the experiences and learnings of a corporate venture fund that has now been active for 18 months, as a follow up to a piece written by industry expert Evangelos Simoudis on setting up a corporate venture fund in the last issue of the Corporate Venture Connection.

Transamerica Ventures (TAV) was incorporated in January 2014 and is the Strategic Corporate Venture Fund of the AEGON a large life insurance, pensions and investment management company with its headquarters in The Netherlands. AEGON operates with the brand name Transamerica in the United States and is active in the UK, The Netherlands, Europe and Asia.

The fund size is $135 million and operations are structured in a typical way for VC entities i.e. a management company (Transamerica Ventures) employing the relevant staff to manage the fund and handle the communication to the external market and AEGON’s entities.

Transamerica Ventures Fund is the legal entity which is making the investments and holds the portfolio companies. The fund is advised in its investment process by an Investment Committee which consists of top managers from AEGON. However, the final decision to invest is made by the board of the fund. Both entities are US companies.

TAV is headquartered in New York City and is also represented in The Netherlands, with Georg Schwegler as CEO (NYC) handling the US operations and Egbert Bierman as Investment Director (The Netherlands) handling the European operations.

The fund currently oversees a portfolio of 9 direct investments and two seed fund investments.

We spent almost a year in a careful process of setting up our fund, the investment strategy and the governance processes.  During that time, we came across many of the topics Evangelos mentioned in his article in June.

Desk research provided us a lot of theory, but the most valuable lessons were learned by interviewing about 20 MDs of corporate venture funds in 2013 (5 US funds, 5 UK funds and 10 continental European funds).

Desk research provided us a lot of theory, but the most valuable lessons were learned by interviewing about 20 MDs of corporate venture funds in 2013 (5 US funds, 5 UK funds and 10 continental European funds).

While we completely agree with what Evangelos mentions, there are a number of topics we learned on our journey and were able to avoid a number of pitfalls because of our interview process.

We tested and identified the best strategies for building relationships with the venture capital industry and focused on internal stakeholder management. We came away with six key insights we think are common for corporate VCs and might be interesting for companies that have just started their Corporate Venturing activities.

We came away with six key insights we think are common for corporate VCs and might be interesting for companies that have just started their corporate venturing activities.

1)      Agility in decision making

We learned during our set up process that one of the reasons the institutional VCs are not always keen on investing with Corporates is their lack of speed in decision making.

We have ensured that our internal decision-making process is agile in the sense that we can match the speed in which investment decisions are made in the VC world. Even if our Investment Committee (IC) consists of senior leadership, who by definition have little time, we get their advice during the investment process very quickly. However, that requires a good amount of communication during the due diligence before the final terms are known. This gives the IC the chance to be informed in a constant manner. A final call on the deals can then be made in a quick way without even setting up meetings.

In practice we have seen that this process allows us to react quickly to an investment opportunity and be able to invest in relatively short term, while keeping good governance in place.

2)      Establish the fund in the VC ecosystem

As a new kid on the block, it is important to embed the fund in the VC community as quickly as possible. Get to know the entrepreneurs, the trends, the institutional investors and the corporate funds.

Communication about the current investment strategy and practice helps a lot to create clarity in the start-up community. And we expand our network by investing in some seed stage funds with whom we partner. This allowed us to get to know the ecosystem, meet a substantial number of entrepreneurs, create a network of investors who are focusing on the same areas as we are and be in the position to participate in follow on rounds in the companies we really like. The other effect of being close to the entrepreneurs is that they will come up with dealflow that is interesting and that allows us to better understand emerging market trends.

3)      Build your reputation

One of the lessons learned during our set up process is something that you will never find in the extensive literature written about corporate venturing.

The reputation of a fund is a key element in whether the VC community is willing to invest with a corporate fund or not. In that respect, we made sure to position ourselves as much as an institutional investor as possible. This means that we will not demand for exclusivity clauses, access to IP and other clauses that might be interesting for a corporate organization, but would reduce the scalability potential of the start-up. AEGON may be a potential acquirer/exit for an investment, however, we make it internally and externally very clear that we do not have the ambition to have a better position for acquisition of an investment than other exit candidates.

Further, we have cleared the Chinese walls between the fund and the organization, so that sensitive information from the venture companies will stay in the realm of the fund employees and will not be shared with the broader organization. Giving the start-up companies, co-investors and our internal peers a transparent view on where we stand and how we evaluate the process helps a lot for that trust building.

4)      Cooperation with the business and the ventures

As a strategic fund, an important condition for investing is that there is a vested interest from a part of the organization to enter into a commercial relationship with the venture. In this respect, after a first meeting with an interesting venture we already have some ideas on where the venture could add value to the business. We introduce the venture to the management of that part of the organization, as they will be the ones that would potentially work with the venture. We then have the two parties continue the conversation without our interference. If the organization then indicates they are in favor of the innovation the venture brings and are likely to enter into a commercial relationship with the venture, we enter into investment discussions with the venture.

Again, as indicated earlier, we do not require LOIs or other concrete commercial agreements to be in place for doing an investment. The interest of the business should be firm, which for us is a good basis to start the investing discussions. However we also have to make transparent that our investment is not creating an economic position that is better for our business or our units if it comes to negotiations on the business agreement. The advantage should come from the fact that start-ups provide an innovative solution that creates value per se.

5)     Build a team that knows your own business and venture capital

From a staffing perspective we have made sure that we have a good balance in our team taking into account several different factors. First, we want team members that know the business, the corporate structure, the products, where in the organization the innovation promoters are and where in the organization there is likely to be more legacy protection. Second, we want team members who have substantial experience in the venture capital industry, have a good network and know what it takes for a venture to be successful or not.

This combination is critical as one of the competencies is missing is likely the fund will spin its wheels, and either will not create a good relationship with the organization, or on the other hand, the fund will not be able to get meaningful deal flow.

6)      Give executive management regular updates on future trends that may impact their business

For strategic deals it helps to have top management in the advising investment committee: they can guide if topics are too far away from the operations of the current businesses of the organization.

A corporate venture fund should not only be focused on the “today” problems of the existing corporate strategy and operations, but must keep an watchful eye for and participate in, disruptive trends of the market that might impact the corporate organization 2-5 years down the road.

These projects are more challenging since it might be difficult to get the operational units involved. Our experience however is that the impact of top management is positive on the fund decisions.

Overall we think that the nature of corporate venturing is different in every organization – and the topics which have to be solved therefore vary per corporate venture fund. Companies that focus on incubating start ups might follow a completely different logic in their processes that we do. Regardless of its strategy, the involvement of all parts of the corporate organization helps and also creates positive feedback from the market.