DIGITAL TRANSFORMATION ACCELERATES THE NEED FOR INNOVATIONFOCUS ON CORPORATE VENTURING

carlos_j_barrios@hotmail.com

CONTENTS

CONTEXT

IDENTIFIED PAIN POINTS CHECKLIST

INNOVATION BUSINESS MIX

Partnerships & JV

Corporate Venturing

In-house

IPR LICENCING

M&A

INNOVATION MANAGEMENT IS THE VEHICLE TO SEEK THE FUEL THAT IGNITES THE ROI OF THE DIGITAL TRANSFORMATION

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AT&T DT Orange SingTel Telefonica Telstra Verizon Vodafone

Innovation Business Mix for TELCO 2015

In-house Partnership Investment Joint Venture Acquisition Others

Choosing the right INNOVATION strategy (knowing when to build, buy or

partner) is key to success in

digital services.Partnerships are currently, by far, CSPs'

preferred implementation model, with more

than 50% of digital services

implemented this way.

Outright acquisitions account for

merely 5% of services in CSPs' digital

portfolio, as they are costly and risky.

The 8 CSPs analyzed have a combined initial

Corporate Venture size of nearly $2

billion, and have invested in more than

210 startups in the past 24 months.

Source: Gartner, 2016

CORPORATE VENTURING INNOVATIONDIGITAL TRANSFORMATION DRIVEN

Driven by

performance & ingenuity

Differentiationthrough active MANAGEMENT

Value for

parent company

In their effort to innovate, corporations must re-invent the traditional R&D based innovation model with one that augments

these efforts with venture investments, acquisitions, strategic partnerships and startup incubation. Corporate VCs should play a big role in this innovation quest.

PAIN POINTS

Strategic Direction & Governance

DEAL flow sourcing

Deal flow execution

Portfolio company support & strategic yield

STRATEGIC DIRECTION & GOVERNANCE

What is the CVC Strategic Aim?

Others…………………………………………………..Provide window on new technology

Seek new directions

None, only financial returns

Support existing business

Provide window on new markets

Develop new products

How is your CVC operations measured?

CVC Value Contribution

Portfolio Financial Performance

Activity Metrics

Output Metrics

Portfolio Company Performance

Others…………………………………………………..

Link to

Operational

Capability

Financial

Loose

Strategic

Tight

Corporate Investment Objective

Enabling complements

strategy of current

business

Passive provides

financial returns only

Driving advances of

current business

Emergent allows

exploration of potential

new businesses

CORPORATE VENTURING AS DIGITAL TRANSFORMATION IN THE ICT & MEDIA SECTORS BENCHMARK

100%

100%

50%

75%

75%

50%

25%

25%

25%

25%

100%

75%

75%

25%

25%

50%

25%

50%

25%

50%

Technical Innovation

Window of Technology

Business Model Innovation

Open New Markets

Financial interests

Improve Corporate image on innovation

Ecosystem development

Control for Potential future competition

Make us of Non - strategic IP

Promote Corporate Entrepreneurship

Improve Consumer Orientation

Attract and Retain High PotentialUnderperformers

Top Performers

WHY CORPORATE VENTURE?

CORPORATE VENTURING AS DIGITAL TRANSFORMATION IN THE ICT & MEDIA SECTORS BENCHMARK

LEVEL OF EXTERNAL PARTNER INVOLVEMENT

IN DEAL SOURCING

33%

33%

56%

44%

11%

22%

Top Performer

Underperformer

Medium LowHigh

80%

90%

74%

74%

35%

45%

40%

30%

40%

13%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Strategic & Financial Advice

Research

Sales & Distribution

Marketing

Human Resources Underperformers

Top Performers

EXTERNAL PARTNER CONTRIBUTION

DEAL FLOW SOURCING

WHAT IS THE ORIGIN OF YOUR DEAL FLOW

Other CVCs

Parent Company business unit

Independent Venture Capital

Angel Investors

Direct Company solicitation

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

DEAL FLOW SATISFACTION

Large ExtendNot at all Small Moderate

WHAT TYPE OF INVESTMENT STAGE

Later stage

Early stage

Seed/Startup

Expansion stage

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

WHAT TYPE OF INVESTMENT STRATEGY

Invest as lead

Invest alone

Invest in Syndicate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

QUANTITY

Large ExtendNot at all Small ModerateOVERALL

Large ExtendNot at all Small ModerateQUALITY

DEAL FLOW EXECUTION

Commercial DD on investment Proposal

CVC internal personnel

Parent Company personnel

3rd party consultants

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Financial DD on investment Proposal

CVC internal personnel

Parent Company personnel

3rd party consultants

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

OP/Technical DD on investment Proposal

CVC internal personnel

Parent Company personnel

3rd party consultants

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Financial

model &

valuation Size of financing round

Investment schedule

Milestone definition

Valuation Present

Valuation Future

Value definition

Business

Plan

Investment Proposal

Science & Technology

IP Position

Business Model & Market

Equity structure

Competitive situation

Use of funds

ManagementInvestment

Focus fitInvestment focus

Competitive advantage

Investment rationale

Pre – screen:

Investment

Document

Liquidation preferences

Dividends

Minority protection rights

Board composition

Agree on investment

terms

Term Sheet

Translate sheet terms into

legal docs

Shareholder agreement

Amended constitution

Due

DiligenceTechnology , Ops & IP

Audited reports

Legal

Focus on:

PORTFOLIO COMPANY SUPPORT & MANAGEMENT

Strategic Access to

Access to Parent Co. suppliers

Access to Parent Co. customers

Other…………………………

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Access to Parent Co. partners Large ExtendNot at all Small Moderate

Portfolio Company Support

Engineering support

Scientific support

Other…………………………

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Large ExtendNot at all Small Moderate

Management support Large ExtendNot at all Small Moderate

Marketing support Large ExtendNot at all Small Moderate

Management

Non – voting board member

Voting board member

MEDIA & ICT CORPORATE VENTURINGSTRATEGIC GOALS BY PERFORMANCE

Seeking Technical Innovation100%

100%

Open New Markets25%

75%

Window of Technology75%

100%

Improve Consumer Orientation25 %

25%

Business Models Innovation75%

50%

Financial Interest50%

67%

Ecosystem Development25%

50%underperformer

Top performer