Corporate Venture Capital aka CVC. Our way.
The day after story. Always a good opener when you were at a party, got home and realise that the last glass was really not necessary. Too drunk to taste, or to enjoy. Like a bad habit that sticks on you. The day after can also apply to a bad experience of the previous night. From business to love, it all fits.
I was always against the day after feeling. What is called history is like a rock you can not move anyway, so better to find a pebble you can lift and throw where you want. Exactly what I felt after our announcement in Berlin of the Tech Venture IoT Bootcamp Program by SadeIO. That is a lot of Capital words in one sentence indeed. So on the 14th of December 2016 we launched this program in Berlin but the Berliners were not as enthusiast as I was hoping for, seen their minimal appearance. Nevertheless I met again some amazing people, all Turkish by the way.
Let’s first talk CVC to have a better understanding. It stands for Corporate Venture Capital and, as it also goes for Venture Capital, it is about investing in a team called startup in order to create a successful company. I am not going to bother you with definitions, Google will do a great job. There are big companies already applying it like Intel, most successful today, Alphabet, Salesforce and in May this year HP Tech Venture started in Palo Alto and Tel Aviv. In Mena region this method is not applied yet as far as I know and could research. Maybe GE did something, but I think that is more Venture based. We are still in the pure risk investment method today in Turkiye. Young people with a bright idea getting money and the investor hoping it will pay back in 5 years or later (dreaming of earlier). In the last 2 years, after all the successful international startups where copied, localised and translated, they were sold as was supposed to, and now we are waiting for a new series of successes. And waiting. And waiting.
Corporate Venture works a bit different. They also invest in a startup, but they are normally major shareholder and the corporate can assist in technology, expertise and network. In other words they bring in their assets. The founder is a minor shareholder and mostly rewarded based on successful KPIs. So at the basis there is more knowledge present, from product, to service to market. On paper it makes more sense but it is not perceived as cool. An important differentiator on paper for me is that a CVC startup starts from a real problem with a huge bag of experience from the corporate. Today I see too many startups with bright ideas on invented problems. Investors take the risk not based on knowledge but gut feeling. Imagining they will nail it, and do a 50X or more. Keep dreaming I say.
Who is SadeIO you wonder? They were already cool before IoT, Internet of Things, became cool. As the cofounder Olcay Taysı says, soon it will be called IoE, the everything things. 10 years of experience by now and suddenly they are in the middle of the coolest hype. Based in Izmir, Turkiye, they work hard for mostly international customers with offices in Amsterdam and Barcelona and a good foot on the ground in Berlin. They can proudly claim being in the top 3 worldwide. I have been working with them for some time now and when I proposed to use CVC to expand instead of hiring more staff and be confronted with more management they were ready to head off in this adventure. For as far as I know nobody did it like this in Turkiye. SadeIO is a company of mainly engineers, hard and software, focused on projects. This is not Google or Intel, but hard workers on a mission with customers like Microsoft, SAP, Stanley, etc.
How does this CVC thing work? As it is unknown here, I had to relay on what exists abroad. Basically the same everywhere but we brainstormed internally and came up with our version we hope will work. The biggest hurdle is the legal part as you need to put this on paper. First we defined the markets in which we want to be active. So each startup takes one of these verticals as a mission. As of today we are looking for teams, not companies. Each team consists of minimum 3 persons and they need to go through a bootcamp of maximum 6 weeks based on Lean Startup. The focus is on Product/Market fit and Customer Development. When they pass this bootcamp in a positive way we start the company based on 5% shares for the team and 95% for SadeIO. We will attend the 4YFN Startup Competition in Barcelona with all startups that passed the test. Within 2 years the teams can earn through KPIs 20% of the shares. We look for external investors to cover 20% and 60% stays for SadeIO. After 2 years anything is possible. The main goal is to become market leader in your niche market in 2 years. The team is paid a basic salary until they can support themselves. After that they decide themselves what they want to earn. As SadeIO already has customers in the different fields the startup unit will quickly kick off. As easy as it is to write this down, the more challenging it will be in practice. There is no copy/paste but do, test, learn, change. Like any startup. Pivoting is the buzz word here.
In the first place we are looking for talented teams. Secondly we go by the old saying, attitude first, train skills. Actually it says hire for attitude, but we are not hiring. You got the point. Secondly we would love to have teams with different nationalities. This helps a lot in the international scope we have in mind. Thirdly we will train in Izmir, Turkiye, but the startup can move to Barcelona, Amsterdam or Berlin if that makes sense business wise. We dream of very independent teams.
The first time I was encountering this CVC setup was in Belgium about 20 years ago. Only downside was the way the corporate management was interacting with the teams, too much management, and a monthly fee to be paid for using the internal network and services. Upside was that they were very good in business development so the units always had projects. In 2015 the turnover was 406 million Euro and 33 million Euro company profit. Company was founded by 1 person in 1991.
If you are interested as an individual or team, please contact us. As an investor? Contact us. Will this be a success? We will work towards it but no guarantees. Is this the answer to a fall in the startup deal flow? I am pretty convinced it is. The future will tell but at least we try something different as the cool way does not seem to work out today. Investors should also pivot, like they ask from their startups and corporates should explore more ways to expand than just hiring people. With Stage-Co we have been very active in the local startup scene for 4 years now, and we shifted from Meetups to Workshops and Trainings. This is the next move to increase the number of startups with a higher rate of probable success. Inşallah.
contact: patrick@sade.io or patrick@stage-co.com
overall info: www.sade.io and for the program https://sadeiotechcorporatebootcamp.splashthat.com
We are organizing a Hackathon IoT SadeIO by Stage-Co (13–15 Jan, 2017)and the top 3 can be selected as team in the Program. You can subscribe here: https://hackathoniotizmirbysadeio.eventbrite.com
