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BGV General Partner Eric Buatois will serve on the panel “Crossing Border to Create World Leader” at the SuperVenture conference, part of the SuperReturn International series, on February 27, 2018 in Berlin.

Panelists will address the following questions:

  • Do startups need to make the jump to Silicon Valley early on to become a global leader?
  • At what point should companies access other growth markets such as China, India and Southeast Asia?

Eric Buatois will be joined by Dick Kramlich (New Enterprise Associates), Yinglan Tan (INSIGNIA Venture Partners), and Sudhir Sethi (IDG Ventures India), with moderator Martin Haemmig (CeTIM, GLORAD).  The panel is scheduled for the second day of the event, February 27th, from 11:10 to noon at the Hotel Palace Berlin.

Registration and more information about SuperVenture located here.

Eric Buatois, General Partner at BGV shares his perspective on the influx of capital from International Limited Partners to Silicon Valley. The early stage venture capital industry has been enjoying some very healthy returns over the past several years. Limited partners were primarily large financial institutions such as endowment, pension funds, insurance companies in the USA Europe and China. Many large technology corporations have also set up corporate venture funds and today corporate venture capital represents 1/3 of all venture capital deployed in Silicon Valley – this trend has been driven by the desire to get access to new technologies and products. . Large corporations in every industry want to have access to innovative start ups to understand and experiment with new business models and or new forms of customer engagement. The strategic intention is to identify the new “Ubers” of their industry before it is too late. We are now entering the phase of the digital transformation of the enterprise after the digitalization of the consumer experience. The creation of Internet consumer leaders has been largely a regional phenomenon. (I.e. Aliabad in China, Amazon,, E bay in USA) Limited partners willing to participate in the build up of these new companies were also investing at a regional level. In contrast, the digital transformation of the enterprise is developing on a global level. Investors willing to participate in the companies building the future of the enterprise have to invest in Silicon Valley. The venture capital funds with an enterprise IT focus such as Benhamou Global Ventures can not only invest in companies born in Silicon Valley but also in companies built in Europe, India and Israel, and help them set up their US operations as well as connect them to the Silicon Valley industry eco-system. Large corporations based outside Silicon Valley, Limited Partners with a limited exposure to venture capital in the enterprise space, large government funds willing to support the set up of bridges between Silicon Valley and their own country are all seeking capital allocation from Silicon Valley based venture capital firms. They are not only aiming for top quartile returns but also for several key strategic benefits such as:
  • Corporations seek to gain privileged access to innovative business models and technologies.
  • Government funds are seeking access to new technologies and innovative companies to either complement their national industry or create more jobs at home
Large inflows of capital are coming from China and Europe for the following reasons: China The past ten years has seen the development of a strong and successful private equity and venture capital market predominantly fueled by the explosion of consumer demand and the creation of e commerce and social networks. The Chinese government is now keen to create a innovative domestic technology industry generating IP instead of relying solely on being the low cost supplier. As a consequence sectors such as semiconductors have seen large government investments but the results are unlikely to become clear before more time passes. Other technology sectors such as robotics and drones are clearly successful and Chinese companies in these sectors are likely to become world leaders. The Chinese automotive market (the largest market in terms of units shipped) is hungry for new technologies and innovation to build the transportation of the future…. The majority of the innovation and entrepreneurial talents required to address the above challenges are in Silicon Valley and are often built by entrepreneurs from Chinese descent and culture, if not from Asian descent and culture. As a result Chinese private equity groups, regional and central government funds, successful entrepreneurs who want to continue to grow their business all want to have access to Silicon Valley B to B company fueled innovation through venture capital firms.  Furthermore the wealth generated by the middle class needs a new generation of financial products, ones that the traditional central and regional banks cannot provide. This coupled with the desire of wealthy individuals to diversify their asset between RMB and Dollar denominated investment is also creating a demand for investments in the US based Venture asset class. Europe Europe and Israel have also created a solid private equity and venture capital industry during the last 30 years, although significantly smaller than China and North America. Traditional European Limited investors have diversified their investment between the USA, Europe and Asia. The lack of a strong public equity market for young companies has compressed the returns and pushed successful companies to list on the Nasal ( i.e. Criteo ). More recently a healthy consumer Internet and media sector has delivered strong returns. While the old continent with 400M plus inhabitants is still an enormous consumer market, the mediocre economical environment pushes young talented entrepreneurs to come to Silicon Valley to build their companies thereby limiting the growth potential for companies serving only the European market. The recent Brexit event has created a shockwave. It is too early to predict the outcome with precision as the separation negotiations have not yet begun. But several large foreign financial institutions have already announced the relocation of some of their UK operations to other European cities. The Fintech industry in London, that was second in size and innovation to North America is already seeing a capital pull back. Fintech entrepreneurs are looking to China or Silicon Valley as their best alternatives. Limited partners from the continent that were investing in UK funds are also pausing. The European Investment Fund (EIF) in particular, which provides funding for 30 to 40% of the venture capital in Europe will not be able to fund venture teams in UK as it will not belong to the EEU any more. Furthermore UK based entrepreneurial talent will face several limitations:
  • Talented UK entrepreneurs will be concerned about their future mobility across Europe. The free movement of workers across the EEU will not be guaranteed. Foreign engineers and entrepreneurs living in UK will be worried about their future work permits and visas.
  • Following the Brexit referendum, the demand of Irish nationality by UK citizens has increased significantly since Ireland being part of EEU can guarantee full mobility across Europe to its citizens.
European Limited partners will have to move their venture capital allocation to funds in North America as there will be fewer opportunities in Europe. Large European corporations building airplanes, automobiles, communication equipment as well as service companies like Insurance, Banks and consumer product companies are looking to Silicon Valley to build their future digital enterprise. Finally the high labor costs in Europe incentivizes them to use leading edge automation and artificial intelligence technologies in order to stay competitive. Conclusion We are entering a new era in the evolution of the enterprise as it engages in a deep digital transformation, perhaps deeper in scope and impact than the 19th century industrial revolution. This is driven by technological trends such as cloud computing, the Internet of things, Robotics as well as a new wave of customer engagement with AI and augmented reality. These shifts are likely to make Silicon Valley even stronger, due to increased startup creation and the influx of international capital. Agile and adaptive venture capital firms with a strong international and cross border experience will be natural choices as long term partners for these international corporations, government funds and limited partner getting their first exposure to the Silicon Valley ecosystem.

Eric Buatois, BGV general partner shares his perspective on the hyper scale data center disruption. The hyper scale data center market comprises companies such as Facebook, Google, Amazon, Alibaba, Tencent as well as large CDN service providers and represents 50% of the global server market. These firms aspire to influence a larger portion of the value chain not only in servers but also in storage and networking. Large cloud service providers (Amazon, Microsoft Azure, Google) are developing their own hardware and software solutions and will represent purchase volumes of greater than 50% of the worldwide storage capacity over the next few years. Each of these firms are buying more than 1 million servers per year and are expected to continue this rapid rate of consumption. The requirements for servers, storage and networking for such customers are very different than that of the mainstream enterprise market. These customers require low cost, low power consumption, maximum storage capacity with minimum floor space, support of specific file systems associated with Big Data and highly efficient networking switches. Such customers are moving rapidly to SSD for their offline processing – basically Big Data reporting and analytic workload.  For example E-bay has recently decided to purchase only SSD storage migrating away from hard disk based storage. The computing industry is facing a silent revolution both at the technology and business model level. Business model: The hyper scale customers are sourcing their core semiconductors directly from large vendor such as Intel, Flash vendors, and network processing vendors. These servers are then assembled by large ODM’s in Asia based on high density, low power specification. Given the magnitude of the CAPEX investment needed to put in place enough compute power, the direct sourcing of semiconductor provides very large savings to these firms. Large systems vendors like HP, now Lenovo (following the IBM acquisition), Dell on the server side, Netapps, HP, IBM, EMC on the storage system side and Cisco on the networking side are faced with a big dilemma: either ignore 50% of the market or accept to significantly lower their margins for this segment of the market. The traditional business model built for the enterprise of large system vendors that has been in place in since the mid 1990’s is being fundamentally challenged. The traditional business model consists of the sourcing of components such as Intel processors, network processors (Cavium or Broadcom), hard disk and flash storage subsystems (Seagate or Western Digital) and then integrating it with their proprietary software. These vendors then charge prices with high gross margins to sell this integrated product. But this business model is now being unbundled. Large semiconductor companies are rushing to supply directly to Amazon or Google, large Asian ODM’s have developed healthy white box businesses. The question arises – Will this be a repeat of the PC business model where Microsoft and Intel control all the industry profitability or another iteration of the smartphone business model where Apple, Samsung, Qualcomm control the industry profitability? A new computing paradigm A new computing paradigm optimized for cloud and very high workload is emerging. Dedicated dense servers such as the HP moonshot server are the new norm. The storage capacity is tied more and more directly to the servers for either caching or analytical workload. The purchasing power of these hyper scale data centers makes the price of flash storage low enough to replace hard disk based storage. The dramatic I/O bandwidth of flash storage array is a must for efficient big data processing. The very large number of ports to be connected demands a new low cost switching architecture. The storage software stack and associated file system requirements is also fundamentally different from the one used by the enterprise. Cost and scalability more than reliability will be the design driver given the massive scale out requirements. Big data and Hadoop initially created by Google for their internal need is now a norm adopted by the whole industry. It is only the beginning where new compute inventions developed by hyper scale data centers will form the foundation of the new cloud-computing paradigm. The established system vendors HP, Lenovo-IBM, Dell, EMC, Cisco are too slow to embrace this new computing paradigm as they are held hostage by the hefty growth margins of the business model designed for the enterprise market.. But the hyper scale data market is too large to ignore, especially as white box vendors, storage subsystem vendors and semiconductor vendors pursue aggressive penetration strategies for this new market. The level of software innovation is massive at all levels of the stack – spanning storage, networking and database. Some companies such as Google, Facebook, and Amazon are dedicating large software engineering resources to address these needs from the ground up. But will such an approach be sustainable? Hyper scale data center customers are eager to find companies who understand their needs and design the right product for hyper scalability and low cost. We believe that the disruption in the hyper scale data center creates a very good opportunity for building new technology companies – ones that are purpose built from both a technology and a business model perspective to meet the needs of this market. The deep intellectual property created by innovative startups can be shared with the top 20 hyper scale companies and can provide the foundations of the future cloud enterprise software optimized for such applications.  This is an ideal opportunity for venture capitalists to leverage the Silicon Valley talent to design new architectures crossing the computing, storage, and networking silos. We believe that start ups will have a natural advantage given their ability to mix effectively the expertise of different domains to create the new computing paradigm for the hyper scale data centers.

Eric Buatois, BGV General Partner shares his perspective on the opportunities for Venture investing in IoT We are preparing ourselves for a new world where personal devices, cars, glasses, and watches will be connected to the internet for the benefits of the consumer. New smart cities connecting existing infrastructure promise a better environment for consumers. Our new connected homes are envisioned to  automatically secure, and control heating and air conditioning. However all the above emerging market segments demand a fundamentally new consumer behavior.  Such large changes will only occur if large consumer brands invest in creating the demand and providing the right solution at the right price. Large software companies such as Google and Apple are expanding their market footprint acquiring various hardware companies to expand their sensor product portfolio, penetrating deeper in the home and the life of consumers as part of their IoT strategy. To exploit the value creation opportunities presented by the Internet of Things Consumer Internet companies process 70% of the consumer data going through their sites and expect this to increase over time. At the other end of the spectrum large industrial corporations process only 1% of the data generated by their installed industrial equipment.  Furthermore these companies face increasing pressures to increase their top line revenues, grow customer loyalty and adopt new technologies at the risk of being dis intermediated..  Industrial segments such as oil & gas, utilities, manufacturing, commercial and industrial building automation, medical equipment providers and hospitals are facing a revolution where the data and services created around the data captured by their core equipment will generate high shareholder returns. Companies such as General electric, Honeywell, ABB, Siemens, United Technology, Whirlpool, Bosch, Ford, Renault, Volkswagen need to implement a cultural change whereby gathering customer data and selling it as a service will become as important if not more important than delivering superior products.  But corporations in these industries will face difficulties in attracting the top software talent needed to build these solutions. The current lack of trained data scientist and bid/data analytic experts combined with a low-tech brand image put these industrial companies at a disadvantage when it comes to recruiting this “scarce skilled talent.” Therefore it is not surprising to see companies like General Electric, Honeywell, ABB, Siemens, United Technology, and many international Car manufacturers coming to Silicon Valley with the goals of building a business intelligence hub and developing local eco systems.  But will this be enough? Certainly not. Google, Microsoft, Facebook can buy sensors, consumer devices, robot companies and integrate them effectively in their customer value delivery engine. Now, if Honeywell, Siemens, ABB, GE want to acquire innovative software companies the resulting value creation will be disappointing. Why? Because the effective value will reside in the information created through the gathering and processing of data coming from installed equipment. This resulting information has to be shared by players across the value chain of the same industry or even across different industries. Technology has removed the friction of connecting, gathering and aggregating data. Uber has changed the taxi business model leveraging the connectivity platform built by Twilio.   A new generation of integrated connection and information processing platforms will emerge allowing industrial companies to concentrate on their unique algorithm and solution software. They will form a new industrial IOT highway. Despite their top management commitment and significant capital investment, the GE, Siemens, Honeywell of the world will not have the time or talent to build these platforms. These industrial IOT technology companies are likely to emerge in technology hubs such as Silicon Valley. Either local or global these emerging platform companies will create a massive network effect. More connectivity to more and more things combined with a slick mobile user interface will allow more and more applications to emerge increasing the scale of connections and the value of the platform. The complex and lengthy sales cycles experienced by Venture Capitalist who have invested in startups serving the industrial sector will be reduced dramatically incenting them to participate in such companies. Who will perform this industrial IOT App store role? Who will build the necessary wireless and connectivity grid to connect industrial equipment’s?  Technology Start-ups backed by Venture Capitalists!  These companies will start by focusing on a couple of market solutions and ultimately expand horizontally across industries.  Who will benefit in delivering solutions on this new grid? GE, Siemens, ABB, Renault, Honeywell… BGV is actively involved in identifying investment in industrial IOT as well as establishing pro-active partnerships with industrial corporations to assist in the transformation of the Industrial Internet of Things.

Building a technology business located in Silicon Valley is more of an art than a science. Adding a cross border dimension could create the perception of an impossible task. Eric Buatois, general partner at BGV has built venture-backed cross-border companies for more than a decade between Silicon Valley, Western Europe, Eastern Europe and India. In the early days of venture capital, both the technology innovation and market opportunity were located in Silicon Valley. Since the late 80’s and early 90’s technology innovation has blossomed in Israel and Western Europe. In the late 90’s and early 2000’s, China, Taiwan and India became strong technology development centers. With the Internet bubble crash and the subsequent limitations on immigration visas, many talented engineers and entrepreneurs returned to their home country with the know how to build start ups and raise venture capital funding. Over the past 5 years, many strong technology companies have been created in outside Silicon Valley.  Several strong companies such as Yandex (Russia), Alibaba (China) have developed successful Consumer Internet companies by replicating proven Silicon Valley business models in this space. This fundamental and profound exchange of ideas, experience and people has created “corridors” between Silicon Valley, Israel, China, India and Europe,.   Entrepreneurs from these corridors have few inhibitions to relocate the headquarters of their company to Silicon Valley while maintaining strong R&D teams in non-US countries.  Finally salary and cost of living increases in Silicon Valley combined with the difficulty of recruiting local talent along with the limitation of work visa for skilled professionals are forcing entrepreneurs to distribute their R&D internationally. Technology companies seeded outside the US especially in the Enterprise IT space need to have a presence in Silicon Valley to either address the large US market, set up strategic partnerships with US based technology giants like EMC, VMware, Citrix, Oracle, Google etc, or prepare for their exit (IPO or M&A).  If these trends are well known with several success stories, why are many Silicon Valley Venture Capital firms wary of leading cross border investments ?  It comes down to the perceived complexity/risks associated with cross-border deals combined with the lack of core competencies required to address them.  This includes: 1.  Cross cultural understanding Given the wide diversity of cultures (China, India, Israel, Russia etc), one cannot be an expert in every local culture. But the board members of cross-border companies need to have an awareness of cultural differences.   English may not be the first language learned and spoken by the entrepreneur. Despite using the same words, he or she may imply a different meaning. A widely used phrase such as “commitment” or “schedule” have different meanings in different cultures. In the Scandinavian, Chinese, or Japanese cultures, an executive will never commit to a schedule if he or she is not 99.5% sure and convinced that it can be met. In the Silicon Valley culture, an executive will commit if he or she is 80% confident that the milestone can be met. Compensation conversations often magnify these cultural issues. Silicon valley is well known for its meritocracy driven compensation practices. Sometimes such an approach could have an adverse impact on teamwork, especially in different cultures. Some cultures value teamwork above individual performance. Stock options are perceived differently in different countries either due to local taxations scheme or for local culture reasons. Consequently a tried and true compensation approach in Silicon Valley may not have an equal impact on employee motivation within cross-border technology companies .  Firms in Silicon Valley have developed a soft and diplomatic way of communicating criticism or suggestions for improvement. In the French, Israeli, Chinese or Russian culture, this soft feedback will not be internalized or understood. These cultures tend to demand a strong and straightforward communication. 2.  Investor Syndicate Alignment The investment syndicate in cross-border technology companies will usually consist of board members in Silicon Valley and from the local country as well. The cross cultural differences described above will also apply between different board members. During the first few months and the first year of the investment, face-to-face meetings should be the norm. The board should also pay more attention to define its values and operating principles. Board meetings should rotate between the various key sites. It is a good opportunity for directors to become familiar with the various parts of the organization and to understand the context in which they operate. Networking with investors or independent board members in the home country is a good way to get familiar with different practices and exit expectations. Bottom Line, it demands more international travel and time commitment from the directors. 3.  Recruiting and developing a management team with a global skillset Any young and developing organization tends to use the norms and the values of its founders as the underlying values of the company. The cultural values of the founding teams are usually very strong – for example a company created by an Indian or an Persian founder might tend to recruit Indian or Persian managers. While such an approach may reduce the integration risks it may create a missed opportunity to bring the best in class skillset into the company. A VP of sales or business development coming from a more traditional Silicon Valley culture may be more efficient in establishing partnerships with the large tech companies even if there is a longer integration cycle.  Many Israeli start-ups establish US headquarters at a certain stage in their development, with a US based CEO and VP of Sales. Board members have to be extremely involved and active in assessing the maturity of the organization to integrate best in class executives with different cultural backgrounds. Experienced cross border investors can tap a pool of proven executives with a solid experience of mediating between the Silicon Valley and their home countries cultures. These executives tend to be more open to address the right business opportunity in the right place instead of only pushing the North American market. If Consumer Internet businesses tend to be local by nature, technology intensive B-to-B businesses have to be global since inception.  The enterprise IT market is definitively global and early stage product adoption can take place outside North America.  The necessary investment needed to build a cross-border technology company will pay off with building a more flexible firm.  A firm with an ability to exploit multi-regional market opportunities while leveraging lower cost local talent and credible local investors.  Consequently building successful Enterprise IT companies in the future will increasingly require cross-border investment competencies for success.