KUCHING: There’s a new school of thought in corporate investing, encouraging large established companies to create startups themselves so as to disrupt their own segments.
This was the key takeaway from Talino Venture Labs chief executive officer and co-founder Winston Damarillo’s discussion at e27’s recently concluded Echelon Asia Summit 2019 in Singapore.
“One of the issues prevailing in Southeast Asia, especially in emerging markets, is the idea of scaling down. This is very evident in the financial sector where large successful companies realise that in order for them to serve the next 50 million people, they have to scale down the things they’re used to doing — like building more branches,” said Damarillo.
He was referring to emerging markets like the Philippines, a key market of his venture capital (VC) firm Talino Venture Labs, and a large archipelagic nation of over 7,100 islands where the last-mile delivery of financial products is a challenge both physically and economically.
Financial inclusion is an issue for the country, with 77 per cent of its population remaining unbanked.
“Large financial institutions have to change gear. What used to work for them won’t work in bringing loans to farmers or small retail stores,” Damarillo pointed out.
“And here’s where a combination of a joint venture and a bright startup comes in– leveraging technology as a way to scale down, to lower cost and serve more people. It’s a very challenging and interesting area.”
In the Echelon panel on how corporates work with startups, Damarillo was asked his views on how corporate innovation has changed over the years–given his rich experience working with startups and big corporates, from Silicon Valley and then back to Asean.
Damarillo had been a key executive at Intel Capital, the division of Intel Corporation set up to manage corporate venture capital and investments in tech startups and adjacent technologies.
In the 2000s, he founded his own startups: Gluecode Software, an open source software company acquired by IBM in 2005 Logicblaze, acquired by Iona Technologies in 2007; and Webtide, acquired by Intalio in 2009.
In the mid-2010s, the serial entrepreneur and VC became the Chief Strategy Officer for the Philippines’ leading telco conglomerate, PLDT and Smart Communications, companies then reeling from their core voice and SMS services’ disruption by net messaging and VOIP players.
“One can say that the Intel experience was Corporate VC 1.0, a large company aware of the need to pivot or ‘to make that hard right turn,’ as our then-CEO Andrew Grove put it, by investing in startups where they are found in adjacent opportunities,” said Damarillo at the sidelines of Echelon.
“Meanwhile, when I was at PLDT, we invested in partners in our direct ecosystem such as Voyager Innovations, the fintech startup that evolved mobile pre-paid credits into emoney.
PLDT’s Voyager has since received some USD250 million in investments from a consortium led by China’s Tencent and US-based KKR.”
“That was what you might call Corporate VC 2.0,” added Damarillo.
Today, corporate investing has evolved into “Corporate VC 3.0,” which involves companies creating startups from within, not as a side-venture but to further develop and expand their core business.
The new Corporate VC 3.0 strategy may involve partnering with external VCs and tech firms whose innovations can provide not only the “last mile,” but also product development that meets the needs and aspirations of the next generation.
“Corporate VC 3.0 lends itself very well to engaging family-run corporations, in particular the third generation who are tasked with growing the businesses given technologies available to them now,” said Damarillo.