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Research Outline

Prepared for Mathieu F. | Delivered August 17, 2020

Investors in Corporate-Owned Ventures

Goals

To identify what type of investors might acquire shares in a B2B technology venture that is owned by a corporate group by identifying examples where investors have taken a minority position within innovative ventures that are owned by corporations, including the rationale for these investments and links to additional information.

Early Findings

Availability of Information

  • Initial research indicates that there are no pre-compiled listings of corporate-owned ventures that have successfully acquired external minority investors.
  • As a separate strategy to obtain such examples, the research team reviewed the investment portfolios of large technology investors (e.g., Softbank), but found that venture capital, private equity, angel investors and other funds typically take stakes in independent startups rather than in developing ventures that reside within a corporation.
  • As an alternative strategy, the research team reviewed notable corporate spinoffs, with the hypothesis that external investors might be more interested in taking a stake in an innovative, corporate-owned venture before/during the spin-off process from its parent company.
  • In parallel, the research team looked for external investor stakes in corporate incubators (e.g., Google's Area 120).
  • Although in many cases, corporate-owned ventures appear to be entirely controlled and managed by their parent companies, these last two search strategies yielded a relevant example of an internal corporate venture that successfully acquired external minority investment, as highlighted below.

RedBox

  • Redbox is a movie and video game rental company that distributes products through its network of self-service kiosks.
  • Notably, the company was originally conceived within a corporate incubation program at McDonald's.
  • However, after over three years of "planning, customer testing, refinement and in-market operations experience," McDonald's reached an agreement with Coinstar to obtain external investment for the venture.
  • Specifically, in November 2005, Coinstar agreed to invest $20 million in cash for a 47.3% stake in Redbox.
  • According to Coinstar VP of New Business Innovation Peter Rowan, Coinstar was motivated to invest in the corporate-owned startup because it had a "proven product" that fit well with Coinstart's larger 4th Wall product portfolio.
  • Based on Coinstar's later acquisition of Redbox from McDonald's for over $150 million, it also appears that the original minority investment may have been an opportunity for Coinstar to obtain an early interest in a potential M&A target.