Robin Brinkworth spoke to Michael Redding, head of Accenture Ventures (pictured), about how the company has changed and the strategy with which they approach investments.
You have been at Accenture for a while. How has the company changed, and more specifically, how has Accenture Ventures changed Accenture?
I have been at Accenture, as you said, for a long time. I joined at the tail of the mainframe era, and now we are dead in the middle of the digital era. The evolution of Accenture has really been from a classic consultancy into a services partner for our enterprise clients. We have gone from these point technologies to the digital ecosystems which are the storylines of today, so we have had to reimagine ourselves.
The role we have at Accenture Ventures is to make sure that Accenture has a systematic approach to emerging and disruptive technologies. We announced our first blockchain investment two years ago, and now those first investments are starting to be deployed at scale. Everyone said: “Oh, blockchain is going to be important.” Accenture invested in Digital Asset Holdings’ blockchain platform, and the Australian Stock Exchange announced in December 2017 that they are going to replatform their exchange on to a digital asset-based architecture. Accenture is in the story because of Accenture Ventures working with our business to say: “We believe blockchain is the future. Where can we put a stake in the ground?”
Is Accenture Ventures primarily a financial vehicle for Accenture, or are strategy and innovation more important?
As you look at the spectrum of corporate venture plays, we wholeheartedly embrace the end of the spectrum that is corporate strategic. I do not do a deal unless I have a sponsor, who has a Accenture services business case that rationalises why we should invest in an individual company. Of course, we want to do well on the capital return, but we do not even estimate a potential return on equity when we consider the investment. We entirely base it on: “How does this drive the organic growth of our business?” If it is sufficient strategic growth, then we would consider the investment.
What does Accenture offer to potential portfolio companies beyond just the cash investment?
I always like to say that we should be nervous about any startup that needs Accenture’s money, as we are quite frankly nothing compared with the world-class VCs and corporate VCs that are out there. It is not about the cash, it is about the go-to-market. If you are a startup and your target customer base is the world’s biggest companies, would you not want to partner the number-one services firm that serves those companies?
Generally, we are going to invest in a B or C round company, so they have got product and early market traction, and they are ready to scale. They are in this conundrum – they have got engineering talent, and they have probably have a small client success or services arm. We come in and say: “You still do what you do best, which is to engineer the heck out of your technology; and we will wrap the services, the delivery side, and the industry verticalisation around you, so that you do not have to.”
Can you elaborate on tending towards B and C rounds and how you would approach a potential investment in a company you like, depending on its stage of development?
The business case is predicated on Accenture’s revenue opportunity. A B or C round company is going to have some momentum in the market already. There is a fact-base that we can then extrapolate from. How many more clients are there in that industry? How many more clients can we work with in side-industries? The more defined they are, the clearer that is. To go earlier, you are matching technological, market, and organisational risk, and the more of each you have. We default to this – we do not want to start the fire, we want to pour gas on it.
One of our plays is with a vertical softeare-ss-a-service play called nCino. They do commercial lending on top of Salesforce. nCino started in North America and cut their teeth on small and medium financial institutions like credit unions. We partnered them to break into their first tier-one bank. After that, we said: “Wow, this is going to sweep the industry.” We invested. We have swept through quite a few of the North American tier-one banks, and now we are working with them on sweeping European banks. They had their regulatory frameworks down, they already had live customers, and they were ready to break into the big leagues. That is an example of meeting at the right time, making the right deal, and away we go.
Whereas nCino is an industry application, when you go into a new technology sector – like quantum or blockchain – you are going to have to take on more risk. You have to go upstream a little bit, and go to an earlier stage, knowing that there is a higher probability that you may not partner with the right one, because the market has not spoken yet.
The 1QBit deal seems like quite a strong example of that approach.
We believe quantum is the future – the question is when. If I had a crystal ball and could tell you that August 2019 was the date that quantum goes big, I would bet everything I have, retire and go live in Monte Carlo and watch my cash roll in. Like with blockchain, we need to put a stake in the ground. By investing, we have skin in the game, and therefore we have an institutional commitment to the domain, and in particular to 1QBit in this case, such that, if they can be successful with us, we can be successful together. The market will tell us who the winners and losers are, but we believe these guys have the potential.
This year, one of the recurring themes from our annual Rising Stars publication was the lack of coordination and understanding from corporate parents for venture units. How does that relationship work at Accenture?
Everyone is different, what works for us is that we are not a separate unit. We are not a fund, we are in-house, and we are investing from the balance sheet. I am still in our leadership hierarchy. I have two bosses, one of which is our chief technology officer. We are always aligned to Accenture’s business and partner strategies. Every quarter I sit down with a roster of people who own the divisional business strategies and say: “Where do your priorities lie? Where is your business going? Where are there individual partners we could pour gas on? Or do you have a hot topic that I could go research and go find a partner for you, because the signal has not yet risen from the noise?”
It does not hurt that because I have been here long enough, I know all the business runners. It is a network culture. They are willing to take my call, they are willing to listen, and they are willing to share their business priorities, because my success is their success.
Is there is an inherent advantage to being in-house, compared with being external?
We are a services firm versus a bank or a product company. We all have different business models, because its ultimately a choice of the C-suite to deploy hard-earned money in some new manner.
The benefit of a corporate venture arm should be to leverage the parent, whether you are inside or outside, because that is what differentiates you from one of a thousand other people with chequebooks, like a Sand Hill Road venture function. You have got millions of dollars? So does everybody else. It comes down to your competitive advantage, which could and should be your parent. Your job, whether inside or outside, is to bridge that, and use that to your advantage.
Going back to the nCino example, we have relationships with all their targets. If the top 25 banks in the world are their ultimate targets, we are probably at 23 or 24 of them already. The team that is bringing them to market can ring doorbells and say: “Let me introduce you to our Bank of X team, our Bank of Y team, and our Bank of Z team”, “Oh, the head of commercial lending, Suzie, she is already a customer”, or “We do not know Suzie but we know Steve, the chief information officer, and let’s see if he would like to bring this to Suzie’s attention”.
How would you summarise Accenture’s key focus areas and the strategy with which you approach investments?
We are going to rigorously index what the enterprise needs. The Uber of X is not interesting to us, because we are not a consumer play. That might be interesting to a VC, but that buyer from us is the enterprise who has to use it. For us, it always comes down to what it is worth to the enterprise.
There is applied intelligence, the intersection between artificial intelligence and big data. We are still in the first innings of what the cloud means. It is also all things digital, which really gets towards how the end-users, whether employees or customers, engage with the enterprise. That is where we pick up everything from digital marketing to augmented and virtual reality.
There is Industry x.0, pushing IT further into industry or manufacturing. Many industries are still straight-up 20th century – the 21st century has not yet dawned.
There is the transformation of the workforce, things like crowdsourcing and digital collaboration. Then we are going to get the outliers, things like quantum, which may shake the very foundations of current technological assumptions.
When you are looking at investments, do you think about exit strategies, or do you cross that bridge when you come to it?
We are not a fund, so I do not need to exit. I would like my money back, and I would like it to have appreciated, but I am not like: “Oh it is eight years in, I have got to get out.” I am never going to force an exit – it is not in our nature.
For us, exits are a bit fraught, because we are concerned about what this does to our client’s business continuity. They get acquired – what is the acquiring company going to do with that customer base? They IPO – great, do they stay solo or do they become an acquisition target for someone? We want our investments to be the next Workday, the next Microsoft and so on. We want them to have a 10, 20, 30-year lifecycle, because that is what most of our enterprise clients are going to use them for. There are systems created in the 1960s that are still alive.
How do you evaluate a potential portfolio company’s leadership?
The question always comes down to whether this technology is a feature or a platform. Are you going to use them to build something else, or are they going to be the foundation of a business capability? If they are going to be the foundation, then we want to look to see if the leadership has that intent.
Some people have argued that some geographies are “built to flip” – build to a certain point and sell it. If that is their intent or their nature, we want someone else. Now, there are still market forces, or they get an offer they cannot refuse. Things will happen, and there will be exits.
Are there any deals in the pipeline, or is everything hush-hush?
At this point everything is a little hush-hush. I do not have anything written in a document that we could circulate. Our next announcement, knock on wood, would be no later than mid-February. Fingers crossed, we should have two or three deals by the end of February, given our pace is about eight to 10 deals a year.
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