George Ugras, who joined as managing director of IBM Ventures last year, has a battle on his hands, and it is not about throwing money into strategic investments, venture capital firms or startups. Rather, it is about changing mindsets.
That involves getting a legacy company – known more for its hardware, servers, and enterprise businesses – to recognising that moving a needle is more than engaging just top paying clients. Simultaneously, he is also working to convince the entrepreneurial ecosystem, that Big Blue is open to business, and is ready to partner startups who seek to achieve global scale.
“Our role at IBM Ventures is to help future-proof our corporation, and the only way we can do that in a company like ours is to do self-disruptive things. To this region (Southeast Asia), we want to talk to developers and startups in a meaningful way, and tell them they can come to us to be the technological partner for their journey, and second, for startups that have global aspiration, we want to help them go global,” Ugras said during an interaction with DEALSTREETASIA at the recently concluded IBM Connect 2017 in Singapore.
According to IBM’s annual reports, in 2015, it had invested more than $13 billion in research and development, capital expansion, acquisitions, and strategic investments. In recent quarters, IBM has been focusing on domains such as cognitive analytics, cloud, mobile, security, and social and as of 2015 represent 35 per cent of IBM’s business, growing 22 per cent in 2015.
Urgas also acknowledged that often the reality was that, startups only got to interact with IBM’s sales teams, and said this was an experience he was working to change: “For a startup to interact with our sales teams is a losing proposition to both parties. It won’t work. If we (IBM) are going to sell to startups, we are thinking the wrong way – it has to be about partnerships. And partnerships has to be around addressing the problems both sides face. This is the struggle – we are in the elephants hunting business, and if you look at the revenues, most come from the big clients, and those move the needle.
“We understand that working with startups has amazing benefits – if you look at NASDAQ, and if you look at the most valuable 100 companies, about 50 of them did not exist 20 years ago. So we have to talk to startups…we need to talk to them about products and distribution, and that is the part which is missing,” he adds.
Ugras noted that Big Blue had been making progress, and indicated that events such as IBM Connect were a step in that direction.
“We chose to be a disruptor and enable an ecosystem of startups to work with us. Big piece of that is the platforms we provide – a big chunk of that is providing infrastructure and the second part of it is leveraging data. We are not afraid to open those channels to startups. I think you will see us do more and more of that. In our technology services business, we introduce startups to our clients all the time. We can help them reach out to any Fortune 2000 companies,” he added.
Be it acquisition of startups, of investments as an LP into VCs here, IBM has so far shied away from taking steps in the Indo-Asia Pacific so far, and Ugras, while hinting that the company’s approach may change, also reiterated that any such initiative would have to be strategic.
At the same time, he also pointed that investing into VCs could create conflicts of interest.
“If you are an LP in a VC that is raising a fund, the goal of that VC is to provide financial returns to its investors. The presence of a strategic investor in that fund is a little bit confusing, because what is their priority – are they going to serve my purposes as a strategic investor first, or are they going to serve the interests of their financial LPs who really want returns? We don’t want to introduce that conflict into the equation, and I would rather be that partner first, and then justify from that point, that if the investment unlocks opportunities that are unique to us, then we are always open to that discussion.”
You have previously worked at Adams Capital Management (ACM), an early stage venture fund, where you were the general partner and managed investments across big data infrastructure, cloud computing, and analytics. Are early stage funds equipped to invest in such sectors, which typically need larger investments over a period of time?
Clearly, over time, changes have happened that enable startups to operate in these areas in a more capital-efficient manner. What’s enabling those are technical developments around cloud infrastructure and virtualisation, such that you can get the tech element implemented faster. And, of course, open source solutions help. What hasn’t changed is the distribution and go-to-market costs for enterprise-focused startups.
You’ve lectured on entrepreneurship at Carnegie Mellon, UCLA, and Stanford. All leading universities have modules/courses on entrepreneurship. Big picture, how much on entrepreneurship can one gain from lectures/modules/courses because the ground reality is often very different.
At the end of the day, most true startups succeed or fail in the same way. Hence, it’s really a matter of getting exposed to a broad set of experiences that formulates and educates entrepreneurs and their perspective on what’s right for them.
Inevitably, you learn from other people’s failures and successes and I think the most useful thing that comes out of these is really gaining insight into recognising signs of when to scale, when to pivot and when to rest and when to accelerate.
There’s no right or wrong answers to those questions, but it is about getting exposed to different experiences. What I’ve done in the past is rather than being prescriptive, I convey a set of experiences and let them know when to make the right decision.
Why have we really not seen much in terms of technology spin-offs at Asian universities yet?
I’m not sure frankly. It’s probably just a matter of time in the sense that you need to build not just a technical knowledge base but business acumen. What happens in the US is the convergence of that – so you have a lot of people in engineering programmes working with people in MBA programmes and what you get out of that is some of the more interesting concepts.
Secondly, maybe its a cultural issue that needs to be overcome. Compare to education in most countries – the US tends to be more advanced in teaching the subject matter, and in the US they teach more systematic, system-level thinking. And that results in people doing more experimentation, so it’s only a matter of time before that replicates itself in Asia.
In relation to corporate venturing’s slope of enlightenment, you’d discussed crafting a new playbook. What does that mean for IBM and startups?
I would like to think about what we do beyond venture capital. It needs to be an essential part of the innovation and transformation agenda of the corporation. If you view it as a capital deployment exercise, our shareholders can deploy their capital in venture models themselves – they don’t need us for that. And the returns we generate in our venture portfolio would never really make a sufficient impact on IBM to move the needle anyway.
However, when you think of what corporations need to achieve in terms of innovation agenda, number one is that we need to be relevant to our own clients and that requires you to articulate an innovation story that includes internal and external efforts. And startups are a great source of that.
Secondly, internally and from a cultural standpoint, getting exposed to the business model innovation of startups is incredibly different for people inside IBM. Thirdly, startups themselves as they mature are becoming a customer segment in their own right, so we have to learn how to partner and work with them and earn their trust in being their service provider.
I look at it more broadly than pure capital deployment. The big gains really come from the non-investment focused activities for the corporation.
The Indo-Asia Pacific is one of the fastest-growing technology geographies worldwide and as at March 2016 boasted 38 unicorns and $91b+ in investments. India’s developer population stood at 3 million, with a growth rate of 8% per annum. IBM Ventures doesn’t seem to have a large footprint in this region despite the growth narrative. Do you see IBM Ventures further building its Asian footprint or maintaining its current geographic focus?
That’s not determined yet, but in terms of us interacting with the developer community in the region, that’s extremely important to us and we’re looking at deploying resources here to increase our activities in order to work more deeply and broadly and explore how we can on-board them onto IBM platforms.
From a venture standpoint, we look at Asia in general as a region of interest and right now we’re in the exploratory stage of that. India-wise – I’m going there for the first time and we obviously have significant operations there and have people on the ground interfacing with VCs and startups. And our objective is to redouble those efforts.
In terms of ASEAN & Australasia to date, we’ve been working closely with many of our larger clients and helping them with startup activities and that will continue in scale. We have a very close partnership with Softbank in Japan built around cognitive activities and are looking to expand around those models.
IoT/IoE and data analytics are apparently the growth markets in the medium term. What does IBM Ventures see as the growth sectors for the 2017-2022 period and 2017-2030?
The uses of cognitive technology are going to grow across multiple verticals that we’re seeing that already. That will only accelerate. What’s getting done at the edges is in terms of smart cars and other types of devices, which we will see explode. We will see transformation efforts globally in the healthcare sector – clearly transitioning in the US in terms of how data is used
On the industrial side, everybody is waiting for the self-driving car and there’s a lot of initiatives around this. Looking at the impact of unstructured data, we’re only seeing the tip of the iceberg in terms of its impact on consumer and the marketing cloud, as well as industrial applications.
Is IBM Ventures engaged in corporate venturing as a tool for growing innovation or a tool for building a robust M&A pipeline?
We work closely with two groups at IBM. The first is the digital business group, which in essence is a transformational effort for us to address a broader set of consumers in the IT space.
Business users which can include developers, marketers, CMOs, salespeople and even manufacturers adopting and consuming IT offerings. We want to be relevant for them and listen to that audience for the kinds of products and services they need.
We want to reach to them with the right products at the right time and there a huge opportunity in terms of focus areas that’s actually built around cloud, data and cognitive. We are building capabilities and expanding on those, especially in reaching gout to developers and business buyers.
The second group is corporate development and that’s really around helping in initiatives on investments and acquisitions across the corporation with regard to the enterprise ecosystem.
You’ve been a management consultant, an entrepreneur, a venture capitalist and adviser to numerous enterprises. What’s your advice to corporate peers who may be new to corporate venturing?
So, I would definitely start with the definition of the mission and what makes you relevant to that corporate agenda. I think jumping into it as a pure financial metric or without thought to the desired outcome is a common mistake and results in the cycles we go through in corporate venturing where things get hyped up during bubbles and shut down during down cycles.
You’ve got to make yourself relevant to corporate innovation agenda and design your model to match that agenda, which is very important/ We’ve looked at hundred of venture models in order to craft our own and it dawned on us how many different models have emerged. You’ve got to pick the right one that matches what you want to achieve.
You can’t assume a static model. I think a regular VC can operate on a static model with a 3-5 year fundraise cycle and maybe do a little adjustment on strategy from fund to fund. A corporate venture team should reexamine itself on an annual basis and adjust its strategy and approach because the corporate agenda moves.
Corporate venturing is relatively new in the Indo-Asia Pacific and more specifically in Southeast Asia. What’s a good strategy to adopt and key lessons that corporate can take from IBM’s model?
I’d go back to having them define their mission very carefully and looking at the region they’re operating in. What DBS Bank is doing is extremely interesting; they’ve adopted a model and tailored it so that it fits extremely well to the region and their bank’s mission and innovation agenda. It’s probably a best practice that I’d encourage others to follow.
Singapore’s startup ecosystem faces the problem of talent deficit. Do you see a startup visa modelled on those schemes offered by the US, Canada or Israel being a viable talent pipeline?
It really depends on the startups and there’s no one-size fit all to this question. Let’s start from the top and work down; if you’re looking for C-level talent you’re looking or a team that’s scaled up before. You need a couple of CEOs who’ve gone through the rodeos, as we like to say in the US.
And in China, one of things that has played a big role is that they have people who were successful entrepreneurs who moved back to China from the US. We’re seeing that in India now and there are a lot of people moving back to India who worked as VCs or were CEOs of startups and I think you’ll see that in Asian countries very soon. There are many success stories emerging.
On the rest of the team, from a technical standpoint, I would make the assumption that the region has good technical talent emerging from universities and I don’t think that this will be a bottleneck going forward. Where the issue will be is really solid product management, which typically is the tough hire in Silicon Valley.
Good products managers are tough to come by and that’s a skill that only develops over time and that’s where I would really focus on. People only really learn it on the job and they typically learn it going through one or two cycles as a learning process before you bet your company behind them.
What’re your views on the entrepreneurial ecosystem in Singapore and the region?
I’ve always been really impressed by Singapore in terms of its contributions in entrepreneurial capabilities in terms of their funds here like Temasek and GIC and others participating and supporting venture funds and entrepreneurs. They were some of the earliest participants in the local ecosystem and I think what we’re seeing now is a side-benefit of that which has seeded an entrepreneurial ecosystem in Singapore and the region.
Going forward, this is probably one of the more stable areas not just in general in Asia but in the world. It has a very well-educated population and I have high expectations as to what will transpire here, in relation to developing a very robust ecosystem. And as IBM, we’d like to be a meaningful participant in that.
How was it transitioning from being a venture fund to a CVC role at a firm like IBM that has a lot of history and legacy?
Certainly a big corporation that operates very differently than a startup or venture fund and to my pleasant surprise, there are many entrepreneurial thinkers in IBM and I’ve many great interactions with those folk.
You get to have impact on a much broader scale and I would say that especially in my interactions with very senior executives at our clients…that has been the most positive upside and a surprise for me personally at how much trust IBM has built with these big brands over the last 100+ years, where they see us as their go-to innovation partner.
It’s a luxury I couldn’t have envisioned as a VC or entrepreneur and now what we’re trying to do is leverage that to connect the dots to startup partners and venture partners for the mutual benefit of all three parties: the clients, the community and obviously IBM.
How would you articulate your vision for IBM Ventures? Where do you see yourself taking IBM Ventures?
I want us to be the go-to partner for the top few select startups globally. And as IBM Ventures, we have to earn that right by having great platforms in the form of cloud, blockchain and data capabilities and making them consumable, easy to digest. And we are doing a lot of work on that front.
Secondly, its about unleashing our global presence for the benefits of these partners because we have a very global reach. And they should be able to engage with us to gain a global audience with their products.
The third piece is new engagement models where we can jointly scale and that typically leads to an acquisition. I want that to be influenced by our activities at IBM Ventures and come up with transformative concepts that can be applied.
What has really got you excited in talking and listening to entrepreneurs since you took up this post at IBM Ventures?
The part that’s really been amazing is that I think because of the position IBM has taken prior to my arrival on placing such a huge emphasis on cognitive there are some really amazing applications that come from the woodwork. You can have two guys in a garage hacking with Watson and coming out with applications like image or voice recognition.
The interesting bit that was a little unexpected to me is that the new generation of IT users – those younger than me – are quite comfortable with these interfaces in a way that I think people in my generation are not as comfortable with.
They’re more comfortable talking to a machine and would rather text message than talk to someone. And they bank using a chat application rather than walk into a bank branch. That’s been really an amazing exposure for me personally at IBM and how much of that we can enable with our platform (i.e. IBM Watson).