Mark Sherman joined Telstra Ventures as a Managing Director in 2012. Previously, he was a General Partner at Hidden Lion Partners, an emerging growth equity firm focused on technology-enabled services. In this interview, he discusses why institutional investors should be excited about the enormous upside investing in venture capital; why Telstra looks to invest in Series Bs, Cs, and Ds, backing proven companies; and how timing can be tricky for most corporate venture groups considering venture's long-term game.
Mark Sherman was named on Trusted Insight's 2020 Top 30 Corporate Venture Capital Investors.
Trusted Insight: Tell us about Telstra Ventures and your responsibilities there.
Mark Sherman: Telstra Ventures is a strategic emerging growth fund that got started in 2011. We have been investing on behalf of Telstra as well as a number of institutional investors. What's different about us is that we create revenue-bearing relationships for our portfolio companies. We've made 63 investments and 29 of those investments we've generated revenue for by either selling to or through Telstra and its customers.
Trusted Insight: In your active portfolio you allocate ~70% to the U.S., 11% China, 9% rest of Asia, and 10% Australia. How do you see that allocation strategy changing over the next 5-10 years?
Mark Sherman: We are looking to invest in difference-making companies and lighthouse leaders. We will end up anywhere. Typically we're investing 70% in the U.S., and the other 30% in other parts of Asia, with China being the largest piece. I think we're likely to just keep that strategy pretty similar. We'll see the U.S. continue to be a majority of our investments, and Asia a minority that we will invest in. The U.S. and China are the two biggest macro geographies for venture capital and growth equity investing.
Trusted Insight: Although you look to invest in companies that make a difference in the world, you’re also investing in tech-enabled companies.
Mark Sherman: Yes, it's all technology-based. We'll invest in cloud, networking, security, mobile, data, and consumer. A healthy bucket of other areas that have some sort of digital, AI/machine learning, or IT twist to it.
Trusted Insight: What sector are most passionate about looking ahead 5-10 years?
Mark Sherman: We're excited about just the continued evolution of technology. All those major neighborhoods that I mentioned before and many of them are influenced by artificial intelligence. There’s AI plus security, AI plus data, and more. There’s anything that touches your typical neighborhoods of venture capital with artificial intelligence is probably one of the areas that we're excited about.
Trusted Insight: Why should larger institutional investors entertain venture or look at ways to get involved in the asset class?
Mark Sherman: Always start at the most basic level. They should ask themselves if they think technology is impacting almost every industry that they're investing in. The answer is going to be yes. In the end that excites us about the opportunity. If you look at the market cap of the unicorns in the U.S. compared to the S&P 500 market cap, it's about two and a half percent, so there is still enormous upside.
I believe that the unicorns are sort of a proxy for very good high quality, high profile technology companies, and most people would agree that many of those unicorns are going to take over those incumbent businesses.
The likely outcome is that 2.5% is going to turn into 5%, then likely turn to 10%. Later you can start to debate whether it'll get to 15 or 20%. Those investors should know about what's going on individually because it's going to impact all of their portfolio, be it private or public.
Trusted Insight: What trends can help foster more collaboration between large existing corporations, more traditional folks and innovative startups?
Mark Sherman: I believe there's definitely interest in terms of large enterprises collaborating with the technology. The trick is where's the best part of the ecosystem for them to connect to it. Our thought is that it's after the technology has been proven and just as the companies are beginning to scale.
We are investing in Series Bs, Cs and Ds, and the reason why we invest in those stages is that most of the companies have proven enough, and are able to demonstrate some benefit for the large technology or large corporates that want to see some of the benefits there.
There are some kinds of corporations that are interested in technology. When you start showing them Series As when choosing their companies, they oftentimes just too early. They want a little bit more proof that there's something there. That's one of the reasons why we've done Series Bs, Cs, and Ds.
Trusted Insight: What are some of the challenges that exist today in investing through the lens of a large corporation?
Mark Sherman: I think the timing is a bit different. Corporations are oftentimes trying to optimize their business for the next quarter or the next year or two years. Venture by its very nature is a 3-7 year or in some cases even a 9-11 year gap depending on where you get involved. Aligning and timing can be tricky.
Oftentimes you have to make sure that you understand what the priorities are for the corporation so that you can show them things that they're interested in the timeframe that makes sense for the entrepreneurs.
Trusted Insight: What topics or questions do you find interesting these days? What can investor peers help answer?
Mark Sherman: It would be interesting to know how many corporate venture groups have dedicated funds or dedicated allocations of capital. Also, how much independent decision making do they have relative to having an investment committee that has been around for a long period of time. Venture is a very long-term game and if they don't have a fund and they don't have some ability to make independent decisions, it's going to make it hard to build a great CVC. Understanding how many groups have some independence in their capital or their decision making would be important for the corporate venture capital side of the industry to do really well in the long term.
Even in my sectors, there are more groups that have been independent. There's Sapphire Ventures, Google, and CapitalG, that all have independence in their decision making. How many more corporate venture groups are thinking about that?
View our full catalog of interviews here.
The full list of 2020 Top 30 Corporate Venture Capital Investors can be found here.
Mark Sherman was named on Trusted Insight's 2020 Top 30 Corporate Venture Capital Investors.
Trusted Insight: Tell us about Telstra Ventures and your responsibilities there.
Mark Sherman: Telstra Ventures is a strategic emerging growth fund that got started in 2011. We have been investing on behalf of Telstra as well as a number of institutional investors. What's different about us is that we create revenue-bearing relationships for our portfolio companies. We've made 63 investments and 29 of those investments we've generated revenue for by either selling to or through Telstra and its customers.
Trusted Insight: In your active portfolio you allocate ~70% to the U.S., 11% China, 9% rest of Asia, and 10% Australia. How do you see that allocation strategy changing over the next 5-10 years?
Mark Sherman: We are looking to invest in difference-making companies and lighthouse leaders. We will end up anywhere. Typically we're investing 70% in the U.S., and the other 30% in other parts of Asia, with China being the largest piece. I think we're likely to just keep that strategy pretty similar. We'll see the U.S. continue to be a majority of our investments, and Asia a minority that we will invest in. The U.S. and China are the two biggest macro geographies for venture capital and growth equity investing.
Trusted Insight: Although you look to invest in companies that make a difference in the world, you’re also investing in tech-enabled companies.
Mark Sherman: Yes, it's all technology-based. We'll invest in cloud, networking, security, mobile, data, and consumer. A healthy bucket of other areas that have some sort of digital, AI/machine learning, or IT twist to it.
"[Institutional investors] should ask themselves if they think technology is impacting almost every industry that they're investing in. The answer is going to be yes."
Mark Sherman: We're excited about just the continued evolution of technology. All those major neighborhoods that I mentioned before and many of them are influenced by artificial intelligence. There’s AI plus security, AI plus data, and more. There’s anything that touches your typical neighborhoods of venture capital with artificial intelligence is probably one of the areas that we're excited about.
Trusted Insight: Why should larger institutional investors entertain venture or look at ways to get involved in the asset class?
Mark Sherman: Always start at the most basic level. They should ask themselves if they think technology is impacting almost every industry that they're investing in. The answer is going to be yes. In the end that excites us about the opportunity. If you look at the market cap of the unicorns in the U.S. compared to the S&P 500 market cap, it's about two and a half percent, so there is still enormous upside.
"We are investing in Series Bs, Cs and Ds, and the reason why we invest in those stages is that most of the companies have proven enough, and are able to demonstrate some benefit for the large technology or large corporates..."
I believe that the unicorns are sort of a proxy for very good high quality, high profile technology companies, and most people would agree that many of those unicorns are going to take over those incumbent businesses.
The likely outcome is that 2.5% is going to turn into 5%, then likely turn to 10%. Later you can start to debate whether it'll get to 15 or 20%. Those investors should know about what's going on individually because it's going to impact all of their portfolio, be it private or public.
Trusted Insight: What trends can help foster more collaboration between large existing corporations, more traditional folks and innovative startups?
Mark Sherman: I believe there's definitely interest in terms of large enterprises collaborating with the technology. The trick is where's the best part of the ecosystem for them to connect to it. Our thought is that it's after the technology has been proven and just as the companies are beginning to scale.
"Corporations are oftentimes trying to optimize their business for the next quarter or the next year or two years. Venture by its very nature is a 3-7 year or in some cases, even a 9-11 year gap depending on where you get involved."
We are investing in Series Bs, Cs and Ds, and the reason why we invest in those stages is that most of the companies have proven enough, and are able to demonstrate some benefit for the large technology or large corporates that want to see some of the benefits there.
There are some kinds of corporations that are interested in technology. When you start showing them Series As when choosing their companies, they oftentimes just too early. They want a little bit more proof that there's something there. That's one of the reasons why we've done Series Bs, Cs, and Ds.
Trusted Insight: What are some of the challenges that exist today in investing through the lens of a large corporation?
Mark Sherman: I think the timing is a bit different. Corporations are oftentimes trying to optimize their business for the next quarter or the next year or two years. Venture by its very nature is a 3-7 year or in some cases even a 9-11 year gap depending on where you get involved. Aligning and timing can be tricky.
Oftentimes you have to make sure that you understand what the priorities are for the corporation so that you can show them things that they're interested in the timeframe that makes sense for the entrepreneurs.
Trusted Insight: What topics or questions do you find interesting these days? What can investor peers help answer?
Mark Sherman: It would be interesting to know how many corporate venture groups have dedicated funds or dedicated allocations of capital. Also, how much independent decision making do they have relative to having an investment committee that has been around for a long period of time. Venture is a very long-term game and if they don't have a fund and they don't have some ability to make independent decisions, it's going to make it hard to build a great CVC. Understanding how many groups have some independence in their capital or their decision making would be important for the corporate venture capital side of the industry to do really well in the long term.
Even in my sectors, there are more groups that have been independent. There's Sapphire Ventures, Google, and CapitalG, that all have independence in their decision making. How many more corporate venture groups are thinking about that?
View our full catalog of interviews here.
The full list of 2020 Top 30 Corporate Venture Capital Investors can be found here.