Earnest Sweat 00:02
Welcome to Swimming with Allocators. The VC podcast from the LP perspective, with your hosts, Alexa bins and Ernest. You ready? Let’s dive in on today’s episode. We’re lucky to have John Walken. He is one of the leads at Deloitte ventures in Canada. He previously was at Tell us ventures, one of the most active CDC is in Canada. Deloitte Ventures is a $150 million fund investing in series A and Series B companies off its balance sheet, and with about 20% of that dedicated to fund investments. Today, he’s going to share with us how Deloitte ventures was formed, what the corporate organization has learned from the initiatives and activities, their approach to fund investing and how to inform it informs their overall investment strategy, as well as some key takeaways for corporate venture teams navigating the venture ecosystem. And so with that, we welcome John Walken,

Jon Wolkin 01:04
thanks. It’s great to be here today and excited to talk more about what we’re doing at Deloitte ventures. It’s been a great ride so far, and we have a lot more we want to get done. So happy to dive into all the topics you just mentioned.

Earnest Sweat 01:17
I would love to just learn a little bit about your background, how you got into this crazy world of not only venture, but corporate venture, and not even the US and Canada. So

Jon Wolkin 01:32
I break down my career probably into three distinct building blocks, and all those kind of influence my investment approach and how I think about engaging with companies. So really started my career in investment banking, and that would probably be like the foundation of my understanding of finance and working and, you know, capital markets and large scale transactions, from IPOs to M and A, and really getting an understanding of the fundamentals that drive investment in the public markets and for large enterprise companies. I did that for a number of years. I also in the Canadian ecosystem, got to see the beginning of the emergence of companies from the mobile, social, cloud era that were really rising in the early 2010s and that wasn’t well covered by the traditional Canadian banks at that time, and it really drove an interest for me, and I really tried to push my team members in the TMT group at the bank that I was working at to start covering them, and to start building models to engage with those companies more effectively, because I saw what was coming in terms of the evolution of technology and how it was going to transform the way companies do business. And then the next step was kind of going into private equity and getting some of that private capital experience of dealing with shareholders agreements and negotiating with management teams and becoming a partner with them, not necessarily just a service provider. And I did that for a bit, and again, more traditional businesses there and kind of got away from that excitement of, okay, I want to help businesses grow from the bottom and help them scale and not necessarily focus on, let’s say, the financial engineering that comes with doing a leveraged buyout.

Jon Wolkin 03:25
then I finally got to take that interest that I had in my banking days and apply it. So I joined TELUS ventures, which was one of the only corporate venture funds in Canada and the most active over the period that I was there, and really got a front row seat in terms of how corporates engage with emerging technology companies and emerging companies, and the balance of being a financial oriented corporate venture fund versus, you know, more of a strategic Venture Fund, which the pendulum swung during my period there between both, and We had to navigate that with the portfolio companies. Yeah, and that really brought me where I am today, which is the opportunity to scale a brand new venture program at Deloitte, one of three people that lead the fund and really trying to make our mark on the Canadian ecosystem, leveraging the strength of Deloitte expertise, relationships, network with, not just within our partnership, and we can get into the model entirely, but also with our clients, which we think is extremely important. And you know, you’ve looked at the broader context of the Canadian economy today and North American trade relations, and this is going to become an even bigger piece, I think, of how we drive productivity here in Canada and innovation.

Earnest Sweat 04:45
Venture capital is pretty complex. You know, trying to get into deals. You know, anything can happen, but the complexities of dealing with venture itself and then within a larger company. Can you talk about what you learned? You talk a little bit about the strategic to financial pendulum swing, which I’ve experienced as well. What did you learn from that experience that you wanted to apply to the Deloitte experience?

Jon Wolkin 05:41
I’d say the most important thing is understanding why you’re doing it, if you’re in a corporate fund, and what your North Star is from an outcome standpoint. So what does good look like and and I think navigating and defining that in the early days is extremely important for long term success. I will also, even though you do that, you know, in a corporate area, there’s always pendulum swings that you have to navigate, and you have to be able to to effectively communicate, not just internally, but to other stakeholders, like portfolio companies, like CO investors, of how things can and change over the course of time, while being honest that you know you’re going to be the representative engaging with them. So from a North Star why standpoint? You know, we talked about the strategic and financial elements, but it’s really from the beginning. Why are we doing this? And at Deloitte, it’s really oriented around, how can we build resiliency in our organization? How can we get in front of emerging trends that could reshape the way we do business? And again, the timing of this is perfect as you think about how professional services can be disrupted with the emergence of these large language models and generative AI that is really going to change the way knowledge work is done, and so that’s the reason. And we think that through this major transition, from a technology standpoint, there’s going to be disruption and change, and we want to be ahead of that. And as part of that, we think we can be very effective partners and potentially pickers in terms of driving those next stages of companies forward.
Earnest Sweat 08:25
Now with the emergence of a lot of things in Gen AI, and just like you know, the acceleration of computers, you also mentioned a word I really always love and harp on resilience. Like to create resilient organizations that have been around for 100 years to remain around another 100 years, you need your innovation strategy to actually inform your corporate core strategy. And so I think you guys are smart in that way.

Jon Wolkin 09:24
I would just add there, even in the strategic approach or the financial approach, or if you’re doing a hybrid of that, there’s a very different viewpoint of what short term goals and outcomes look like versus long term. And I think that gets lost too. So in a corporate that is really oriented to quarterly earnings reports or annual targets that they’re trying to hit within a larger organization laying the groundwork to say venture is a long tail business, a lot of the benefits and sizable outcomes that we’re going to see is going to come over a longer period of time. So what. Whether it’s financial, whether it’s strategic. How do we set metrics that are realistic to measure, to define whether success is happening within the program? And the reality is financial is going to play a very small role in that regard at the beginning too. So how do you build that momentum? And another top up to that too, is in a corporation where you can be successful? Should you be investing in seed stage companies, if you have no on ramp to support them as an organization? Is it better for you to participate at a Series C or D where, let’s say, if your goal is to drive large scale partnerships, maybe it’s better to know that they have a go to market function, or they’re building out their channel strategy, and you can really be a major enabler for them. And so I think the stage plays a role as well.

Earnest Sweat 10:48
One last thing about just kind of the uniqueness of Deloitte is like, we have a lot of allocators of different types, right, like corporates, fund to funds, whatever, a management consulting firm that is a group of is really a partnership, similar to, kind of like a law firm is a partnership. Those types of organizations, starting corporate venture groups, are very unique. Could you talk about just some of thethe challenges, opportunities with that, and what those organizations should think about if they’re taking the same path as you all

Jon Wolkin 11:21
Well, this path came to fruition after decades of discussion. So there are a lot of internal dynamics in a partnership that you have to balance in order to get everyone aligned to take on a large initiative like this. So this was permeating in the organization for a long time, and I think the moment was right to move forward with it. The other part of it is partners are effectively our LPS in the fund, and so actually, there’s a lot of vested interest in what we’re doing, especially in specific domains where there’s deep subject matter expertise to say, Hey, I’m here to help. I want you to be successful. It’s their capital. Even though they might be a minority, we have a partnership of 550 people. It’s still going to contribute, and at the same time, the partnership is going to really be the major function of driving value for our portfolio and to build a book of business for those partners too. So when we look at investing and we look at due diligence and post investment value creation with our portfolio companies, we really want to engage the subject matter experts within the firm who know the area inside and out. Know what they’re hearing from their clients in terms of where are the major areas of challenge and the pull, in terms of technologies that they need, slash want to implement, that’s on their top three in the next quarter, in the next year, in the next two years, and we’re able to match that with the partners who have that area of expertise, and they’re also incentivized to do it, notwithstanding that there’s always going to be detractors, right? And whenever you’re doing something like this, which is very much not necessarily fully adjacent to the core business model, folks are going to question it. And I think it’s really about engaging across the organization and understanding where those pockets are and communicating extremely clearly how you’re going to move the partnership forward in the short term and the long term with the program. And so I think the person I joined the fund after it was announced, but Talia, who you met a few weeks ago, who was a big part of getting this off the ground, spent a lot of time doing the right things in terms of talking to leaders in the corporate venture community of why these things fail. Number two, clearly communicating across the partnership why we were doing this and how we were going to navigate the challenges that come with it, to build the groundswell of support to get this approved and in action. Now,

Earnest Sweat 14:04
Once you’re starting the strategy and you’re joining, you have a balance of both direct investing and fund investing. Could you explain kind of why doing both, and was there a sequencing that you wanted to do as well? Like, you personally have experience, but I could also assume, like. How can some fund investing inform you all on developing some partnerships and information market intelligence that can help you develop your expertise to the market, branding to the market?

Jon Wolkin 15:15
I’d say my investment history and my track record is really in that direct area. So the fund side of things, I think, is an important part of the program, but something that we all as a team had to build out more of a capacity to understand and engage with on top of the firm who had to better understand this whole asset class in general. I agree entirely that, from a fund investing standpoint, I think one of the major things is definitely, how can we get a bit more insight and indicator into where these new areas of technological disruption is happening, and what are the major trends that are emerging at the founding stages? And we have some limitations in terms of engaging companies at those stages, from a brand and reputation standpoint, from our ability to actually engage and drive value. So how do we still provide a level of impact in the ecosystem that can be leveraged across it? Was one thinking. Number two is, how do we start getting very good visibility in an ecosystem like the Canadian ecosystem of emerging companies early so that we can build those relationships and be successful at getting into very competitive deals, I would say, with the traditional institutional investors here in Canada, but also the US investors or international investors that come into our ecosystem and provide capital to The best companies. So we really need to build those relationships early. So we try to align on who are the best performing funds, mostly early stage funds in the ecosystem. Number two, how does that overlap with our direct investment strategy in terms of the verticals and categories where we think we have a distinct advantage in helping companies? And then let’s layer on our ability to work with them long term, from a funding standpoint, but also from a co-investment and knowledge sharing insights standpoint. And so that was effectively the thought process that went into the fund model. One of the big things within our fund model is a fund that invests in emerging managers, which we thought was extremely important, because we want to see the pool of early stage investors continue to expand in the Canadian ecosystem. And so investing in a first or second time fund as a new investor as an organization, was a bit of a challenge, but we found an established manager who could facilitate that, and while at the same time building the relationships directly with those fund managers as well.

Earnest Sweat 17:48
Yeah, just to clarify on the last point, so you found an established fund to fund manager that could do that, help

Jon Wolkin 17:54
you with that. Yeah, we have one fund that is a fund for emerging managers. Okay,

Earnest Sweat 17:59
how do I effectively develop a fund strategy, fund investment strategy, what were kind of some of the challenges in there? Because I could see the similarities of, like, okay, due diligence in a company and a fund manager, you know, they track kind of on the same milestones, but you’re looking at different things,

Jon Wolkin 18:38
Evaluating the fan fund manager, rather than just, you know, a single founder and, yeah, it was a lot of learning. We spent a lot of time talking to some of the established final funds, also talking to established managers to just get a good understanding of some of the nuances that we wouldn’t have thought about as direct investors and corporate direct investors too. Wee didn’t necessarily have a traditional fund structure that we managed to gain. So it was more of an evergreen fund that we invested out of. So the metrics that we tracked and managed across the portfolio were a bit different. So how do you get into the idea of investing in people being great stock pickers, being relationship builders, being very effective at the stage that they invest? So if we’re investing at the pre seed and seed stage, what’s the thesis that they have? Where do they have a distinct advantage in finding great talent in order to invest in the best people? And so it’s a bit different than evaluating people who are, you know, investing in more traditional metrics and companies at the later stages, and also from a direct standpoint the poor. Folio strategy is very different too. So do we align and agree with the way that they actually want to deploy the capital over the course of time, and do they have the team in order to facilitate and and the action the strategy that they’ve defined as is another thing. And so we really oriented our evaluation to the folks that we had the highest conviction and the relationships to move forward. And we’re hopeful that, as we continue with our strategy and pool of capital expands, that we continue to build those relationships which I think are so important at a starting point

Earnest Sweat 20:38
Absolutely are the verticals that you all focus on for your direct investing? Is it completely aligned with some of the fund investments that you’ve made of people expert at? Or overlap? Some overlap? Yeah,

Jon Wolkin 20:57
some overlap. We invested in majority generalist funds, but if we overlay their history of investing with

Earnest Sweat 21:06
our verticals, which can you talk about? Yeah, yeah.

Jon Wolkin 21:09
If, when we overlay those verticals with the generalist funds, we believe that there is a high percentage overlap, and then we have two dedicated funds, one in FinTech and one in, I would say climate clean tech that has a distinct you know, if you think about the volume of deals and and also our existing networks in terms of finding opportunities, we wanted to have some of that distribution and some of that diversification there specifically. So the areas and verticals that we invest in specifically are across six so I focus primarily on data and AI, the future of work and health tech.

Earnest Sweat 22:49
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Earnest Sweat 23:44
Have you guys thought about like, how you provide strategic value to their direct investments and fund invested investments.

Jon Wolkin 24:22
The starting point for all of this is as a pool of capital that was dedicated to us from the Partnership, which could have been invested in many other areas. The number one thing is we have to drive a good return on capital so we are financially driven 100% if we’re not successful in driving good financial outcomes. I don’t think this stands the test of time. Yeah, and so we make all of our decisions with that criteria in mind, as I even talked about the fund managers who have track records of success. We’re not just investing in a segment because the. There is momentum in it. We want to know that, you know there, there is a pathway to getting the return that we need within the organization. When I think about strategic value within that, we need to have a differentiated value proposition as a corporate venture fund, as a strategy to portfolio companies to take our capital. We don’t want companies just to take our capital because they get the Deloitte brand or because we’re dumb money within a broader context of a funding round. We want a reason to be at the table and win a deal because we can add value. So how do we do that? Number one is access to our network and our capabilities. So as I mentioned, as part of our due diligence process, we bring in people who have domain and subject matter expertise who can one help us a vet the investment, but to start to provide feedback and context to the founding teams, to the management teams of you know where there is opportunity where, from a product roadmap standpoint, there’s there’s insight into where the market is going. And so how can we do that, both on the operational and scaling side of a business, and then also on the other side, from a commercial standpoint, we’re a system integrator. We are a large scale change management consulting shop that adds a lot of value to our clients around technology which we do not own. In some instances, there might be assets that Deloitte owns. For the most part, we partner with technology companies. So building that relationship out too in the long term is something that we think is extremely important for driving value largely. The other angle is, how do we really as a firm, build and leverage our brand and reputation to facilitate knowledge of these emerging companies which, under other circumstances might not get the attention within corporate or public sector clients that are really focused on, you know, you never get fired for, you know, you know, choosing IBM, right? So we want to be able to leverage that.

Earnest Sweat 28:13
I’ve been pleasantly surprised with, you know, just the chaos in the market until, until, until yesterday, we’ll see. But the way the pace of capital like deployed over the last couple of years would clearly have been kind of tough markets. How it’s been sustained a lot by the corporations like corporations have still been active when, typically, there’s any type of downturn or potential downturn, those teams start to get cut. Those regimes are like, Why are we focused on that? One, why do you think that’s happening? And two, do you think it will continue after you know more uncertainty that we’re having right now? Yeah,

Jon Wolkin 29:31
I’d start with some of these funds that have been around for decades now. So there’s a deeper institutional awareness of this being a key element of corporate venture or innovation that probably wasn’t there 10 to 15 years ago. And so there is a lot more support internally for supporting these over the long term. And on top of that, we’re potentially navigating through a massive technological shift. Yeah, that you know. Maybe we’ve only seen three or four times in recent history, and so people want to be at the table and participate because of the unknown and because of the initial signals that they’re seeing around how this technology can be fundamentally changing their business, and want to participate in it. So a lot of the investment that you’re seeing from the CORBA corporates, I think there’s a huge pocket that’s oriented towards the hyper scalers who are participating in these massive rounds right in the market that you know, are taking up a lot of the capital out there. And so I don’t have the exact numbers on, you know, there’s those corporate funds and those corporate investments relative to everyone else, but I’d be interested in seeing that breakdown, because I do think that a lot of the noise is being created by those huge transactions that are taking place at the same time. We ran our own data here in Canada, because we wanted to know how our corporations are presenting themselves in the market. And so number one for us is we actually have had the number of corporate investors expand over the last few years, which is a great thing, and sustain themselves. But 6% of our public companies have any type of CDC participation, and 40% of US companies earning 1 billion or above have some participation. So we have a long way to go here.

What are still some of the misconceptions that people have of corporate venture groups, both the founders and other investors, I think

Jon Wolkin 33:03
there’s still a lot. So, you know, you can have a broad brush and say one size fits all for cvcs. And the reality is, that’s not true. And so we did this report that I mentioned in the US, there was a historical SVP report that went into the details of the different models and approaches that CDC takes. But you can hear the range of you know, they don’t care about financial returns. They move too slowly. They only invest to acquire if they invest, there’s a signal that could restrict your outcomes. And so there’s all of these broad brush things that there’s nuance to all these. So in individual cases, I think you will find truth in every single one of those things. But I think as you navigate the participants as CDC, you’ll see that on all of those things, they probably have differentiation, and it’s about building relationships with them and understanding what their mandate is as a starting point and building from there. So there are firms who have more strategic orientation that might be investing only to acquire or that would want strategic rights that could restrict your outcome, but there’s just as many or more that actually have models where there are more minority participating investors, and looking to see how they can drive partnership and how they can drive alliances to help scale value within their organizations and their portfolio companies. On the speed side, you know, we worked at Deloitte. It’s a very conservative organization, except we’ve built the governance and delegation of authority within our investment model so that we can be effective in the ecosystem which deals extremely quickly. So I ‘ve built that intentionally because. We know we have to move quickly, and our portfolio companies have been astonished with our ability to move quickly. And so I think the core part of it, if you’re a founder or if you’re an investor, is to get into the details of what’s the North Star, what is the outcome that they’re oriented towards, and that will help explain it. The other part is, who’s running the fund? Is it a corporate development lead? Is it an established investor?

Earnest Sweat 37:36
hat advice would you give to emerging managers when interacting with corporations?

Jon Wolkin 38:08
I think it starts with what you said, which is finding the stakeholder and understanding their incentives. Yeah, it would be number one. And so if you’re looking at them as a co-investor or as an investor in your fund, understanding the stakeholder and their incentives and who they’re reporting to within the organization, and who has the advocacy within that organization is going to be important. If you’re raising capital, and you’re looking for a sustainable source of capital for fund one, fund two, fund three, you’re going to want to know that that’s part of the strategy. Is multi state, multi generational, or funds investing, and if there’s alignment and orientation to engage even after investing, they might place capital in your fund, and you might hope that they’re going to add some element of strategic value to your portfolio, but have they done it before? Or are they more hands off, or are they just looking for, you know, some visibility into the underlying performance of emerging companies in a dedicated category on a co-investment level. I think corporations can be great partners within a broader syndicate. And I’m obviously a bit biased here, but in my opinion, every fund, every investor, brings a different value proposition. And so corporates have this unique ability to scale organizations extremely quickly given their size and breadth, especially as a commercial partner, as a customer, and so those things are very different than some of the other value propositions that you can get from other managers who have very deep networks from a talent standpoint, or have a lot of visibility from historical investments and pattern matching that they. Provide you in decision making and scaling a product and technology. So I think having corporates at the table as a source of capital is extremely important to have an open mind to and give context to because of those things,

Earnest Sweat 40:17
Is there any learning that you’ve had since, you know, joining Deloitte ventures that’s shaped, reshaped or confirmed, something that has, you know, shaped your perspective for the future of like investing, or your perspective of investing? I’d

Jon Wolkin 40:40
Say number one is, if you can find the right advocacy, right person who is going to support and cheer for you, whatever their incentives are, that you can drive significant value and change in a business. And so when we introduce people to partners within our organization, and it’s actually extremely different than some of the experiences I had at my prior CDC, they they are willing to stand behind and get 100% behind companies that they think are really going to change the framework of their clients, and there’s that and so, and part of that is they believe they can potentially build a practice against it too, which is fantastic. And so you have this natural co value creation that can come from it. And so I didn’t necessarily believe that could happen before joining Deloitte, from some of my prior experiences, and I’ve seen it happen here, which is fantastic. I also think that from a Canadian ecosystem standpoint, and the resiliency of our venture ecosystem, I think is going to continue to shine through, especially in this moment that we referenced earlier. And there’s a lot of initiatives that we’re seeing happen from a groundswell, and this is just from the community, driving activation to continue to build on what we believe is leadership in specific sectors like AI, yeah, that we should play a dominant or outsized role in from a global standpoint.