Lessons from Corporate Innovators

Song Ma — Assistant Professor of Finance at the Yale School of Management

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Episode 27: Song Ma — Assistant Professor of Finance at the Yale School of Management

We are continuing our conversation for another week on Corporate Venture Capital (CVC). This time returning to academia and having a conversation with Professor Song Ma from Yale. He has written three papers that influenced my thinking significantly. We talk about each in this week’s episode.

You can follow the links to all three from Professor Ma’s Faculty page and also encourage you to follow him on Twitter.

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Full Transcript

Sean Ammirati (00:08):
Welcome to Agile Giants: Lessons from Corporate Innovators. I’m Sean Ammirati, your host, Co-founder and Director of The Carnegie Mellon Corporate Startup Lab and Partner at the early stage venture capital fund, Birchmere Ventures.

Sean Ammirati (00:22):
Each week I’m going to talk to guests who are experts at creating startups inside large corporations. I believe fundamentally a startup within a company is the same as one inside the proverbial garage. A group of entrepreneurs trying to make the world a better place using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore those similarities and differences.

Sean Ammirati (00:49):
Well we’re continuing to pull on this thread in Agile Giants of corporate venture capital, the feedback from so many of you has been positive and I just think this is a really important topic. A couple weeks ago we started with Professor Lerner from the Harvard Business School and then after Josh we had Matt Carbonara, a serial corporate venture capitalist, if you will. Currently at Citi Ventures but he’s done three different CVC experiences. Today we’re going to move back to academia with a conversation I have with Professor Song Ma from the Yale School of Management.

Sean Ammirati (01:28):
There’s really three papers that Song’s written which have really influenced my thinking and so I wanted to bring him on to Agile Giants and have a conversation about all three of them. We do that in today’s conversation and I think he does a nice job setting them up, so I won’t do that here in the intro but I will just mention we will include a link in the show notes to Song’s faculty page, which has a link to all of these papers as well as his email that he offers at the end as one of the best ways to stay in touch with him. We’ll also include his Twitter handle where he has a number of these conversations on the Twitter platform.

Sean Ammirati (02:03):
Just really hope you’re continuing to enjoy this CVC thread. Let me know your feedback on it, but we’re going to continue to pull on this for a little bit longer as the reaction has been positive. We will be getting back to some of the other topics around corporate innovation as well in the coming weeks. Thanks so much and here’s Song.

Sean Ammirati (02:29):
Song, really appreciate you taking the time to join us today on Agile Giants. I know it’s crazy times for all of us with COVID-19 and moving our teaching online. I appreciate you making the time for this today.

Song Ma (02:41):
Thank you very much for having me. It’s a great pleasure.

Sean Ammirati (02:44):
Cool. I want to start by just setting the stage a little bit for our audience who may not be familiar with your work. There’s a number of papers we’re going to talk about today that you’ve written that I’ve read that have really influenced my thinking. I want to talk about those. But maybe stepping up a level just for the audience who may not be familiar with your work, you’re a professor at the Yale School of Management and you’ve written a ton of papers we’ll talk about but I thought maybe a good question to start as a context setting was, how do you think about the big ideas or concepts that guide the work you do?

Song Ma (03:15):
Yeah. As you just said I’m a professor at Yale School of Management. I do a lot of work in innovation, especially corporate innovation and startups, venture capital and topics like that. I think one of the guiding themes in my work is to understand the frictions in the process of innovation and how can we overcome them? One of the things that I have been working awhile on, which actually we will talk about today, is about the interactions of big corporations and small businesses because we know that there are a lot of successful innovation that come out of the big corporations.

Song Ma (03:52):
We can name a lot of the very innovative big firms like big pharmaceutical companies, automobile companies and so on and so forth. And we also know there are a lot of crazy amazing innovation that came out of the startup companies and how do they interact with each other in the market? How can one innovation that comes from one side diffuse to another and actually generate more profit and welfare for the society? What are the potential challenges and the potential solutions that we might have? This is where we actually put a lot of thinking into and I’m excited to talk about some of the work out of this research agenda with you today.

Sean Ammirati (04:34):
That’s perfect. Yeah, and I think just to put that maybe in Agile Giants language for everybody, we talk a lot here about how entrepreneurs make the world a better place, right? And realize economic value by doing that and so this process I think of exploring, uncovering and then providing these best practices to remove friction from that process, both on the corporate and the startup side, is really important work so I appreciate what you’re doing there.

Sean Ammirati (05:00):
I’d like to start with one of your papers which gets into the Life Cycle of Corporate Venture Capital. We’ve had a number of CVCs on this podcast. We’ve also had Professor Lerner from the Harvard Business School on. Maybe start by just framing out the work you’ve done around CVC and then we can talk a little bit about how that might pertain to different companies’ CVC strategies.

Song Ma (05:25):
Oh, sounds good. So, I mean, this paper is called The Life Cycle of Corporate Venture Capital and what I try to tackle in this paper is basically, try to understand why some firms use Corporate Venture Capital as an innovation strategy and how they set it up and try to use them efficiently and what do they do after they actually achieve the goal that they set up when they started their CVC business?

Song Ma (05:52):
Then the finding that this paper tried to convey is that CVC is a way for firms who are lagging behind in their innovation game to pick up their innovation and try to get data better innovation out of the new world. And there are three main data findings from this paper. First one is that, if you look at when firms started their CVC business, it’s typically during the time when they are struggling internally.

Song Ma (06:24):
I mean you basically see that if the firm’s internal innovation, both in terms of quantity and quality, if they start to decrease a little bit, they are losing their competitive advantage compared to their market competitors. That’s the time they realize they need to go outside and they try to make some connections to some interesting and exciting new businesses like in the startup domain. And that’s the first main data finding.

Song Ma (06:51):
And the second main data finding is I look into how the CVCs pick their startup companies. But the way that I do it is, I collected all those CVCs investment portfolios and try to see if I can basically see any pattern out of their portfolio formation strategy. And what we can see from the data is that CVCs typically pick companies that are working in their core business but are actually creating a lot of new things out of their core business. For example, you can totally imagine automobile companies who are struggling in their green cars or electric cars, they’re going to go outside and make investment in several good battery companies that are really making progress in the domain of helping them to build this kind of cars.

Sean Ammirati (07:42):
For sure. Or now autonomous vehicle investments…

Song Ma (07:47):
Exactly. And then you can see that they are making those kinds of investment in a very strategically sophisticated way to help them know their weak spot and try to strengthen them. And then the third finding, which is actually come as a surprise to me, is that a lot of CVCs do not stay in the game forever. A lot of them actually know their exit strategy. And the signal that they try to use to guide their CVC termination decision is that they realize their internal innovation already picked up.

Song Ma (08:21):
If their internal innovation pickup, you will see that this slow down a little bit in their CVC investment because they realize they already get a lot of nutritions from the startup sector and they’re going to keep supporting the startups that they already made investment in but at the same time they’re slowing down in new investment and try to capitalize all the knowledge that they learned through their startups.

Song Ma (08:47):
So basically to summarize, this paper tries to say that the CVC is making investments during a period that their internal innovation weakens and then they make strategic investment, try to boost up their own internal innovation and after they achieve their goals, they’re going to slow down in CVCs. And what if they go into another weakening period? They’re going to go into the game again to making investment and try to help their internal innovation as well.

Sean Ammirati (09:16):
Yup. And I want to come back to that third finding in a minute here because that surprised me. And I’d like to unpack that with you, but let’s start with the first couple of findings. One and two, if you will.

Song Ma (09:31):

Sean Ammirati (09:31):
So we’re heading into a period of great economic uncertainty here.

Song Ma (09:37):

Sean Ammirati (09:37):
What would you forecast that means in terms of corporate venture activity?

Song Ma (09:42):
So I mean, there are two-sided of this point.

Sean Ammirati (09:45):

Song Ma (09:45):
The first one is that, I think at this moment, even though we see there’s a lot of uncertainty, especially this COVID-19 pandemic. That is creating a lot of uncertainty and people are starting to worry, are we going into another crisis or depression? Or things of that sort. But we still should realize that even though we face those uncertainties, this is one of the most interesting innovation heavy period that we’re seeing. We see a lot of creativity that is coming out of the startup companies coming out of the big corporations. Therefore, there is a separation of the economic uncertainty and the heavy innovation that we’re seeing in the world.

Song Ma (10:34):
Therefore, because we see a lot of good innovation that is created in the startup sector, I see there’s a lot of room for CVCs to keep investing even though there’s a lot of uncertainties. And the other side might argue that, okay, CVC is often considered as the first thing corporations will cut when there’s a downturn basically, oh CVC, this is an icing on the cake. We are not going to invest. They’re not our main business and so on, so forth. I actually think this perception might not hold in the world today because people already realize CVC is becoming a crucial part of the firm’s innovation strategy.

Song Ma (11:19):
I don’t see as if there’s a room for them to make profit from CVC by making investment in good innovation startups. I don’t see that they are going to cut these kind of investments. Though overall, I’m still pretty optimistic about CVC going forward.

Sean Ammirati (11:36):
Interesting. For what it’s worth, that’s what we’re seeing as well. With the CVCs and that the corporates who are beginning to explore setting up CVCs as well, that the interest seems to be remaining. So far it does not feel like it’s a discretionary to be cut. So let’s imagine now, a corporation comes to you and says, okay Song, we’re going to set up a Corporate Venture Capital group inside our firm. What are the things you’d encourage them to pay attention to? And particularly, what are some of the challenges you think they need to think through when they’re going down that path?

Song Ma (12:10):
Oh, that’s a fantastic question. I mean there’s three things that I often talk about. The first thing is to set up your goal very clearly. That is, what is your overall goal when you set up the CVC? I mean, broadly speaking, there are two potential goals. A lot of CVCs mix the two. The first one is, okay, this is a pure financial play.

Song Ma (12:35):
That is we make investment pure for financial returns and then we’re going to act as, what we call independent VC or the partnership type of VCs that we see in the finance world, okay? And then the second type of goal you can have is a pure strategic play. That is, we make investment purely for strategic benefit. It’s could be either, as what I said about my paper, that I’m going to try to help with my internal innovation or I am going to, for example, expand my market access and so on, so forth.

Song Ma (13:10):
I mean it could be a mix of the two, okay? But it’s very important from the case studies that we saw in the past two or three decades that if you need to have a clear plan of what you want to achieve with CVC, in order to actually have a clear strategy when you’re making investment, okay?

Sean Ammirati (13:27):

Song Ma (13:28):
And also having a very clear goal can also help you to actually create a good evaluation system. That is, okay, how can I say I’m making smart CVC investment? Only if you know your goal, can you actually make the adjustment. Because if it’s a financial play, you’re going to judge based on financial return. If it’s just going to be a strategic game, then you’re actually going to try to use how much knowledge you learn and how much new business have you created through this process?

Song Ma (13:57):
Therefore, thinking through what you want to achieve with CVC is seemingly obvious but it’s actually a pretty difficult task. That’s the first thing that I always encourage firms to think about. And then the second thing that I always try to encourage firms to think about when they set up their CVC is to understand how CVCs interact with the firm itself. So I mean, this is related to-

Sean Ammirati (14:23):
And you mean, just to be clear because people may think… You mean interact with the rest of the corporation not across?

Song Ma (14:30):

Sean Ammirati (14:30):
Yeah. Because… Okay, perfect. Because sometimes people use firm to mean the CVC from itself. But you’re saying, how does the CVC group interact with the rest of-

Song Ma (14:40):
With the parents current, right? Basically, any other divisions in the parent corporation.

Sean Ammirati (14:45):
Perfect. Yeah.

Song Ma (14:46):
And there are several layers of questions that you need to think about. Actually, the first thing you already mentioned in the question, which is well, how should I legally or organizationally set up this whole unit? How much self-independence should this CVC unit have? But there are other the things that you need to think about as well. For example, how much employee involvement should we have when we evaluated a deal? Sometimes CVCs heavily rely on their business development. People heavily rely on their R and D employees in order to evaluate the deal and sometimes they don’t, okay? And at the same time, for example, if you set up the CVC as a strategic play saying like, okay, we’re going to use this to learn certain things about to the new innovation in the startup.

Song Ma (15:39):
Then you need to channel those back to the R and D divisions and the company and then work with them to really create some benefits through internal R and D. So this whole relationship through every single step of CVC operation. For example, through the financing, how can we collect money? And how can we do financial budgeting and planning for our investment? And how can I do the due evaluation, the due diligence? How much do they involve other divisions in the company and how can I benefit from this process and so on?

Song Ma (16:11):
So those kinds of things you really need to think about when you set up your CVC because this will create potential frictions during your operations. So this is the second thing that I always encouraged people to think about. And then the third thing is about compensation and incentives. Basically, employees in the CVC divisions, they are in the middle of a corporate employee and a venture capitalist, okay?

Song Ma (16:41):
Those are two very different types of jobs, right? And then they are typically compensated in very different ways as well because major capitalists, they have their management fee, they have their carries and so on.

Sean Ammirati (16:54):

Song Ma (16:55):
And this is a huge risk associated with but huge… Have big returns as well. But for corporate employees, you don’t typically see that kind of compensation package, right? So I acknowledge that compensating for those creative and high risk type of business is a very difficult problem, in general but in CVC is even more. Because you’re compensating this part of the corporate employee potentially in a very different way. And that could create a lot of internal organizational problems and HR problems. We would try to set this thing up. And especially the success of CVC heavily, I think, just the support from other divisions and how can we separate them? And so on.

Song Ma (17:45):
This is another thing that people underestimate the importance of. I mean, this is the third thing that I always encourage firms to think through when they do this kind of business.

Sean Ammirati (17:57):
Yeah. I think incentives and corporate innovation are a fascinating topic across the board.

Song Ma (18:02):

Sean Ammirati (18:03):
Do you have a recommended incentive structure? I certainly understand the tension you’re setting up, right? I mean, my day job is I’m a venture capitalist. I’m very familiar and a big fan of carried interest. How do you recommend corporates approach the resolution to this tension you’re setting up?

Song Ma (18:22):
So I mean, unfortunately, actually I don’t have an answer but I do have a few things that I thought are interesting too to think about, okay?

Sean Ammirati (18:33):
Okay, cool.

Song Ma (18:34):
The first one is after you understand your goal, it’s easier for you actually to know what’s the best thing for you. For example, if this is a pure financial play, I think, it’s easier to actually set up a more market type of compensation like the pure independent VCs. You can have your carriers and so on so forth because your connection with the corporation through the strategic threat is actually going to be lower, okay?

Song Ma (19:03):
And then if you are actually doing more strategic, I think it’s very hard for you to actually do this kind of market type of compensation strategy because the success of CVC heavily links to the support from your R and D division, your business development division and you are going to use a lot of your human capitals and so also for it. Therefore, in that kind of arrangement, you perhaps want to set up the formal involvement of those divisions into the CVC and the compensated major capitalists in a way that is closer as an R and D employee rather than a venture capitalist. Basically based on your goal, I think it’s the first thing that I always think about.

Song Ma (19:47):
The second thing I always think about is who are you hiring? Basically, where are you hiring from? If you’re hiring from outside, for example, I’m going to hire from Sean’s company or I’m going to hire Sean about to do my CVC and then I know your previous compensation package is one type. And it’s better actually for me to actually follow that rather than changes dramatically because you are compensating through the market compensation.

Song Ma (20:22):
But if you are actually just using internal employees, the benchmark is going to be totally different. So I think, who are you hiring? And where you’re hiring from, is another thing that can help you to set up the benchmark to do your incentive. And the third thing, when I say compensation structure is always about measurement. Basically, what’s your performance matrix that you’re going to use? But that’s going to be very different for different firms as well.

Sean Ammirati (20:51):
Sure. One last question on this first paper then we’ll move to the other two.

Song Ma (20:56):

Sean Ammirati (20:56):
I was very surprised by that third finding you mentioned. The deep spin up, spin down finding if you will.

Song Ma (21:06):

Sean Ammirati (21:07):
Because when I think about best in class corporate venture firms, they seem to have a pretty decent 10 years. I guess I’m curious how you reconcile… Would you agree with that? Maybe, first of all and then second of all, how do you reconcile that, how most people approach it and then how best in class approach it?

Song Ma (21:29):
Yes, that’s a perfect question. So that’s a finding that surprised me as well. And because if you think about CVCs, they really do not have the 10 year, 12 year or 14 year firm cycle that we typically see in the traditional VC world. Because they are corporation, it’s not a partnership. They can’t stay for as long as they want, right?

Song Ma (21:55):
So this finding, when they pops to me, it surprised me. And then when I look at it, I see there are Intel Capital and G-Venture of the world. Basically, they are going to stay here for a long time. And particularly the pharmaceutic company as well. A lot of the pharmaceutical VCs, they have been here for 15 years, 20 years already. But I think the finding is more for a general corporation that we think about, this is not the superstars like Intel and Google. It’s more like a medium-sized or a traditional medium-sized business that are doing CVC.

Song Ma (22:34):
And you can see they are not going to have the capacity of running a CVC office after they realize that their internal innovation already recovered a lot. And another caveat I want to put in there is that this finding heavily relies on a lot of the old data. Old data in the sense like pre 2010. And if we think about the current situation and I would expect that this pattern perhaps will be less pronounced because I think right now the CVCs perhaps are staying for longer period of time. Yes. There’s some caveat to that finding.

Sean Ammirati (23:16):
Yeah. I’d really encourage firms trying to do this to try to model themselves more after the Intel capitals of the world, right? Because that strategy has worked out so well for them. But it was interesting to see… The data is the data, right? There’s lots of ways to interpret it but the data is the data and your data that was very interesting. Let’s transition to the next paper. I could talk to you all day but I want to be respectful of your time too. So the second paper I to talk to you about was on Killer Acquisitions. Right?

Sean Ammirati (23:49):
And so maybe again, similar to the first one, set up that research for people who may not be familiar with it and then we’ll talk a little bit about it.

Song Ma (23:56):
I see. Perfect. I mean, let me actually try to motivate the second paper by summarizing how I read the big picture from the first one. So if we think about the big incumbents and small startup interactions that I described in the CVC paper, you see that there’s a complementarity between the two. That is, the big companies are using the small companies to try to boost their internal innovation. And another finding that I didn’t get time to talk about in that paper is that small companies are benefiting from interacting with big corporations as well because their innovation diffuse faster, gets scaled up faster and big companies give them certification, in fact, to help them grow faster and so on.

Song Ma (24:45):
So all those is a very happy story, right? All those is a very happy story. But the killer acquisition come from a different angle, that is, actually in a lot of startups mind when they are accepting big companies’ investment. That is well, will this big boys hurt me, right? I mean, they could hurt me in many different ways. They could hurt me by stealing my idea. They could hurt me by competing aggressively with me out in the market.

Song Ma (25:13):
Or they could hurt me in the exit stage of this work. So this is in every startup’s mind. Right? And I come into this question with two coauthors, Colleen Cunningham from London Business School and Florian Ederer from Yale which is my colleague and good friend. And what we try to see is, well, are there situations where big corporations aren’t competing with the small startups in a way that will hurt long-term innovation and long-term success of the society?

Song Ma (25:48):
And interestingly and sadly we find the answer is yes. And the channel that we find that this happens is this Killer Acquisition, which is the title of the paper. And then the whole idea is that we find there are situations that incumbents come in and acquire startups with the goal of just shutting down and shelf the innovation that is created by the startup. The reason that they come to do this is because this startups’ new business and new innovation could hurt the profit of the incumbents, therefore is actually better for them to come in and they’re just to buy you out and shut you down and they can protect their profits. That’s the main idea of Killer Acquisitions.

Sean Ammirati (26:36):
This is something that I think we’ve observed a lot in the tech community, right? So I think most startup founders, VCs and M&A groups are nodding their head. They understand the concept of what you’re setting up here.

Song Ma (26:52):

Sean Ammirati (26:52):
What I’d be curious about is the… Okay, what would you recommend then to both sides of that? So what’s the takeaway? What’s the behavior? What’s the strategic implications for the entrepreneurs and the people supporting those entrepreneurs, their investors, et cetera and then similarly for the corporate M&A groups?

Song Ma (27:12):
So I think actually there are those two sides that I will talk one by one. There’s also actually a third party here which is actually the regulators because the regulators actually should play a role here as well. In our paper, what we find is that because the big incumbents have a lot of profits to protect and then therefore they have the incentive to do this, actually they pay good price to the startups.

Song Ma (27:41):
The reason is actually I’m going to actually hurt the consumers, right? Because I am protecting my profit through lowering the competition and keeping my price high. Therefore, I’m paying good price to the startups in order to do this kill type of killer acquisitions and therefore financially the startup companies are not really getting hurt by this but for very ambitious startup founders, which we actually have a lot in the current startup world. They want to go and change the world.

Song Ma (28:15):
They want to use their innovation to create welfare, to make the world a better place, to enhance the society and so on, so forth. For those kinds of startups, they actually need to pay some good attention, even though you might not be hurt financially because you’re actually getting a good purchase price but you need to factor in the cost. The emotionally, that’s the innovation and the baby that you actually are trying to raise up. It’s going to be acquired and shelf and never see the light of the world again.

Sean Ammirati (28:45):
Got you.

Song Ma (28:46):
And therefore, I think for startup companies, the way you receive a acquisition deal, just make sure that you understand this consequences, not only financially, but for the future of this whole business itself. So that’s my suggestion to the startup companies.

Sean Ammirati (29:05):
100%. I was talking to one of our CEOs last night who has an acquisition offer on the table and most of the conversation was not about the terms which were decent, not amazing but decent. But it was really about, do you really want to have a boss again? Have you thought about what it mean? What if he has a different opinion or that the board has a different opinion the where you want to go? How are you going to manage that? I think it’s a great point. The popular tech example of this, right? Is the Instagram co-founders no longer being at Facebook, for example.

Song Ma (29:39):
Yeah. And actually you can a lot of very good potential innovations. Potentially very influential innovations never saw the customers just because there’s all those concerns from the big companies. And then I actually I know founders who got pretty depressed because of that, because we were thinking like, okay, this big companies will help them to scale up and so on but then never happened. And then they couldn’t even actually buy back those technologies as well. So it’s actually a pretty depressing thing, especially for those ambitious and Goodwill founders.

Sean Ammirati (30:16):
That’s right.

Song Ma (30:17):
So this is the lesson that I have for the founders and for the big corporations, okay? And I think they’re doing strategically well-planned things to protect their strategy. But I think I would encourage them to take a long-term view for innovation, right?

Sean Ammirati (30:36):

Song Ma (30:37):

Sean Ammirati (30:37):

Song Ma (30:39):
So I mean, it might protect you. I mean, in our paper we see, yes, it protects you but you never know what would happen five years from now, 10 years from now. Therefore, I mean, to actually take a long-term view to think about how using different types of innovation that could be actually seemingly competitive to you at this moment. Just have an open mind to them and try to see if that will help you in the long run. I think it’s a good attitude to have. I mean, you might still not change your strategy but I think that at least can help you to think about this.

Sean Ammirati (31:21):
Yeah. I think that’s exactly right. I’m not sure if you’ve read the memoir of the recent Disney CEO, but he talks about the acquisitions of Pixar and Marvel and Lucas Films. Right? And it’s just fascinating to look at how they manage that to make it a creative to those companies in the long-term. Not-

Song Ma (31:45):

Sean Ammirati (31:46):
And I think, I think what you’re talking about is exactly right because that does take a different time horizon providing that autonomy, letting them continue to innovate on their own, that kind of thing. And then you said you also have lessons for the regulators, which I-

Song Ma (31:59):
Yeah, I mean this is not a lesson but it’s more of actually, something the regulars really need to think through. That is, right now we have so many young startups and those young startups, they are very creative. They could be disruptive to the market in the long-term but the acquisition of them happen so early that actually can fly under the radar of the FTC reviews and so on and so forth.

Song Ma (32:27):
Therefore, those acquisitions, we don’t even know about them and we don’t review them and we don’t know what we are losing, okay? I mean, I know the FTC has already set up some potential reviews and potential new legislations for this phenomena like the killer acquisition phenomenon. And I think that’s something it’s going to be important for the regulators to think about because our landscape has changed as small startups are creating a lot of interesting things and also the acquisition happened so early. And there are so many big players who are so powerful and all of those things contribute to the need for new regulations to potential come in to review it and so on.

Sean Ammirati (33:12):
Excellent. All right. Again, I want to be respectful of your time. Let’s move onto your third paper though which is the, Firm Age, Investment Opportunities and Job Creation, a paper that you wrote in 2017.

Song Ma (33:25):
Yeah. So this is a paper that I wrote with two coauthors, Manuel Adelino and David Robinson, both from Duke University. This is a more of a big picture paper that we tried to understand the role of entrepreneurship in the world. And we have talked a lot about entrepreneurs that are creating innovation. Therefore, the innovation could help the society, help the world and so on.

Song Ma (33:48):
What we do in this paper is actually to take a different view of entrepreneurship. We argue that innovation is one important part of entrepreneurship but the vision and the organizational advantages of entrepreneurship play another important role that make them very, very important. That is, we see even in less innovative industries, for example, a restaurant, grocery stores and so on, so forth. Entrepreneurial companies are playing a super important role in creating jobs and seizing opportunities.

Song Ma (34:26):
What we do in that paper is that we look at different regions and to see there are demand shocks that are created by people moving in or the income of the local people increase, therefore created a demand shock to better restaurant or grocery stores or just for consumption. And we try to track what kind of companies come in to seize those opportunities, those new business opportunities.

Song Ma (34:52):
And what we find is that it’s purely the entrepreneurs who are coming in. They see this kind of opportunities. They can move quickly, their actions make sense and they create a lot of jobs by responding to this kind of opportunities. And this, in our mind, completes the argument about why entrepreneurship is something that we really need to pay attention to. If they do a lot of innovation as we have been talking about a lot. But they actually also are the ones who can see the opportunity and act on them.

Sean Ammirati (35:25):

Song Ma (35:26):
And I think that’s the big picture takeaway that we have in that specific work.

Sean Ammirati (35:32):
Right. So to maybe say that back to you, I think the argument you’re making is that, based on the way you slice the data up, this job growth and creation is coming from this entrepreneurial activity. Correct?

Song Ma (35:45):
Yes, that’s correct.

Sean Ammirati (35:48):
And I think the thing I was curious your take on as it relates to this and we talked to Professor Lerner a little bit about this as well, but how do you think about what I might describe as corporate innovation or corporate entrepreneurs? What did you see in terms of those activities in terms of job creation and job growth? Or was that not visible through your data?

Song Ma (36:10):
I mean, in this specific paper, we can’t observe job creations from different sources from like organic entrepreneurship or corporate spin-off and so on. But we won’t be able to separate the two. Therefore, there’s not a direct answer to that specific question but based on other people’s work. Actually, Josh, Professor Lerner, has some work on this as well and I myself has some look into this. That is, corporate spin-off is an important part of entrepreneurship, right? Basically, I mean, a lot of innovative ideas or just innovative human capital come out of the corporation. Their innovation lab or their business development division are very important. An important component of entrepreneurship endeavor that we see in the economy right now.

Sean Ammirati (37:06):
Yeah. Being in Pittsburgh, right? We have a pretty vibrant tech community here but one of the things I’ve observed is a lot of our job growth has… Certainly some of that has come from startups but a lot of the job growth has actually come from these corporate innovation groups as well. Uber, Facebook, Google, bright launching these innovation platforms next to Carnegie Mellon.

Song Ma (37:31):

Sean Ammirati (37:31):
And then similar you were talking about autonomous vehicles earlier, right? These pseudo CVC, joint ventures with startups, right? It’s a nice chunk of job growth there too.

Song Ma (37:41):

Sean Ammirati (37:41):
We’re working on trying to dissect the data from a Pittsburgh perspective, maybe as a model but it really does feel like this is an ecosystem and it’s an important part of the overall ecosystem that I think your paper does a nice job framing out in terms of how that entrepreneurial thinking and entrepreneurial activity really is this catalyst for job growth, which I think is really incredibly important for people to keep in mind when they’re thinking about how to grow the economy, especially in times like this where we’re going to need job growth on the back end of this pandemic and the economic consequences of it.

Song Ma (38:19):
Yeah, totally. I mean, actually just to add one more thing to your discussion of the Pittsburgh follow and those big companies creating innovation platform, I think a lot of our audience, perhaps listeners actually are familiar with the word intrapreneurship rather than entrepreneurship, right?

Sean Ammirati (38:36):

Song Ma (38:37):
Basically, it starts from I. N. T. R. A. Basically, it’s the words that says, corporations are trying to create entrepreneurship internally and by through those platforms, through giving their creative employees independence or freedom and giving them, for example, one day to work on the things that you are interested in and so on so forth and creating a platform actually to fund those kinds of intrapreneurship as well. For example, we have internal programs to give you angio financing if you actually have something. I mean those kinds of things is how big corporations can really create a place for their innovation to grow.

Sean Ammirati (39:22):
I’m not a big fan of the term intrapreneur but I am a huge fan of that concept. I try to call it corporate entrepreneurs and my argument is there’s two general approaches to that. There’s the outside in and the inside out. The reason I don’t like the term intratrepreneurs is because I think it, it creates a false delineation between traditional and corporate entrepreneurs that I think is not necessarily productive.

Sean Ammirati (39:48):
But I do think you’re exactly right. This corporate entrepreneurship activity, whether it’s inside out like the 20% time at Google or the Adobe package where anybody can get a product spawn up or the outside in where it’s the automaker partnering with the autonomous vehicle company. To me, that’s just an incredibly important part of this overall economic ecosystem here.

Song Ma (40:15):

Sean Ammirati (40:16):
As we get to wrapping this up. I always like to finish with just a couple of similar questions. So the first is, you’re obviously advising a lot of your students at Yale around career paths, post-graduation, things like that. For those who want to move into Corporate Venture Capital, what advice are you giving your students?

Song Ma (40:37):
Corporate Venture Capital jobs are the ones that actually really encouraged my students to explore because I think it’s very interesting and that actually can also fit a lot of diverse backgrounds as well.

Sean Ammirati (40:51):
That’s right.

Song Ma (40:51):
Basically, I mean, you can come into corporate venture jobs through different career path and what I often encourage people to do is that if you actually want to go into this you can take a big corporate job either in Finance or R and D, Business Development, Product Management and so on so forth but with an open eye to cooperate with the people in the CVC division. I think a lot of CVC still tried to hire internally in the sense that’s tried to promote people from different divisions that can help them to run their VC business. Therefore, just go into the place that you think you can contribute the most to the corporation with an open eye to into the CVC or with that active effort to go into CVC is something that I totally see as a valid path. If the ultimate goal is to be a Corporate Venture Capitalist.

Sean Ammirati (41:44):
That’s great. And then the last question, just to be respectful of your time here, but you know people are really were taken by some of the things you’re talking about and they want to find you online and follow your works. Where’s the best place for them to follow you? And we’ll obviously include these in the show notes.

Song Ma (42:00):
Sure. I always look forward to receiving emails from people who are interested in the topics that I do or actually have either anecdote examples or something that can help me understand my work better. Therefore, email is definitely one of them. And also my Twitter handle is Prof Song Ma P. R. O. F. S. O. N. G. M. A. That’s where I also share a lot of thoughts about the topic I’m excited about, economics, entrepreneurship, innovation, venture capital and so on and also interact with people on that platform.

Sean Ammirati (42:38):
That’s great. We’ll link to your Twitter and then I’ll just link to your faculty page at Yale down, which has your email on that as a way for people to put them too. Okay. Well, Song, thanks so much for the time today. Really appreciate it.

Song Ma (42:50):
I really appreciate the opportunity and thank you very much for your time.

Sean Ammirati (42:59):
I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend and if you think it’s worth five stars, which I hope you do, please go to iTunes and rate it so that others can find this content as well.

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