Blueprinting Corporate Venture Building (October 19th, 2023)

Our Think & Do Tank gathered 25 corporate innovators, venture builders, a leading venture capitalist in Europe, business leaders, and functional heads on October 19th, 2023 to explore the challenges and opportunities inherent in the multifaceted realm of corporate venture building. The primary focus was on organizational structure, culture, financing, innovation funneling, the end game, and many more topics framed against the broader corporate venture building and venture capital landscape. Corporate venture building is still a field that contains operational ambiguities surrounding deal and management structuring, emphasizing the need for knowledge sharing and collaborative forums like this one.

Key Takeaways

1) Navigating Innovation Dilemmas in Corporations

• Open Innovation vs. Internal Incubation: While open innovation has the benefit of accessing external talent and enhancing product or service quality, internal incubation may offer better IP protection and avoid complex legal and economic entanglements at the cost of narrowing the internal ideas funnel.

• Investment Focus: Innovations in adjacent markets can be more feasible than disruptive innovation that is further away from the core business, which can face resistance from existing stakeholders.

• Short-term ROI vs. Long-term Strategic Return: Innovation strategy performs a balancing act between short-term sales volume focus with horizon-3 innovation geared towards longer-term strategic returns. Agile project management and early market engagement with Minimum Viable Products (MVPs) could serve as a bridge between immediate revenue goals and long-term innovative strides.

2) Corporate Venture Building: Experiences from the Journey

• Overcoming Orthodoxies: New corporate ventures can challenge existing corporate orthodoxies when demonstrating business feasibility, desirability, and viability. These ventures push stakeholders to adapt by introducing innovative business models.

• Organizational Ambidexterity: Corporates must somewhat separate their ventures, ensuring autonomy for adequate funding and focus, while also harnessing the corporate ecosystem resources for a distinct competitive edge. Building a corporate-wide culture for venturing can be the linchpin for this balance act.

• Leveraging the Unfair Advantage: Despite inherent challenges, corporate ventures have a distinct advantage over startups due to abundant corporate resources such as market access, sales channels, manufacturing, and intellectual property.

3) Perspectives from the Venture Capitalist

• Combined Internalization and Externalization Strategy: Start by defining the “end game.” Is the intention to IPO or spin-in? Choosing what level to align with the core business or pursue disruptive innovation will determine external venturing. Scaling and portfolio strategies are essential for optimal investment outcomes and risk mitigation.

• Network and Deal Structuring: It is essential to have a well-established network in place for sourcing management teams, structuring deals, and fostering collaborative engagements with other VCs.

4) Venture Building and Sustained Investment

• Successful Leadership Teams: It’s crucial to have a leadership team that comprises individuals who are not heavily rooted in the core organization and who have a decisive perspective with different roles. They should be ready to take extreme positions to help find consensus. A team can consist of two corporate employees with an entrepreneurial mindset, a VC member, a previous founder with software experience, an entrepreneur with scaling experience, and one dealmaker.

• Investment Committee: To create a successful Investment Committee, have a long-term outlook and focus on transparent decision-making processes. Implement anonymous voting mechanisms and invite external members to join the committee. The involvement of external investors brings in a wider range of perspectives and expertise, which helps to align investment objectives with the goals of building successful ventures.

• Financial Success Assessment: Persuade the board to invest consistently, benchmark with VC investment cycles and results, by highlighting the J-Curve phenomenon where a minimum of 4-6 years is typical for creating positive financial outcomes. Clear valuation principles should be established, such as not reinvesting for the first two years and scheduling re-evaluation after extended periods. Utilize tools like the ‘Digital Value Canvas’ to blend qualitative elements with quantitative metrics. Partnering with an external VC investor can reinforce the venture’s potential and credibility.

5) Fostering a Culture of Innovation and Risk-Tolerance

• Reframing Failure: Shift organizational perception of failure from a setback to an invaluable learning experience. Formalize this shift through post-mortems and lessons-learned sessions, encouraging a culture of taking small, calculated risks and celebrating the learnings derived from failures and risks taken.

• Grassroots Changes Through Innovation Units: Establish small, isolated innovation or venture units as “safe spaces” for incubating disruptive ideas shielded from the larger corporate ecosystem. Understand and communicate that transformative change is a gradual process, necessitating a dedicated time commitment and patience.

• Balancing Execution and Innovation: Encourage a harmonious yet challenging decision-making environment, fostering a balance between executing ideas and nurturing an innovation culture. This cultivates a rhythm of innovation that propels the organization forward, aligning with the broader goal of embracing calculated risks and learning from failures.