The ultimate guide to corporate venturing and how you can use it to accelerate innovation and growth.
This practical, easy-to-use guide will give you the insight, perspective, inspiration, and resources you need to take your corporate venturing strategy to the next level.
Table of contents
- Why is corporate venturing necessary?
- What do companies gain?
- Types of corporate venturing
- Choosing the right tool
- Choosing the right entity format
- Corporate venturing as part of your innovation strategy
Corporate venturing: An introduction
The speed at which today’s markets are evolving is at an all-time high and it won’t stop anytime soon. New startups are sprouting up every day, bringing new value to the market, and disrupting the status quo with impressive innovations and novel technologies.
A new generation of customers (i.e. Gen Z) is also gaining spending power, and this year, they’ll make up 40% of the market. These new customers distrust large corporations, value no-hassle online purchases, and don’t really respond to traditional advertising.
Corporations, in turn, are looking beyond their trusted walls for new ways to keep up with the challenging pace, solidify their positions as market leaders, and future-proof their businesses. Corporate Venturing is just one of the many ways you can achieve these goals.
What is Corporate Venturing?
As a definition, corporate venturing is a common innovation and growth strategy in which larger, more established companies enter into a joint venture with small, innovative players in the market. Backing for corporate startups can be accomplished through several tools including incubators, accelerators, or the development of external or internal innovation units (i.e. intrapreneurship).
Why is corporate venturing necessary?
A changing corporate landscape
Recent years have been marked by the fall of some of the most prominent industry giants like Toys ‘R’ Us, Blockbuster, and Thomas Cook.
Shrinking company lifespans are generally attributed to a combination of complex factors like rapid shifts in technology, market saturation, changing customer demands, sudden economic shifts, and more recently, the corona pandemic.
Yet another theory is that in today’s fast-moving, technology-driven ecosystem, corporations have become too large to keep up; slowed by bureaucracy and long chains of command, they end up missing opportunities to adapt:
- Using the same outdated business models to tackle new and changing markets.
- Taking too long to respond to disruptive competitors in low-profit segments.
- Failing to foresee and invest in new growth areas.
And amidst all the chaos, are the startups with their lean and agile operations, getting things done with the latest and most innovative strategies and technologies.
The rise of the startups
It’s true, startups have some neat advantages over their more traditional corporate counterparts.
No bureaucracy, no long chains of command. Just agility, resourcefulness, focus, cutting edge technology, and a clear grip on the needs of the client. And their small size makes it easier for them to pivot in response to sudden changes in the market.
The startup formula clearly works, as evidenced by some of the more popular cautionary tales — e.g. Airbnb vs traditional hotel chains, Uber vs the taxi and rental car industries, Amazon vs the retail industry, the list goes on and on.
But are things really that cut and dry? Are corporations just supposed to wait around for the next startup unicorn to come in and steal their market share from under them?
The answer is a definite and resolute no! Corporate venturing can help you leverage your assets, reach new markets, discover new technologies, and adapt your core strategy to better meet today’s market challenges.
What can corporations gain from corporate venturing?
Corporate venturing is the key to speeding up innovation and financial growth in a rapidly changing market driven by disruptive startups. It is a collaboration where the corporate gains a competitive advantage through innovation and the startup gets the resources it needs to move forward. In its most basic form, it can be a simple financial investment, where the corporation takes a stake in a startup in order to gain access to new technologies and innovative business models.
Think of your corporation as a big oil tanker, advancing slowly with many moving parts. In this analogy, corporate ventures act like speed boats, scouting ahead in search of new opportunities and resources to bring back to the tanker. These speed boats come with a lot of benefits, and we’ve listed the top four below:
Many large corporates are too slow to react and innovate. It can be challenging to move quickly with traditional corporate schemas and a strong bureaucratic structure in place. The time and effort it takes can be colossal with no reward in sight.
On the other hand, as a corporate venture, your agile team can explore new opportunities with more freedom. Because they’re independent, they can stay lean, act quickly, and explore new options ahead. Best of all, lost speedboats represent a relatively small loss, and are easier to move forward from.
2. New core business opportunities
The opportunity to operate freely also enables corporations to explore options outside their core business. Many fresh ideas in corporations are written off as “irrelevant because it’s not our core business”. The problem is that it leaves these companies clinging to outdated activities that could soon be taken over by disruptive startups.
3. A broader market window
When scouting out for the future and discovering new options, companies are forced to gradually learn about new and emerging markets. A wider market window is simply more ground to cover, requiring your employees to broaden their vision and gain new insights that can also be applied to your current market. Although this sounds like a challenge, it actually nurtures a curious mindset that allows your team to see the bigger picture. Having a broader window will also help your business better serve the needs of your customer of tomorrow.
4. Low risk and high rewards
All of the above basically brings us back to the “risk/reward” paradox, the main benefit here being a substantial reduction of risk (because you’re no longer steering your oil tanker into unknown territory). Launching new ideas to the market suddenly goes fast, becomes cheap, and leaves room to adjust and pivot easily if needed. While the reward, a higher chance of executing an idea that strengthens your business, remains.
What types of corporate venturing are there?
There are 16 different types of ventures that a corporate entity can use, some that will increase innovation culture and others that can strengthen relationships with startups. We’ve also provided examples for the six that are most useful to corporates. For more information about the corporate venturing landscape, check out our SlideShare on the topic.
1. Corporate Venture Capital (CVC)
Many corporations use direct equity investments to target startups of strategic interest. For example, in 2015, Spotify raised $115M from Sweden’s largest phone carrier, TeliaSonera, in exchange for a 1.4% stake in the company.
The partnership ignited a joint innovation agenda in areas like media distribution, customer insights, data analytics, and advertising.
2. Mergers & Acquisitions (M&A)
Established firms purchase startups or young companies and their commercial-ready products in order to access new technologies or markets.
In 2014, Facebook acquired WhatsApp for $19B. Why? The answer is probably user growth. Over 500 million people used WhatsApp monthly at the time and added more than 1 million users per day.
3. Corporate Accelerators
Corporate accelerators offer highly structured programs that typically last no more than three months. These programs provide startups that do not yet have proven products or services with the facilities, resources, and expertise needed to speed up their product development and time to market.
In 2015, Rainbird was the only British company selected for the MasterCard Start Path 6-month program. MasterCard ended up partnering with Rainbird to implement their artificial intelligence technology.
3b. Corporate Accelerator Partnerships
Corporate Accelerator Partnerships offer the same advantages as regular corporate accelerator programs, except they’re run in partnership with third parties that have the blueprints for the program.
In 2016, Jaunt VR was presented at the Disney Accelerator program demo day, which was powered by Techstars.
4. Corporate Incubators
Corporate Incubator Programs include mentoring and value-added services to support entrepreneurs in building viable, market-ready ideas. A corporate incubator starts even before the idea is created.
A great example is the Coca-Cola Founders platform, which empowers startups from scratch to scale-up, like Home eat Home. The startup’s success is a win for Coca-Cola as an investor, because it gives them access to new markets, and lets them leverage their assets in new ways.
4b. In-House Incubators
In-house incubators function as startups within a corporate setting. Teams of in-house innovators, or intrapreneurs, convene for short projects, during which they rapidly prototype new products or services with the aim of market testing a minimum viable product (MVP). In-house incubators do not involve the R&D department.
Google’s in-house incubator Area 120 was set up to build new companies based on the vision of intrapreneurs. As described by CEO Sundar Pichai:
“Area 120 is a new approach, part incubator, part new take on the spirit of the 20% time program.”
5. Venture Development Studios
A venture development studio, startup studio, company builder, or venture builder, is a structure that creates startups based on shared resources and a multidisciplinary team. It provides what is known as “Startup as a Service”.
In 2016, Bundl helped launch the Didid app with BNP Paribas Fortis. Bundl is an excellent example of how a venture development studio works, teaming up with corporates to create new ventures and discover new markets.
6. Strategic partnerships
Alliances between established corporations and startups can take many forms — including the co-development of products and services.
For example, in 2015, Adidas partnered with Spotify to launch Adidas go. The app works with a runner’s iPhone to match their favorite music to their workout.
A Hackathon is a focused workshop where software developers come together to collaboratively find technological solutions to a corporate innovation challenge.
Acqui-hiring is the process of acquiring a company to recruit its employees, without necessarily showing an interest in its products, services , or continued operation.
9. Sharing Resources
A means to grant startups access to resources while the established corporations get closer to the entrepreneurial ecosystem.
Startup excubators enable development studios to use their own external team to carry out venture projects on behalf of a third party, individual, or company.
11. Entrepreneur-In-Residence (EIR)
An Entrepreneur-In-Residence is an informal and usually temporary position at the corporate venture capital arm of the company. The role of an EIR includes introducing organizations to new business models, technologies, and strategic partnership opportunities. Their main goal is to build bridges into the startup community.
12. Challenge Prize
An open competition that focuses on a specific issue, offering an incentive to field innovators who develop the best solution.
13. Scouting Mission
The established company appoints an individual within a given industry to scope out innovation opportunities in alignment with the corporate strategy.
14. Employee Jurors/Mentoring
The role of these team members is mainly to participate in startup competitions and spot emerging technologies or business models early.
15. Corporate University Partnerships
These partnerships consist of a collaboration between corporate R&D departments and university researchers to find promising ideas for further development and investigation.
Licensing enables corporations to apply innovations developed by startups to new markets, industry sectors, and customer segments.
How to choose the right corporate venturing tool.
Now that you know more about your corporate venturing options, it’s time to find out which one works best for your organization.
As a first step, it’s important to identify your corporation’s higher-level objectives (i.e. the goals you want to reach). To help you do that, we’ve created this handy Corporate Objectives chart:
Once you’ve done that, you can use the guide below to find out which tools would be most effective in helping you reach your specific objectives.
Those seeking an “ecosystem” objective need a tool that will be most effective for creating a platform for startup engagement. We recommend tools that fall under the labels of accelerators, events, and sharing resources.
Is your team or corporate structure lacking a startup mindset? To boost the entrepreneurial spirit within the office, corporates should choose tools that will help rejuvenate corporate culture.
If you have a “culture” objective we recommend tools that fall under the labels of incubators and sharing resources.
If your main objective is to reach current or nearby markets with modest or necessary change, go for the tools best suited for incremental innovation.
We recommend tools that fall under the labels of strategic partnerships, accelerators, incubators, and venture development studios.
Ready to get radical? If your goal is to venture outside your comfort zone, we recommend a tool aimed at seeking out new sectors or target groups.
Tools that fall under the label of corporate venture capital investment, mergers & acquisitions, and venture development studios are all great choices.
How to choose the right entity format for your corporate venture.
There are a variety of ways businesses can structure a corporate venture, spin-off, spin-in, carve-out, spin-along, business unit, new product offering under an existing brand, a new brand under an existing corporate structure…the list is endless and there is no black or white answer.
Choosing the right entity is crucial because it will determine the speed and success of your corporate venture. In this article, we’ll focus on the differences between business units and spin-offs, since they’re the most common ventures for companies that want to expand past their core activities to accelerate growth.
What is a business unit?
A business unit is a fully-functional unit with its own vision and direction. Typically, strategic business units operate as a separate entity, while remaining an essential part of the existing legal structure of the parent company.
What is a spin-off?
A spin-off refers to the process of creating a new company that operates separately from an existing one (e.g. through the incorporation of a subsidiary or joint-venture).
Spin-offs have their own assets and distinct business operations that are no longer under the control of the parent company.
Make sure to carefully examine the characteristics of each entity, so that you can make an informed decision about which one fits your company best. For more detailed information, check out the full report.
How Corporate Venturing can be a part of your bigger innovation strategy.
Like everything in life, Corporate Venturing has its advantages and disadvantages, and it should never be seen as the one and only solution to generate new growth.
Strategies like M&A, accelerators, incubators, and partnerships are essential, and innovation can’t be confined to one small group of people within the company. A decentralized approach is key to creating a healthy innovation culture within organizations.
Although most innovation leaders we’ve spoken to agree that corporate venturing has become a bit of a buzzword, they also share the opinion that it’s changing the way companies work in a fundamental way.
Creating a corporate startup might be a slow process. But once a product lands on the market it has really high growth potential, creating a competitive advantage when compared to conventional startups (with no corporate backing).
Corporate venturing also has the added value of bringing transparency into large budget projects, allowing them to prosper or die in a healthier way when compared to traditional R&D.
In recent years, the practice has shifted from a KPI mentality towards a long-term innovation vision. The end goal will always be to generate growth and increase revenue, but enforcing financial targets too early in the startup process forces people to make erratic decisions.
As more corporations adopt the strategy as an innovation tool, it will continue to evolve led by a new generation of business leaders, empowering them to create new, better strategies for their companies, and shape the business landscape of tomorrow.
Check out our full webinar to find out what 4 leading innovation experts think about innovation governance, agile organisations, targets, KPIs, and the very definition of corporate venturing.
We can help you in any phase of the corporate venturing journey from the discovery of new concepts, validating it with real customers, to growing it into a fully fledged business.