Corporate venturing executives say the threats to their units have increased as their programs have grown.
Heidi Mason and Liz Arrington of consultancy Bell Mason Group (BMG) interviewed about 30 corporations that have invested in at least one venturing deal over the five years from 2012 to 2016 and concluded: “Parent company cultural, organisational and operational antibodies tend to become more pronounced as CVC programs grow and scale, and visibility increases both inside and outside the corporation.”
BMG in its CVC insights project summary said challenges included the “high degree of internal time sink for CVC leaders and teams in corporate executive staff and business unit relationship management – between 60% and 75% of new unit leaders’ time – and ongoing CVC education”, difficulty in “recruiting and retaining a quality professional team while maintaining alignment within the parent’s culture” and “making end-to-end portfolio company, parent company and business partnering work effectively”.
These more pronounced risks come on top of traditional concerns that corporate tolerance of CVC program risk and their “exceptional” processes and governance structures start to wear out from the third year, according to BMG. As a result, there was greater insistence on the need to see early wins as indicators of program performance.
But the BMG survey of executives. arranged by maturity of their units – one to two years, three to five years, and six to nine-plus years – found pressure on corporations to set up and run a CVC unit professionally meant both an increase in the number of these venturing programs and better reception and understanding by other “stakeholders in the innovation investment ecosystem”.
Global Corporate Venturing, a data and research partner for the project, identified 1,667 corporations that had invested in at least one startup between 2012 and 2016, with 965 active last year, up from 472 at the start of this five-year period.
BMG said in its summary: “Corporates across industry sectors are finally broadly acknowledging CVC as a mainstream corporate innovation tool. Corporate boards and leadership are feeling intense pressure to respond to new market realities – the speed of changing landscapes, digital and emerging technology ubiquity, increasing competitive urgencies.”
This meant CVC professionalisation had been taken to a “new level” and “focused on end-to-end investing for accelerated and integrated – strategic plus financial – performance delivery,” BMG executives Mason and Arrington said in their summary.
They added: “Program charters and CVC investing platforms – team, structure, processes, partnerships – have been honed to deliver strategic innovation leverage, market-maker opportunities and accelerated proof points for commercial traction.”
For new programs, with one to two years’ experience, BMG said the bar was being raised on their quality. This was reflected in benchmarking of the units and their compensation against peers, greater “clarity in strategic intent and program chartering with appropriate fusion of financial and strategic goals”, use of “end-to-end investing tools”, such as CVC, business development, and mergers and acquisitions, hiring experienced CVC executives, leaner decision-making and end-to-end investing processes, and better business partnering skills among parent corporation, syndicate partners and startups.
Primary investing objectives included intelligence on position with future trends and technologies and identification of new business models and desirable adjacent market access, BMG said. Corporations were then using these insights through the development of a market-maker toolkit by combining CVC with business development and partnering, and M&A, and speeding up activity through senior-level support often via commercial rather than research business leaders.
BMG identified a more “common use of legal entities, such as limited liability companies, to simplify internal corporate financial reporting, reducing operating friction of on-balance-sheet reporting, as well as providing a
downstream vehicle for potential CVC program expansion and team retention”.
It said the typical viable first fund commitment was $100m-$150m with a multi-year time horizon for investing at least five deals a year, and so CVCs were pairing “trusted insiders – senior people fluent in parent language, culture, business and strategy with trusted internal networks – and specialist outsiders – senior investment professionals with experience building CVC programs or VC, private equity or startup company experience”.
BMG also noted the emerging use of “leverage funds”, which are assigned budgets to facilitate startup-to-parent company collaborations, such as trials and pilots, and to incentivise so-called catchers of opportunities at the corporation.
These moves to improve scale and effectiveness of corporate venturing were designed to help units get through the three to five-year pivot point in order survive potential management changes and corporation strategy shifts that can occur around these times, BMG said.
Mason and Arrington in their summary said high performers showed “fast wins with clear impact for all stakeholders, as early proof points of capabilities and risk reduction”.
This often required changing the CVC charter to “preserve strategic alignment with parent and stakeholders and to enable efficient replication or customisation for geographical or new domain expansion”. It also meant looking for faster and bigger bets for greater impact in a smaller number of areas through the use of M&A or growth private equity strategies and partnering complementary CVCs as well as collaboration between portfolio companies and the parent corporation.
BMG said good CVC teams focused as much on retention of high-performance professionals as on their recruitment, given they were “now vulnerable to attrition, given a competitive external environment and an increase in poaching”.
If retained, these experienced CVC teams can then better provide an expert view of emerging market structures around new technologies, products, platforms, services and apps and how corporations can maximise their position.
If orphaned through strategic or personnel changes, however, the CVC unit becomes a candidate for spinning out. Recent spinouts include Sapphire Ventures from Germany-based software provider SAP, BMW i Ventures from the car maker, Spain-based bank BBVA’s Propel, Deutsche Telekom Capital Partners, and Echo Health Ventures from Cambia/Mosaic.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.