Week 5: Venturing Flashcards
Corporate venturing
Venturing for Strategic Innovation
Corporate venturing
The process through which an existing organization, typically a large incumbent company, creates, adds to, or invests in new businesses, or portions of new business, to trigger renewal and strategic innovation.
Corporate venturing can be:
* internal: new businesses are created and owned by the corporation
* external: new businesses are created by parties outside the corporation and
subsequently invested in (via the assumption of equity positions) or acquired by the corporation.
* cooperative: new businesses are created and owned by the corporation together with one or more external development partners
Corporate venturing is also called “corporate entrepreneurship” and is a critical component of
the strategic innovation process
Objectives of corporate venturing:
Classified in Leveraging (on different factors, like exploit underutilized resources) and Learning (organization learn how to do things, grow the managerial capability of managers, learn from new business or sector
Types of corporate venturing tools
Corporate venturing is enabled and supported by the application of a series of strategic tools. This is a taxonomy of the main ones:
fig:
Direction of innovation flow: Outside-in, inside-out; Equity involvement: Yes, no
Start-up program (Outside in OR inside-out, no)
Corporate venture capital (Outside in, yes)
Corporate Incubation (inside-out, yes)
Corporate venture capital is an example of equity involvement and outside-in participation of incumbents in external start up and venturing where they invest in minority equity.
EXAMPLE:
1) Toyota ventures, established by Toyota (6 years ago), it is a corporate venture it is created to invest in research and new emerging markets, like renewable. It is made thus to invest in novel and new start up those developed technologies that can be integrated in Toyota (it is an outside-in but then creates a connection through investing in it equity involvement).
2) BOSCH, corporate incubators by BOSCH are very interesting because it creates an environment where start up can work and develop their ideas. This is completely different from the core business and culture of BOSCH, this program is made to create a safe environment for START UPS (within Bosch, for example incubating the ideas coming from the company self, like from employees) and then create SPIN OFF, create and capture value from the internal of Bosch but it is outside the core business (INSIDE-OUT).
Corporate Venture Capital (CVC)
It is the investment of corporate funds directly in external startup companies. CVC is defined as the practice where a large firm takes an equity stake in a small but innovative or specialist firm, to which it may also provide management and marketing expertise.
In essence, CVC is a subset of venture capital whereby a company is investing, without using a third-party investment firm, in an external start-up that it does not own.
This investment is made mainly for strategic innovation reasons. This trend is growing more and more in the last years globally.
There are famous examples like Google venture capital (the Alphabet part dedicated to invest on start up and small flexible firms).
Example: Volvo corporate venture capital, created investment business dedicated to self-driving and so on. These businesses could not be developed internally, thus they invest in small firms. If a corporate venture capital fund totally acquires a start-up it is a pure M&A, but usually they
The M&A would limit also the freedom of management and decision of the small firm, they want to leave this freedom to keep flexibility and entrepreneurial thinking and spirit.
Typology of CVC strategies
Corporate investment objectives (strategic, financial)
Link to operational capability (loose, tight)
Enabling (strategic, loose): Complements strategy of current core business
Driving (Strategic, tight): Advances strategy of current business
Emergent (Financial, tight): Allows exploration of potential new businesses
Passive (Financial, loose): Seeks mostly financial returns
- Most are DRIVING or ENABLING (only 2% according to specific research is dedicated to passive, to financial returns)
- ENABLING (40% of CVC), it is aim at supporting the strategic innovation strategy not so linked to the core business.
- DRIVING, is a way to sustain the core business throughout different strategies, like:
Sustaining the core business through CVC (mostly used in DRIVING typology strategy)
DRIVING is related to invest in what a company already have, to improve it (more from a PRODUCT INNVOTION view).Through CVC investments in innovative startups, the corporate can sustain the core business by:
- Promoting a technological standard (Microsoft investment in .NET)
- Stimulating demand of complementary products and fostering of corporate ecosystem (Intel’s investments in startups whose products require the Pentium processor)
- Leveraging underutilized technology through investment in spinoffs (Innogy Innovation
Hub and blockchain-based mobility startup Motionwerk) - Renewing the technological base (Mercedes Benz investment in Sila Nanotechnologies, which became its supplier of batteries for Mercedes’ electric fleet).
Pursuing strategic innovation through CVC (mostly used in ENABLE typology strategy)
ENABLING, it helps you to achieve and look for strategic innovation:
Through CVC investments in innovative startups, an incumbent can also explore new, future businesses by:
- Experimenting new capabilities (Siemens investment in autonomous driving startup Deepscale)
- Developing innovative technologies (E.ON investment in smart thermostat startup Tado)
- Exploring strategic whitespace and sensing emerging technological trends (GV investment in Agritech)
Structuring a CVC unit
There are two main models through which a company can engage in corporate venture capital:
- “Balance Sheet” model: the CVC arm is a subsidiary that is allocated a specific budget from the corporate balance sheet through the traditional budget allocation processes.
Example: Alliance Ventures, the corporate venture capital arm of Renault-Nissan-
Mitsubishi, has 1$ billion budget to be invested. - “General Partner” model: the CVC arm is structured as a General Partner-Limited
Partner (GP- LP) organizations, where the General Partner is the fund manager and the Limited Partners are the fund committers. In this case, the Limited Partner is the corporate. Presence of tailored and autonomous processes of budgeting, decision- making and capital allocation. Example: Engie New Ventures, the corporate venture capital arm of Engie, is the fund manager of a 270$ mln venture capital fund, where all the capital has been committed by the corporate.
The limited partner are the incumbents which support with their capabilities and resources the management of the venture no financial reason behind it!!
Multiunit back-end problem
that is the problem of connecting and engaging not just any internal business unit with startups (1st tier engagement) but rather multiple rival internal business units (2nd tier engagement) to a corporation’s open-innovation initiative with startups.
Other corporate venturing tools
Other corporate venturing tools that help to trigger CVC and lead to strategic innovation:
Skunk-works: quasi-autonomous units that focus only on explorative innovation activities (“moonshots”) that will hopefully enable strategic innovation -example of ambidexterity
Corporate Accelerators: like corporate incubators, but focused on startups that have a proven business model (are at a little later stage, while incubators focus on early stages of startups)
Internal Idea Contests: challenges open to employees that collaborate in teams to propose solutions to complex innovation problems focus of INSIDE-OUT, or spinoffs.
Hackathons and Innovation Prizes: collaborative competitions taking place in a limited amount of time, where small groups of external, selected people develop a solution to an issue proposed by the corporate
