Throughout my career, I founded startups and helped others grow in a variety of roles.
In 2018, after contributing as chief operating officer of Carto, a Telefónica-invested company, I landed on the other side of the road as global entrepreneurship director for this corporate giant.
Having this holistic perspective has helped me realise how important it is for the ecosystem and for entrepreneurs that established companies such as Telefónica play a significant role collaborating with startups. This is, nevertheless, not for the sake of marketing or corporate social responsibility as part of the “innovation theatre”, but for growth and value generation for every involved party.
Corporate venturing has become more than a fancy trend in Latin America. The model of large firms collaborating with startups has been in place for many years now in Europe and the United States, where companies developed strong investment strategies which they now seek to export into LatAm, a region thriving with entrepreneurs and with (still) strong uncertainties.
Many Latin American companies are already doing a great job, though somewhat timidly. We see with much enthusiasm the increase of such collaboration over recent years, looking back from our early days when it was unheard for a big corporation to do so in Latin America.
When Wayra was founded in Colombia in 2011, a vision started to take form. One where a big corporation not only contributes to the scaling up of early enterprises but deepens its trust – and stakes – in the region, thus betting on the capabilities of its innovators and the drive of its entrepreneurs.
That vision has come a long way since the days when Wayra was a corporate accelerator. Today we actively scout, invest, scale and integrate innovations from Latin America thanks to our footprint in the region and the enthusiasm of our local teams along with our business partners, many of which are working with startups and took part in this report.
This represents an opportunity not only for the companies and startups that already work together in the region, but for the local ecosystems, entrepreneurs, governments, economies and society. The value a new venture brings in employment, technological advances, value creation and cultural transformation is enormous.
We have been part of this impact throughout the years, supporting over 380 startups in Latin America, bringing over $22m dollars to innovators and helping them scale and raise more than $188m from third parties. About 300 of them are from Mexico, Colombia, Venezuela, Peru, Chile and Argentina, countries where the entrepreneurial landscape was very different nine years ago.
Of course, this did not happen because of us. Yet, we proudly contribute by pushing in its continuing evolution. We want to see more companies engaging with startups, and more entrepreneurs. Particularly the ones led by women!
I look at a region with optimism, since now over 180 corporations are collaborating with startups. Economic, technological and humane development happens when great, smart people come together with a shared vision embodied in a startup; and we as corporations have the privilege – and the responsibility – to help in scaling that vision into an enterprise that brings benefits for everyone involved.
Imagine what can happen when the biggest players in the corporate world engage in a region full of opportunities. The Corporate Venturing LatAm: Corporate Giants’ Collaboration with Startups in Latin Americapresents you a clear picture of what those giants are currently doing so you may have a glimpse into the possibilities ahead.
Conclusions
Josemaria Siota and Julia Prats,
IESE Business School
Corporates are increasingly collaborating with startups in Latin America through challenge prizes, hackathons, scouting teams, venture builders, coworking spaces, corporate incubators and accelerators, corporate venture capital, startup acquisitions, and more.
The gathered data indicate the following results about the corporate venturing activity in the analysed Latin American countries, Brazil, Mexico, Colombia, Chile, Argentina and Peru.
The study maps a total of 107 global ultimate owners (or corporate headquarters) with 184 subsidiaries that are running 460 initiatives in 19 cities – encompassing 106 challenge prizes, 94 scouting missions, 69 corporate incubators or accelerators, 62 coworking spaces, 52 corporate venture capital funds, 50 hackathons, 16 venture builders, and 11 startup acquisitions’ units.
On average, large firms (those with consolidated annual revenues of more than $25bn) have an 8% higher adoption level of corporate venturing than smaller firms (with revenues between $4bn and $25bn).
The average adoption level of corporate venturing mechanisms among giants in the analysed countries is still low (16%), compared with the 75% in the Fortune 100 list that only considers corporate venture capital –showcasing the opportunity to increase the engagement through these mechanisms.
This activity is concentrated in seven cities: São Paulo, Brazil; Mexico City, Mexico; Bogotá and Medellín, Colombia; Santiago, Chile; Buenos Aires, Argentina; and Lima, Peru.
The industry of financial services is taking the lead in the territory. The highest number of companies engaging with startups are in the sectors of financial services, information technologies, management consulting, and telecommunications.
Europe is the most frequent ‘house’. The Latin American subsidiaries involved in this activity have headquarters predominantly in Europe (45% of the cases), Latin America (25%) and the United States (24%).
Corporates are bidding for low-cost engagements. The most frequent mechanisms applied in the region were some of those with the lowest cost of implementation: scouting missions, challenge prizes and hackathons.
How can these results help chief innovation officers do their jobs?
According to the insights provided during interviews with 133 innovation executives during this study, complemented by in-depth analysis of 1,760 corporate subsidiaries in Latin most frequently echoed the discussion on how corporates can better engage with startups in Latin America.
Expanding your corporate venturing ecosystem:
1. The discussion has moved from how to build venturing arms to how to make the right discoveries and spot promising startups and scale-ups before anyone else.Design a strategy to spot opportunities before your competitors
In many cases, corporates have a limited capability to foresee disruptions that can become competitive advantages for them against the competition.
Build an ecosystem of external corporate venturing partners to receive an increased deal flow of opportunities –you can collaborate with private investors, incubators, accelerators, universities, research centres, chambers of commerce and more.
Craft a compelling value proposition with each partner to avoid misalignment (that is, “the deals that no one wants”).
2. The growth in the number of corporates engaged in venturing has triggered a debate on how to seduce the best startups for venturing programs.Cluster with other corporates in joint challenges
Join forces with other corporates (not only non-competitors but also competitors) to tackle a common challenge through collaboration with start-ups. This may improve the value proposition designed for a specific startup: technical expertise from different sectors, additional distribution channels, wider outreach, further resources and more.
Meanwhile, the costs of the venturing program can be reduced for the corporation by distributing them among the other partners and strengthening the cluster in the innovation ecosystem.
3. Improve the connectivity of your internal corporate venturing ecosystem
The study found international companies with subsidiaries in Latin America sometimes face the challenge of having unconnected corporate venturing units in different countries and across mechanisms. (For example, the business units of a corporate may not know which startups are enrolled in the corporate venturing programs.) Although this is less frequent at a senior management level, it is more frequent at the middle management level, generating silos of information.
To increase the network effects and synergies within corporates, design maps of activities so that middle management can understand better what other units and countries are doing in corporate venturing. Moreover, it may be useful to have internal connectors – employees whose role is not only to connect opportunities from corporate venturing mechanisms to business units but also to identify the challenges of business units in order to nurture the scouting aspects of the venturing programs.
Optimising your corporate venturing strategy:
4. Rely more on numbers and less on hype
The study has shown that many Latin American subsidiaries are still relying on intuition rather than data when designing their corporate venturing strategies.
Although a few years ago, there were few sources of independent data and benchmarks (especially in those mechanisms that are more novel), nowadays more research has been developed on the topic. So, choose the right combination of corporate venturing mechanisms, based on data rather than intuition or media hype, according to your company’s objectives and expectations (in terms of goals, capital and time horizon).
Although innovation executives sometimes consider corporate venturing as just corporate venture capital, the reality of options is much richer. Previous studies show that, on average, some mechanisms can be up to five times faster and three times more cost-effective than others.
5. Distribute the costs of proofs of concept
Companies in Latin America are seeking ways to collaborate with startups – generating impact, increasing speed and reducing the cost of innovation.
Since innovation units have tight budget constraints (especially during the genesis of the unit) and have to maximise their ability to integrate value, try to ensure that business units and corporate headquarters are involved in terms of budget allocation and that there is a decision-maker on the inside.
For instance, finance one startup’s proof of concept with a third of the budget provided by the innovation unit, a third from the corporate headquarters and a third from a business unit. It may also help if a member from each of those three units is involved in the decision-making process in order to reduce internal friction.
6. Let the impact speak for itself
One of the identified barriers preventing the adoption of corporate venturing mechanisms in Latin American subsidiaries is the traditional corporate mindset. Senior managers with an established and hierarchical mind-set are sometimes reluctant to embrace innovation and new ways of working.
In your internal pitch to get buy-ins from the executive committee and from business units, focus less on the way the startups are (for example, with young founders, limited experience and scarce resources) and more on the potential or past impact they have generated in efficiency (for example, cutting production costs in half), speed (for example, improving the time to market), revenue (for example, designing a new line of products that is generating a steady revenue stream), among others.
7. Remember: this is not a short-term game
Plan realistically. Ask for commitment and keep track of the results.
With existing data, use a benchmark to estimate the average time that is required with deviations. This will give you a sense of whether you have a bottleneck and whether you have to speed up the corporate venturing process. Secure the minimum time horizon needed to see results, especially if you are new to corporate venturing and you have not yet generated any results. Some mechanisms are faster than others.
Bear in mind that, depending on the mechanism, you will need between eight and 28 months to integrate value from one opportunity. This involves the completion of the identification, collaboration and integration processes, excluding the time it takes to build the mechanism.
Cross-pollinating corporate venturing knowledge:
8. Consider Latin American opportunities
Entrepreneurial activity in the region has been increasing at speed, a trend that connects with the quadrupling of the venture capital investment in the region since 2014. This makes Latin America a location to consider when seeking high-potential startups that may require a lower cash burn rate than other parts of the world such as Canada, the United States, Europe or Asia.
Many international companies have already realised about this phenomenon such as those in Europe, which has already taken a major stake: 45% of subsidiaries engaged in corporate venturing in the Latin American analysed countries have European headquarters.
9. Learn from abroad: leverage subsidiaries and foreign institutions
Some of the Latin American subsidiaries that are more mature in terms of deploying corporate venturing mechanisms have two profiles.
The first case is those that have imported best practices from their international subsidiaries in the United States, Canada, Europe and Asia, which is especially the case among international professional service firms.
The second case is those that learned lessons from institutions with headquarters in those parts of the world, especially in their first steps of corporate venturing activity. This knowledge transfer has resulted in a better-informed decision-making process and increased the chances of success, especially in relation to experienced subsidiaries or institutions involved in corporate venturing.