This article will deal with the prerequisites of a successful venture strategy for both institutional and corporate VCs and offer a solution to the dilemma many corporates face. We at Creathor Venture see three core prerequisites to leverage VC successfully – awareness, access, and collaboration. To be successful you need be excellent in all three categories.
Awareness – It is highly important to be familiar with innovative concepts. That is, to measure innovation as a key strategic pillar of corporate development and be aware of startups, operating modes and hot topics. What are the most discussed and inspiring developments, where is disruptive potential? It is not enough to read a blog post every once in a while. Always being on top of trends is hard and time-consuming work. However, even more important than the actual knowing is the willingness to recognise external innovation– for example, by startups – as opportunity, not threat. At the end, it is the culture of your company which determines the strategic success of your CVC activities.
Access – Having sufficient funds does not mean you will find what you are looking for. Only having a broad network and high-quality dealflow makes it possible to identify the most relevant startups with strategic potential for your company – and not only those who actively approach you. Often, the most relevant ones stay hidden.
Collaboration – Pilot projects, joint research efforts and other forms of partnering with startups offer deep insights and reinforce your efforts in technological progress. This is a key challenge for corporates that typically think in M&A only.
You are probably getting where we are heading by now. VCs are – more often than not – good people who do not let the big corporates stand in the rain with all these challenges. Many VCs have therefore developed actions for a corporate venture strategy that support the described prerequisites – awareness, access and collaboration – and make your corporate development story a success. The bad news – it does not take the main burden off your shoulders, but it helps a lot.
Most VCs offer their corporate partners a set of involvement areas to ensure knowledge transfers. We, for example, provide detailed industry expert clusters with specific recommendations on disruption potential, using the extensive experiences and industry insights that we have accumulated over more than 30 years in the VC business, helping corporates to build awareness in key trends, developments and relevant startups. Furthermore, we offer a special set-up for secondments of investors’ employees in our offices in Bad Homburg or Zurich. This enables the development of dedicated knowledge in specific industries or technologies – nice spin-off for established companies. You get insights into startup and venture capital culture at the same time.
Another approach is our executive roundtables series, offering significant opportunities for access to the venture ecosystem. It gives valuable space for knowledge development and networking and is, for many corporates, their knock on the venture world door.
A more common approach is to share the dealflow on pre-defined criteria with fund investors, efficiently leveraging corporates’ monitoring efforts. Investors benefit from the VC’s access to the market and the large and structured screening process. However, that is only the first step. The difficult part is how to follow up internally.
While being aware of future developments and getting access to the valuable ecosystem are important prerequisites, they are worth little without the possibility to collaborate with fitting startups and companies. We as well as other VCs offer our investors joint due-diligence efforts, co-investment opportunities, cooperation and beta or pilot customer programs as well as advice in acquisition potential of proven companies. Through a VC’s high-quality network, corporates get in contact with relevant targets quicker and more easily. The good VCs can support and bridge to the right person, in the right position, at the right moment.
In a nutshell, CVC is good, institutional VC is, most of the times, better.
We don’t want to bad-mouth CVC, which is an interesting option, but, as pointed out, it struggles with several challenges. We strongly believe an investment in venture capital funds is an equally strong – and in many cases an even more successful – alternative to meet the challenges of the future. It offers higher opportunities and deeper experiences in venture industry, paired with less funds needed, lower efforts, at least for the corporates, and a reduced exposure to risk.
Contact us to learn more about Creathor’s corporate collaboration strategy. A big thank you to Fabian Degenhardt for co-writing this piece.
This is an edited version of an article first published on Medium