The number of major corporations with officers specifically dedicated to sourcing and investing in early-stage, strategically-aligned companies – corporate venturing – has surged.
About a dozen years ago, a number of large corporations tried their hands at corporate venturing with mostly disappointing results. They learned that corporate venturing is not the same as private venture fund management.
Corporate venturing operations have their own unique challenges and dynamics, which must be understood at the outset if the activity is to fulfil its potential. Here are some tips to making your corporate venturing unit a success.
1 Calibrate strategic goals: The success of private venture funds is measured by capital gains, nothing more. But corporate venturing serves strategic needs as well. It can be a scout for promising technologies and emerging businesses that might otherwise be overlooked. It provides first-hand knowledge about the direction of current innovation, both individually and as data points for trend analysis.
Corporate venturing may find young companies to acquire, invest in or partner with. It may discover technologies to license. It should help the corporation see its sector from a different perspective.
But because strategically-aligned technologies are often absorbed rather than exited from, it is not usually helpful to measure corporate venturing’s progress by capital gains alone, so make sure its true goals permeate and are reflected in the organisational structure.
2 Be nimble: In order to reap the above benefits, a corporate venturing unit must present a credible image in the venture capital and entrepreneurial ecosystem. For a corporate venturing unit, credibility flows not from the number of deals it closes, nor from its win-loss record in terms of exits. It flows from being seen as a via-ble resource for others in its industry.
Some units have a reputation for glacial decisions and byzantine authorisation requirements. No matter how prestigious the parent company, such units are not seen as serious players and will not find themselves easily included in the stream of information.
While some safeguards and procedures will always be necessary, burdening a corporate venturing unit with sti-fling layers of approval and reporting before an investment can be made is a sure path to irrelevance.
3 Degrees of autonomy: A separate budget, committed in advance, with a few C-suite executives on its permanent board, will permit faster investment decisions. Business unit buy-in is important, but requiring absolute approval by risk-averse business unit heads may stifle a unit’s ability to act autonomously. Striking this balance is critical to a unit’s success or failure.
A corporate venturing unit should have a separate identity – many are even organised as separate subsidiaries. A venture-specific identity helps insulate the company from liability and conflict issues with strategic applicants, enhances the perception of autonomy, and makes it easier to play an influential role in the start-up community.
Autonomy may conflict with one’s corporate culture, but without it, a corporate venturing unit becomes more sym-bolic than real – and distinguishing the symbolic from the real is something at which the venture community tends to be adept.
4 Establish a logical chain of command: A corporate venturing unit that reports to the chief financial officer may tend to be measured predomi-nantly by profit, if to the chief technology officer, by strategic benefits. Neither is incorrect, but each carries a distinct message. Make sure it is the message you had in mind. Decide first what the unit’s goals should be, and let the reporting chain of command follow suit.
5 Other issues to consider: Many other issues, including corporate venturing career path and compensation issues, whether to make limited partner investments or alliances with private venture funds, corporate venturing privacy wall issues, measuring success, data dissemination to internal business units, and investment policies regarding exclusivity, are among the decisions that help determine positive or negative outcomes.
Avail yourselves of special corporate venturing sub-groups of US trade body the National Venture Capital Association – or the European Private Equity and Venture Capital Association – corporate venturing trade publications and good outside professional resources, and consider your options carefully. Build your unit for the long run and it can be a valuable scout on the frontier of your industry for many years to come.