Four decades after corporations developed a model of taking minority stakes in third parties to help their innovation programmes, the main discussion point at the 13th Annual Corporate Venturing and Innovation Partnering conference last month (held at the Hyatt Newport Beach, pictured) concerned how to integrate these investments into a wider business unit covering incubation and partnerships.
The discussions were against a backdrop of unprecedented optimism among International Business Forum’s delegates about the role corporate venturing could have in supporting entrepreneurs and complementing other investor types.
Phil Giesler, partner at consumer goods compa-nies Unilever and Pepsico-backed Physic Ventures and current chairman of the corporate venturing group at US trade body the National Venture Capital Association, said: "Corporations recognise this is the decade of growth rather than the past decade’s era of efficiencyand are increasing their attention to corporate venturing.
"This is leading to three trends. First, corporations are trying to provide value-added services in incubating ideas, innovation more broadly and partnerships between companies.
"Second, talent. Venture capital [VCs] firms are likely to be reducing their staff numbers while corporate venturing units are increasing theirs, but as they do not necessarily have the skills inside to build a group they are looking to hire talented people from VCs.
"Third, globalisation. Venture capital is most successful when it is local, but corporations act on a global basis and can work with financial VCs to invest in companies worldwide."
This optimism has encouraged Brad McManus, part of Japan-based electronics group Panasonic’s corporate venturing unit and a director of the Strategic Venture Association, to say the trade body would be looking to expand its geographic focus from California to encompass a wider scope of business development by corporations.
Not only corporations recognise the importance of innovation to their future – countries do so as well. Aneesh Chopra, US President Barack Obama’s chief technology officer and associate director of the US Officeof Science and Technology Policy, said the US must "out-innovate" and "out-educate" its chief global competitors by building a digital infrastructure and changing the rules to encourage innovation. (Click for interview by Global Corporate Venturing at the conference)
In addition, Chopra encouraged the adoption of immigration reforms that would make it easier for top foreign technology students to enrol in leading US universities and stay in the country after graduation. "We want to make sure that the best and the brightest have the oppor-tunity to study here and stay here to help create jobs for the American people," Chopra said.
When asked about international technology collaboration, even though it wants to out-innovate, out-compete and out-build its rivals, Chopra said the US was already engaging with Russia on text messaging for mothers, had open-government dialogues with India on education planned for April and a memorandum of understanding on information technology collaboration with the EU to share medical files.
Chopra added that America must make permanent the research and development (R&D) tax credit, "get our patent policy in order", and promote entrepreneurship more aggressively. "We want to make sure we don’t eat our seed corn before we plant it," Chopra said.
However, R&D by itself does little to encourage innovation even though more than $1 trillion is spent on R&D each year, according to Barry Jaruszelski, management consultant at Booz. He said only three of the biggest 10 spenders on R&D were rated the most innovative by R&D executives, while the 1,000 biggest companies invested $505bn on research.
Larry Keeley, partner at consultancy firm Doblin, said his research of 10,000 innovation partnerships over the past decade found 70% failed and fewer than 200 made money. He said the ones that did work followed a common pattern – they had six or more of the 10 types of innovation and concen-trated on building platforms rather than products (see presentation, p5 chart 10).
He said consumer electronics company Apple’s iPhone had 425,750 applications available, which would cost someone $664,170 to buy and need more than one iPhone to host them all. But Keeley warned: "When platforms trump products, ecosystems trump firms.The definition of a platform is an integrated offering that creates a unique and holistic customer experience only loosely controlled by the platform owner. It is usually supported by proprietary technologies and typically characterised by interdependent products and services provided through a network of business partners."
In an opening presentation, Andrew Gaule, founder of consultancy firm H-I Network, said there were five phases for building open innovation – strategy, developing ideas, creating an entrepreneurial venture, partnering and scaling inside the core business. A survey by H-I and IBF of delegates found the most significant stress points when setting an open innovation strategy was the attitude to risk inside the company and definingits focus even as the market changed. The stress points in developing ideas were around prioritising efforts and demands alongside existing businesses and the incompatibility of the larger company’s expectations to the start-up’s operation.
For creating a new venture, Gaule’s survey found there was a lack of entrepreneurial and experienced management teams – a similar problem when it came to innovation partnering as the main challenge was finding the right stakeholders and managing their expectations. But even when a venture was built to a nascent stage ready for corporations to roll it out, the survey showed there was still a focus on business as usual and measuring outcomes.
View from the Gods:
We are now looking out of the abyss after I woke up last year and saw it wasn’t a nightmare after all. Robert Ackerman, Allegis Capital
The interest in this area is growing so fast. Firms are curious, incentivised by the challenges of growth and more willing than ever to try new models to build new businesses. Phil Giesler, Physic Ventures
Innovation is not about new products but about new strategies on customer experience, business models, marketing strategies and distribution channels. Corporations are just beginning to realise what innovation really means. Jennifer Jones, Jennifer Jones & Partners
It was rewarding to see such a large and diverse group of people who are passionate about innovation and willing to openly engage with their peers in a conversation on the topic. Reese Schroeder, Motorola Solutions Venture Capital
Having soaked in the lessons of venture capital through a couple of business cycles, I feel like we are now seeing the start of a golden age of corporate venturing with big companies investing in internal and external innovation at all stages with skill and patience and real understanding of how to bring value to ventures. Rob Rosenberg, New Venture Partners
Venture capitalists would be surprised how many corporate venturing units are being started and how much activity and confidence there is in this area. Gerald Brady, Silicon Valley Bank
There was evidence at the conference of the sheer energy behind the changing nature of the conversations and cross-industry business collaborations being discussed. This is something we have not seen before at this level and with this intensity and suggests a new brand of innovation partnering is coming. Heidi Mason, Bell-Mason Group