As with the most successful ventures, the devil is in the detail when it comes to making corporate venture partnerships work.
The fact that “work” means different things to different constituencies within the innovation ecosystem only compounds the challenges.
The corporation is looking to tap into the innovator’s ability to enable new markets and create new products that can be profitably leveraged into established or aspirational customer bases through existing distribution infrastructure – in short, broad, competitive advantage.
The innovator is often looking to access those customers and distribution channels without becoming captive to the corporate partner.
In many but not all cases, the corporate partner wants to buy the cow at the lowest possible price and the innovator looks to sell the cow’s milk to the corporation.
The venture capitalists – “lower my risk”, “help accelerate my company’s growth”, “improve my probability of a positive outcome – help me make more money.”
The alignment of these disparate perspectives is essential to the success and sustainability of a corporate venture programme, with the responsibility for success falling to the corporation.
At the 35,000-foot level, a corporate venture programme should be guided by two principles: first, say what you will do and do what you say, and second, do no harm.
In terms of tactical implementation, a few best practices have emerged over my 20 years at the intersection of start-ups, venture capitalists and corporate partnerships.
l Identify and articulate precisely what value you can and will bring to the innovation ecosystem. Know internally how you will deliver this value to your innovation partners. Your credibility will be on the line so this is no time for wishful thinking or hubris.
l Respect your partners. Resist the temptation to ask for consideration from your investment over and above that received by others at the table. A common theme among corporate investors in the dot.com period was a desire for warrants or special deals simply because of their presence in the deal.
“Our presence will add credibility” and “we need incentives to mobilise our team” were reasons often cited. Your partners at the table rightfully feel they are bringing more to the discussion than capital. Don’t hold yourself out as special.
l When developing a strategic partnership with an innovator, approach the discussion on an arm’s-length basis in terms of critical business points.
Be guided by the principle that consideration is given for value received.
Remember that for the innovator, the strategic partnership is viewed as a force multiplier – it should not be seen as a tax. When structuring incentives, ensure there is a clear correlation between value delivered and the compensation and recognition received.
Often, strategic leverage can be positioned as a lower-cost and higher-impact alternative to raising additional capital. This is an approach that resonates with both innovators and their venture backers.
l Align resources within your corporation in advance of your need to call on them. Speed is one of the innovator’s greatest advantages. A corporation needs to position itself to work within the time parameters that drive innovators.
A strategic partnership that does not accelerate an innovator’s path forward is not viewed as a competitive advantage. Engaging line-of-business management proactively in advance of potential partnerships provides a foundation for broader ownership of a strategic relationship within the corporation.
l When partnerships with an innovator are not tracking to plan, take ownership of the problem and work aggressively to address the cause – whether it lies within the corporation or within the innovator’s organisation. Proactive problem solving is one of the best ways to establish a reputation as a preferred partner within the innovation economy.
l Work to maintain team stability within the corporate venture organisation.
The innovation ecosystem – driven by relationships – rewards stability and continuity.
At the same time, venture investing has been described as an internship-based career, one that requires and benefits from extensive experience.
To be sustainable, corpo-rate venture programmes need to be structured so as to develop and retain expertise and relationships.
Every corporation needs to develop and manage its venturing programmes in a manner consistent with its corporate culture. Accordingly, there is no one right or wrong approach as to how a corporate programme should be managed.
At the same time, the above principles are at the heart of those corporate venture programmes that have stood the test of time, and continuity has been demonstrated time and time again to be one of the critical factors for long-term success in the innovation economy.