Corporate venturing (CV) funds are often established to generate strategic value for the corporate parent. The
success of CV activities is therefore not only measured in terms of growth, but also how well CV can complement
internal research and development efforts or gain early access to potentially disruptive technologies and business models. For this reason, CV investments are often seen as a window on emerging technologies and business models – a sophisticated radar set up to identify potential technological discontinuities.
Technological discontinuities are fundamental changes from a dominant technology to another that result in quickly rendering products and services obsolete, and transforming industry dynamics in ways that are difficult to anticipate, especially among incumbents.
Such discontinuities are what former Intel chief executive Andrew Grove termed “strategic inflection points”. In
his book Only the Paranoid Survive, he suggests that what such a discontinuity does to a business is profound, and how executives manages this transition determines its future.
Discontinuous technological change therefore requires effective managerial responses. In fact, according to a
recent article in Organization Science by M Maula and T Keil of Aalto University, Finland, and S Zahra of the University of Minnesota, US, effective and timely responses are made particularly difficult as such transformations often occur at the fringes of an industry and are usually driven by innovation and venture capital-backed start-ups.
Based on a longitudinal study of the largest US corporations in four information and communication technology
industry sectors, Maula and colleagues found that corporations can direct top management’s attention to technological discontinuities, by establishing appropriate interorganisational relationships such as strategic alliances or venture capital networks.
More interestingly, the results suggest that among the various forms of the interorganisational relationships in
which incumbents engage, only CV investments appear to play a crucial role in guiding top management’s attention to technological discontinuities. In particular, their analysis shows that “ties with high-status partners through coinvestments with high-status VCs [venture capital firms] positively affect top managers’ timely attention, whereas homophilous interorganisational relationships (ie industry alliances) do not have a significant impact”.
Why are CV investments so important for the recognition of technological discontinuities? The authors argue
an “incumbent may be able to gain access to more diverse information and diverging viewpoints that can help to reshape attention patterns within the incumbent.
In addition to the diversity of the information sources, the status of an information source plays an
important role because knowledge and information from these sources carry different weights with corporate decision-makers. The high status of partners, such as syndication with high-status VCs, may increase the credibility that top managers attach to information
from these ties”.
In short, this research suggests that CV activities can play a critical role in influencing senior management’s cognition, facilitating the identification of emerging business opportunities and related business models. Importantly, as Maula and colleagues observe: “Even when an incumbent does not transfer a
specific technology that a start-up can commercialise, CV investments may provide important insights into the evolution of a technological field. Information received from CV investments may also influence how senior executives think about the likelihood that a technological area will become important for the incumbent.”