Our qualitative multiple case study across 26 CVC units reveals a comprehensive set of value creation and value capture services that these units offer, configured in any of four different ways to provide tailor-made support for specific venture needs and sponsor strategic goals.
The configurations of CVC unit services in our data suggest a taxonomy of types derived from the service configurations and strategic focus areas of our participants. This taxonomy has four groups: Harvesters,Builders, Enablers, and Observers.
The Harvester uses a focused configuration; it offers a high number and variety of services related to value capture and only a few services related to value creation. Its motivation is to grow the venture’s revenue and increase the likelihood that the sponsoring corporation will reap returns on its investment.
The Builder uses a comprehensive configuration; it offers services to support the full range of value-creation and value-capture activities. Its strategic motivation is to build ecosystems and drive collaborative innovation within the industry.
The Enabler employs a focused configuration; it focuses its services on core value-creation activities. Its strategic motivation is to foster internal innovation and transformation by facilitating joint value creation between specific business units and portfolio ventures.
The Observer operates on a basic configuration; it focuses on providing a few essential services across both value creation and value capture. Its strategic motivation is to gather strategic insights regarding novel technologies, markets, and business models.
Managerial implications
CVC investments have increased dramatically over the years, with dollar and deal activity reaching highs in 2018. For many industries, the units offer a key strategic lever for managing disruption; they enable corporations to stay abreast of emerging business models and solutions, changing customer expectations, and cutting-edge technologies while meeting financial goals. For the unit to succeed, the corporation must understand its value proposition for ventures; that understanding is paramount to incentivising participation, by ventures and by other stakeholders. Hence, designing, implementing and managing activities that help new ventures create and capture value is key.
The model we derive from our data provides an overview of the different services a CVC unit may offer and how they can contribute to both supporting ventures and maintaining strategic focus. By linking individual services to venture needs in a unique way, they can gain a competitive edge over other accelerator and incubator programs. Ultimately, the resource base and complementary assets of the corporation will determine what type of services the unit can offer.
The configuration models identified in our data reflect a general view of the strategic orientation of CVC units based on available resources and capabilities. The particular configuration emerges from a combination of factors – the sponsoring corporation’s resources and capabilities, its strategic motivations and requirements, and the ventures’ needs. However, ventures require different approaches at different stages, and corporations may have varying needs. Thus, units with large portfolios may combine different configuration models to meet the needs of different ventures, and those with smaller portfolios may focus on a particular venture stage or type to leverage their resources.
Which model to use
Companies should opt for the Harvester model when the CVC unit’s goals are highly financially oriented. In this model, the likelihood of a positive return on investment is increased by choosing ventures for their ability to contribute to the corporation’s revenue growth. At the same time, by leveraging the corporation’s global business network, they help to accelerate the expansion of their portfolio ventures.
Companies should opt for the Builder model when they have the resources and capabilities to offer a comprehensive set of services across both value creation and value capture. By providing unparalleled access to the resources of the sponsoring corporation, the Builder drives effective collaboration between participating ventures and the corporation.
Leveraging the learning, technology and innovations from portfolio ventures across the corporation can power transformation in the industry and build the ecosystems to support industry-wide innovation. The ventures benefit from this collaboration through the connection to the corporation’s businesses, resources, and expertise. Usually, Buildershave dedicated business development teams to manage the service offering and portfolio.
Companies should opt for the Enabler model when their strategic goal is to facilitate innovation and transformation within the corporation. By focusing on value-creation services, they help ventures develop technology and products or services that are closely aligned with the corporation.
In addition, Enablers may establish supplier relationships with ventures, integrating the ventures’ technology into their own product portfolio or offer the ventures’ products to the corporation’s customers to create synergies. Thus, Enablers can empower the corporation to build products and services that complement the corporation’s offerings and encourage the formation and growth of new ventures.
Companies should opt for the Observer model when they have limited resources to support venturing and the unit’s sole focus is being the pathfinding operation for the corporation. Hence, these units are set up to gather strategic insight relevant to the corporation.
In addition to monitoring the progress of ventures in the portfolio and gaining value through an observer presence on ventures’ boards, their offerings are limited to a few essential services spread across value-creation and value-capture activities. Usually, Observer CVC units do not have dedicated business development teams; activities are performed by the investment managers.
Delivering value to ventures based on the resources and capabilities of the parent organisation is one of the key advantages a CVC unit can offer. Hence, balancing the corporation’s strategic motivations with ventures’ needs is crucial for CVC units to gain a competitive edge in the fast-evolving landscape of corporate venturing. Practitioners should therefore first identify what strategic motivation is driving their activities – increasing the corporation’s return on the investment in venturing, building ecosystems and driving transformation within the industry, facilitating internal innovation and transformation and gaining strategic insights. Once the strategic motivation is defined, CVC managers can examine what unique resources and capabilities the corporation can offer ventures and consider how these assets can be translated into specific services that help ventures create and capture value.
Our taxonomy may provide guidance on how to configure and design those services. Above all, practitioners need to focus on the needs of the ventures and tailor their services to align with the company’s and the unit’s strategic motivation. As an interviewee from one of the units put it, “Ask not what your portfolio company can do for you, but what you can do for your portfolio company! … I think that sometimes helping a startup company accelerating their progress is like raising a child. It takes a village. Without the right community and right resources at the right time it is hard for the company to scale. So the company needs the right type of investors that have the right resources the company needs.”
Authors
Gutmann is PhD candidate at HHL Leipzig Graduate School of Management in Germany, Schmeiss is PhD candidate at the University of Potsdam in Germany and Stubner is the Dean at HHL Leipzig Graduate School of Management in Germany