In order to achieve financial and strategic objectives, survival of a corporate venturing fund is a prerequisite but one that utilities seem often predestined to fail to meet.
The organisational culture at the corporate venturing unit’s parent company has been regarded as a primary factor behind the launch of energy utilities’ venturing funds between 1999 and 2001, and the subsequent closure of three-quarters of them within about five years, according to an academic paper* by Tarja Teppo, co-founder of Cleantech Invest in Finland, and Rolf Wüstenhagen, Good Energies professor for management of renewable energies at the University of St Gallen in Switzerland.
The main factors related to parent firm organisational culture are: parent firm view on innovation and industry development and its organisational mindset.
Two issues were identified regarding innovation and industry development in the energy sector. First, many electric utilities did not perceive innovation as an important competitive advantage, which in turn made the life of a corporate venturing fund difficult as it tried to identify new innovative business models or technologies promoted by start-up firms.
Second, even in cases where the parent firm realised scouting for innovative business approaches was important, the company saw no urgency to act. The lack of urgency was because parent companies were used to reacting to external regulatory pressures, not to business threats imposed by new external ventures.
The parent firm’s organisational mindset or worldview may differ strongly from the one present in the corporate venturing fund, which therefore needs "adequate autonomy to establish its own management processes", according to the academics.
The differences were often shown in utilities’ preference to work with relatively larger, mature third parties.
The effect of the organisational culture is also affected by risk-taking practices in the parent firm’s decision-making process, such as conducting effective due diligence on prospective technology and involving non-venture experts in decision-making, and its skills in managing and measuring the corporate venturing fund’s success.
As one corporate venturer told the academics: "The problem [with venturing] is that if you are really innovativeyou get in trouble with the traditional organisation…
And if [the ventures] are gaining market share, the headquarters or the operating unit is losing market share. And losing market share in the traditional sector or an operating unit is valued more than chances in the new growth area."
*Teppo, T and Wüstenhagen, R (2009): Why corporate venture capital funds fail – evidence from the European energy industry, World Review of Entrepreneurship, Management and Sustainable Development, Vol 5, No 4, pp353-375.