By Viola Stadler
Corporate Venture Building (CVB) has become increasingly important for companies to stay in touch with innovation and to seek out new opportunities to produce returns for shareholders.
In CVB an established company creates a dedicated unit or even an independent hub where innovation can thrive and new services or startups can be built outside the usual corporate boundaries or limitations, while still serving the company’s overall business strategy. Examples include Oetker Digital, Körber Digital, Siegwerk Ventures, fnx from Fressnapf, a unit responsible for venturing at Munich Re and many more.
At Project A, as an operational Venture Capital firm with strong roots in building joint ventures, we believe in connecting all sides of company building, from founders and operators to investors and corporates. Here are six learnings that corporate venture building needs to consider in order to be successful.
1. Significant C-Level buy-in
High-level awareness and backing from the CEO, the Managing Director, and/or the owner family are crucial so that innovation and digital transformation do not remain a marginal topic. In fact, they should be an integral part of the forward-looking orientation of the entire company so that corporate ventures have the backing they need in the form of financial resources, time, and freedom.
2. A lot of staying power
Venture building is a long-term investment, and these units need to be able to act for 5 to 10 years because disruptive ideas and startups need time to grow before thriving and reaching profitability. This also applies to the responsible people involved who need to drive these initiatives consistently.
3. A portfolio approach
Venture-building activities require a portfolio approach. Only this approach will allow a diversification of risk and simultaneously increase the probability of success. Ideally, the corporate approaches its innovation activities — in addition to its venture-building activities in the area of fund investments, own investments, partnerships, or acquisitions — overall with a diversified, multi-pronged approach and an overarching superstructure that bundles the opportunities.
4. The creation of parallel structures
Generally, a clear differentiation between corporate venture building and internal digital transformation is necessary.
Venture building needs independent structures separately from the core business, e.g. when it comes to IT resources or freelance support. But: while corporate ventures need to be separated from the core business and remain as independent as possible, they are still part of the organization.
5. Structures in line with the market
Governance issues, such as ownership and incentive models, should be brought closer to start-up practices, for example, with long-term incentives similar to ESOP/VSOP models.
6. A new set of goals and measures
Changing the focus on growth targets for corporate start-ups and preferring mid- and long-term goals over short-term profitability. The definition of metrics and KPI in parallel to the core business, e.g. with proxies such as equity values, could be a starting point.
Above all, companies need to manage expectations in terms of innovation and transformation realistically so that corporate venture building can be effective and successful.
What do you think? Let’s discuss and reach out to me.