Corporate Venturing: Accelerate growth through collaboration with startups

By Dado Van Peteghem and Omar Mohout

Different strategies and tactics to accelerate innovation and growth through collaboration.

This is not the hype story of how cool startups are and why you should invest in them with a fund or setup an accelerator. Corporate Venturing is so much more than CVC - Corporate Venture Capital. The aim of this book is to provide insights in the different strategies and tactics to accelerate innovation and growth through collaboration, as well as plenty of cases as examples where these models are successfully applied. This is not a book for people that are looking for complex innovation theories around venturing. Rather it’s a no-nonsense, ready-to-apply comprehensive guide for creating and reviewing your corporate venturing strategy as strategic growth. The book will provide guidance, insights, perspective and inspiration for anyone that has intrests in corporate venturing as a strategy to accelerate growth. Whether you are a large corporate or an upcoming player in the market. With cases from Ricolab, BNP Paribas Fortis, Roularta Media Group, SNCF and Cartamundi.

Discover a ready-to-apply comprehensive guide for creating and reviewing your corporate venturing strategy as strategic growth.

EXTRACT

Attract a-typical ventures
For starters, you will attract ventures that you may not have found yourself, because you’re too focused on specific fields. While a company may not fit the profile you’re looking for at first sight, digging deeper may reveal that they are solving the same problem in a different industry, or that they are doing breakthrough work that you hadn’t even considered yet. It’s a more passive approach than scouting, but you will need to keep creating content to keep it going, so don’t underestimate the work.

ABOUT THE AUTORS

Dado Van Peteghem is one of the leading experts in the digital sector. He is a frequent keynote speaker and entrepreneur. Dado is Founding partner at the consulting firm Duval Union Consulting, co-founder of several startups including Social Seeder, Speakersbase and TrendBase, giving more than 150 speeches per year internationally on topics as digital disruption and transformation, corporate innovation and startup thinking.
Omar Mohout, currently Entrepreneurship Fellow at Sirris, is a former technology entrepreneur, a widely published technology author, C-level advisor to high growth startups as well as Fortune 500 companies and Professor of Entrepreneurship at the University of Antwerp, the Antwerp Management School, ULB and Solvay Brussels School of Economics and Management.

• Language: English
• Publisher: Die Keure Publishing
• Release date: May 31, 2018
• ISBN: 9782874035074

Book preview

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WHY

CORPORATE VENTURING MATTERS

WELCOME TO THE WORLD IN PERMANENT CHANGE

We probably don’t have to convince you that the world is changing faster than ever. That technology is evolving exponentially, and that consumer behavior and economic markets are radically changing as a result.

We’re clearly up for a challenge in our companies. Many organizations are falling behind the rapidly changing customer, market and technology landscape. As a result, their business models are being challenged by the new players on the block.

To prevail in this new world you need a faster clock speed than the market. Unfortunately most companies are behind the curve. And we all know it won’t slow down from here; on the contrary, it will continue to accelerate.

"You need a faster clock speed than the market."

Having the opportunity of working with a lot of different organizations, we believe that Corporate Venturing can help you to move faster, together. Because at the end of the day, there is no such thing as a fully future-proof company. Yet, it’s not the end of bigger companies, the contrary is true. Corporations and SMBs are in the best possible position to leverage their brand, talent, resources, network and scale to defend and even grow market share. A brilliant misquote of Mark Twain, The reports of my death are greatly exaggerated describes to a tee the state of larger companies and corporations today.

FROM ONE BIG BOAT TO A FLEET

Whether you’re an SME or a corporate organization, it’s very likely that you have some of the characteristics of a big boat: stable processes but typically slow and very hard to change course. Business on the big boat is generally predictable but not future-proof as real innovation and change are difficult to achieve.

In the past, bigger boats equaled ‘economies of scale’, which was a true asset. In today’s climate where technology is the leverage, ‘economies of scale’ is becoming a downside, the big mass is making you slow. It’s nearly impossible to turn within a reasonable time-frame. You can’t innovate fast enough. Being agile and flexible is crucial in this digital world, so this could be a major problem for your company’s future.

Therefore we believe you need a dual model where you upgrade your ‘mothership’ through ‘inside-out’ innovation, while surrounding it with a fleet of agile ‘speedboats’ that allow for ‘outside-in’ innovation. The speedboats are a metaphor for ventures outside your existing business, not limited by legacy, hierarchy or processes.

New innovative business models can’t be executed on the mothership due to traditional structures, KPIs, culture, compliance etc. that act as an anchor and therefore you need a speedboat as an agile vehicle. The mothership keeps everyone (financially) floating and speedboats are the bets to become future-proof.

In this book we will mostly focus on the latter: the speedboats surrounding the mother-ship and how you can find them, work with them and support them in a win-win partnership. The goal is to build a true ecosystem of value, with a shared vision and ‘fleet course’.

The reason for our approach is simple: when it comes to agility, startups have an edge over corporations – whereas large corporations sit on resources which startups can only dream of. The combination of entrepreneurial activity with corporate capabilities seems like a perfect match, but can be elusive to achieve.

TWO FORMS OF CORPORATE VENTURING

There are generally two main forms of Corporate Venturing:

Venture building: launching your own speedboats (startups) out of the mother-ship – ‘inside out’

Venture sourcing: scouting and setting up collaborations with existing startups on the market – ‘outside-in’

Some differentiation around both approaches:

While we believe in an AND/AND model where you combine the power of both approaches, we’re convinced that in a world where agility is the name of the game, external collaborations (‘venture sourcing’) need to be a factor 10 compared to the internal venture building.

Imagine you have 1 million USD to invest (as a ‘total cost of ownership’) in a concrete case, it’s better to invest the money, spread over 10 different collaborations with outside players, than betting the whole budget on 1 single internal venture.

You simply cannot have all the knowledge, speed, skills internally to build the future all by yourself. A small bets strategy with a potential uplift (aka double dip) for successful ventures will have a higher chance of success statistically.

INTRODUCTION TO CORPORATE VENTURING

A definition, short history and current landscape

DEFINING CORPORATE VENTURING

The term ‘Corporate Venturing’ has many different definitions. We’ll give you ours:

"Corporate Venturing is about setting up structural collaborations with external ventures/parties to drive mutual growth."

Structural collaborations

It’s not about a one-off project or ad-hoc acquisition, it’s a structural approach and belief within the organization with sufficient resources, processes and vision to drive it.

External ventures

We’re talking about startups (very early stage companies) or scaleups (companies that have found product-market fit) that come from outside the organization.

Mutual growth

It’s not just a financial construction, the collaboration is considered as a key pillar for transformation and growth for both the corporate and the venture.

TRADITIONAL COMPANIES & STARTUPS, A MATCH MADE IN HEAVEN?

On the Internet and in management books, you will find mixed opinions on the relationship between traditional companies and startups.

Some go as far as saying that corporates are plain evil: they don’t understand tech, they are not entrepreneurs, they just want to kill startups … On the flip side a lot of traditional companies think startups are evil: they think all they do is worth gold, they don’t know how to make money and can only spend it, they’re bloody arrogant …

Everything depends on the clear intent and expectations of both parties. In many cases there is no real strategy on either side, which results in a bad experience and a lot of disillusionment.

We believe that this can be a match made in heaven, but: good agreements make good friends.

ARE CORPORATE VCs THE DEVIL?

Although Corporate Venturing is much broader than only Corporate Venture Capital, we zoom in on it to set the context.

Corporate Venture Capital (CVC) is an investment by a corporate (fund) into external startups and scaleups in order to make a financial return or to gain a competitive advantage. Corporate VCs invest cash (or barter deals such as media-for-equity investments) from the company’s balance sheet in exchange for a financial or strategic return. Although there is a significant overlap with Venture Capital, corporates claim to bring smart money to the table, including but not limited to expertise, industry know-how, resources, customers, distribution networks, data, market access and sometimes even an exit. Yet, traditional Venture Capitalists claim that Corporate Venture Capital has no specific know-how on financing, building, growing, scaling and selling a venture; the things that startups need most.

CVC is a polarizing subject and opinions are divided. On the one hand, famous investors such as Fred Wilson from New York based Union Square Ventures who criticized Corporate VCs in an infamous interview. He called Corporate VCs dumb and for startups it is like doing business with the devil. Wilson believes that corporates should buy startups, not invest in them. In his own words: Corporate investing is dumb. I think corporations should buy companies. Investing in companies makes no sense. Don’t waste your money being a minority investor in something you don’t control. You’re a corporation! You want the asset? Buy it. Wilson is not alone with this opinion. Other investors called Corporate VCs ‘tourists’, i.e. not committed for the long term.

Needless to say that VCs are biased towards Corporate VCs and Wilson’s statements are a good example of self-serving reasoning. Corporate VCs are unwanted competition to VCs as they can inflate valuations, reduce deal flow and the liquidity opportunity for VCs. Corporate VCs are providing startups with more choice and leverage. Unlike venture capital funds, Corporate VCs are looking for a blend of strategic and financial returns. In the pharmaceutical industry, Corporate Venture Capital is even the norm, not the exception. The benefit of first investing before acquiring is to keep the entrepreneurial spirit and allow creativity to thrive until a certain stage of maturity is reached.

Yet, despite all the polarization, reality is that Union Square Ventures also invests side by side with the ‘evil’ Corporate VCs. For instance, Union Square Ventures invested in German Auxmoney with ProSiebenSat.1; in Berlin based Clue with Nokia and in Portuguese Veniam with 5 corporations, no less (Orange, Cisco, Verizon, Liberty and Yamaha Motor). The Romans knew already ‘Money Does Not Stink’. Also Andreessen Horowitz (A16Z), another very well-known VC fund from Silicon Valley, prefers to work with corporations such as GE Ventures combining the best of both worlds.

For startups, Corporate VCs offer acceleration of growth and development; access to market that would otherwise not be available to early stage companies; potential exits and becoming a reference customer.

Corporate Venturing is actually quite a fair concept when you look at it over time. If you provide startups or scaleups with enough oxygen for them to crawl out of the ‘Valley of Death’, they will eventually fuel your engines to delay or even overcome your ‘Uber moment’.

A SHORT HISTORY OF CORPORATE VENTURING

Corporate Venturing is not a new activity, even Thomas Edison used it to grow his business; Chemical giant DuPont invested in General Motors early on ensuring demand for its innovative paints.

Traditionally Corporate Venturing has appealed to innovation driven high-growth sectors such as the pharmaceutical industry since the 1960s. In this era, it took the shape and approach that we know today. For instance, Exxon created Exxon Enterprises to involve the corporation in new technologies and in new business opportunities in non-core domains with the aim to transform a single-product oil company in a modern diversified innovative enterprise. That marks this first wave: diversification.

A second wave took place in the 1980s driven by the growth of information and communication technology (ICT) in the place we know today as ‘Silicon Valley’ becoming the focal point. Corporate Venturing Capital accelerated by the dot com boom and consequently the growth in venture capital. Eastman Kodak created a CVC fund to support and finance non-core spin-outs. Others, such as AT&T and 3M created joint CVC funds often as hedge against competing technology. The most famous was the Palo Alto Research Center (PARC) of Xerox that was the godfather of iconic products such as the graphical user interface, the laser printer and the mouse. The second wave is marked by access to technology.

We’re currently in the third wave driven by digital transformation. Its starting point is 2010 when new technologies like the cloud & mobile apps put innovation within reach of everyone that could develop software. This is the golden age for Corporate Venturing and Corporate Venturing Capital thanks to the increased pace of corporations investing in new technologies, innovative business models and emerging companies across all industries challenging the incumbents.

The third wave is massive. Unlike the first and second wave, when mainly technology-focused and R&D heavy companies engaged in Corporate Venturing activities; the current wave encompasses companies from a variety of industries. As Marc Andreessen wrote in his famous ‘Software is eating the world’ essay in the Wall Street Journal: "every company becomes a software company". That was in 2011. No matter your industry, you’re expected to face competition of emerging companies that use technology in combination with innovative business models to challenge the status quo. The third wave is thus marked by access to innovative business models.

THE GOLDEN AGE OF CORPORATE VENTURE CAPITAL

Over the period 2016-2017, 24% of investments in European scaleups had a corporation involved in the deal. The total amount of investments that involved CVC is close to € 500 million a month in average. This makes Corporate VCs the second most important channel to raise capital after VCs. And it’s only increasing according to the Sirris European scaleups database¹.

The top 3 of European industries that attract investments from Corporate VCs are:

It should be no surprise that FinTech (including InsurTech² and RegTech³) saw the most CVC investments in 2016, as this is the most funded industry in Europe. The most active corporate investors in FinTech scaleups are Orange (FR), Rakuten (JP), CommerzBank (GE), Allianz (GE) and DvH Medien (GE).

The top 3 of technologies that attract investments from Corporate VCs are:

Note the absence of blockchain technology, despite being hyped as the big disruptor for the financial industry in 2016-2017.

59% of CVC investments are made in Business-to-Business scaleups, indicating that the European ecosystem is different than Silicon Valley where 2 out of 3 startups and scale-ups are consumer oriented.

The most active Corporate VCs investing in Europe are:

Intel Capital is a textbook example of how Corporate VCs should work as a way for building an ecosystem around the core-business of their company. Orange, formerly France Télécom, invested in FinTech scaleups KissKissBankBank (crowdfunding), Afrimarket (money transfer) and London based Monzo (digital bank app) over the last years. This might look like a surprising corporate venture strategy for a French telecom operator until a press release in November 2017 made it clear: the launch of Orange Bank. A mobile-first bank offering basic services for free. This is a big bet for Orange. Even more telling is that Orange doesn’t see the other French banks as competitors but a small scaleup from Germany, N26, that has only 100,000 customers in France.

Since 2010, the number of companies setting up their own Corporate VC fund is doubling every second year and some big names are entering the game starting to make big bets:

2010: Citi Ventures

2011: American Express Ventures

2012: Shortcut Ventures (KPN)

2013: GE Ventures, Samsung Catalyst Fund and Bloomberg Beta

2014: CommerzVentures and Santander InnoVentures

2015: Orange Digital Ventures, KPN Ventures, Axa Strategic Ventures, Ginko Ventures (Foxconn), DB1 Ventures (Deutsche Börse), Mainport Innovation Fund (Schiphol & KLM), Aviva Ventures, Deutsche Telekom Capital Partners, Twitter Ventures, Statoil Technology Invest, Allianz Ventures, Amazon Alexa Fund, Slack Fund and Liberty Mutual Strategic Ventures

2016: InnovAllianz, Munich Re / HSB Ventures, Sony Innovation Fund, Yamaha Motor Ventures, Airbus Ventures, Kamet (AXA), IBM Ventures, Campbell Soup, Sesame Street and Microsoft Ventures

2017: ABN AMRO Digital Impact Fund and Scania Growth Capital

Some Corporate VCs have deep pockets with a fund size of over $ 1 billion, such as Intel Capital, Nokia Growth Partners, Cisco Investments, Deutsche Telekom Capital Partners and Hearst Ventures.

And these are just the corporations that set up a separate Corporate VC fund. Other giants are investing directly from their balance sheets as well: Rakuten, Naspers, Foxconn, SoftBank, Telia, Infosys, Mastercard, Deloitte, Thomson Reuters, Euronext, Qualcomm, Telefónica, Siemens, Renault, Daimler, PSA Peugeot Citroën, H&M, Walt Disney, SingTel, Sky and Alibaba. Indeed, the majority of CVCs are balance sheet investments, although there is a trend towards dedicated Corporate Venture Capital funds. So clearly there is a storm coming in the