Harnessing Innovation: The Strategic Imperative of Corporate Venture Capital (Part 1)
By Babak Nemati, Ph.D.
Introduction
In the high-stakes world of corporate innovation, staying ahead of the curve is a relentless pursuit. This article delves into the lessons gleaned from the trailblazing leaders who have navigated the complexities of corporate venture capital (CVC), launching some of the most prominent CVC funds for the world's largest multinationals. By consolidating their invaluable experiences, we present a comprehensive set of guidelines for companies aspiring to embark on their own corporate venture journeys. This exploration is heavily informed by the insights of Andrew Romans, General Partner of Rubicon Venture Capital, whose writings have illuminated the intricate dance between strategic foresight and financial acumen in the realm of corporate venturing.
Market Vigilance
Corporate venture capital (CVC) is like a secret weapon, a tool that the shrewdest companies wield to stay ahead of the curve in a constantly evolving marketplace. It’s not just about throwing money at startups; it’s about having a front-row seat to the innovation theater, where the next big thing is being conceived. Think of CVC as a pair of binoculars for corporations, allowing them to peer into the future and spot trends before they become mainstream.
Take the case of VMware (acquired by Broadcom in 2023). They realized that to remain competitive, they needed to keep a vigilant eye on every major development in their sector. Corporate venture capital gave them that edge, an unparalleled instrument for market intelligence. It wasn’t just about the money; it was about staying informed, about being a step ahead of their rivals. They invested strategically, not just f inancially, making sure that their CVC arm was always aligned with the broader goals of the company.
But vigilance isn't just about external opportunities. Internally, it’s about having the right people on board. Intel Capital faced this head-on. They knew hiring a great CVC investor was no walk in the park. It required a unique set of skills an understanding of the ecosystem of innovation and an ability to see beyond the corporate lens. The biggest mistake companies make is pulling someone from a business unit who only sees the world through corporate-colored glasses. The right CVC investor needs to think like an entrepreneur, with one foot in the startup world and the other in the corporate domain. It’s a delicate balance, but one that’s crucial for success.
VMware also drew a clear line between their corporate development team and their CVC team. The former were the in-house “investment bankers,” focused on larger, strategic investments, while the latter were the “management consultants,” always on the lookout for innovative startups that could provide strategic intelligence and guide corporate strategy. This differentiation was key. It allowed VMware to leverage the strengths of both teams, using their CVC arm to gather valuable insights that would shape their strategic decisions. The long-term commitment to CVC cannot be overstated. Docomo Innovations drove this point home. They learned that dabbling in venture capital for a couple of years and expecting significant results was a fool's errand. The rewards of CVC come after five to ten years of investing in and nurturing startups.
It’s a marathon, not a sprint. This long-term vision is essential for any corporation looking to reap the benefits of CVC. It’s about patience, persistence, and the understanding that true innovation takes time to develop and bear fruit.
Externally & Internally Facing Objectives
Corporate venture capital isn’t just an external game; it’s much about internal alignment and communication as it is about outward investment. It’s a dual-facing mirror reflecting both the internal ethos of the corporation and its external ambitions. Swisscom Ventures provides a perfect example. They leveraged their CVC arm not just as an investment tool, but as a public relations powerhouse. By positioning their corporate venture efforts as a testament to their innovative spirit, they bolstered their image as good corporate citizens. This wasn’t just about throwing money at startups; it was about crafting a narrative of innovation and leadership.
The internal dynamics are equally critical. Intel Capital highlighted the importance of how CVC connects with business units. It's not just about making investments; it’s about how these investments are perceived and utilized within the broader corporate framework. Success hinges on getting as many different business units involved as possible, particularly HR. Telecom Italia underscored this by showing how diverse representation within the CVC arm could lead to better strategic outcomes. HR’s involvement is particularly crucial, providing insights into up-and-coming talent pools and integrating this knowledge into the corporation’s broader strategy.
Salesforce Ventures took this a step further by using their seed stage CVC investments as a strategic information gathering tool. By deploying the smallest amount of capital into a wide array of companies, they gained extraordinary insights into key companies and trends.
This informed their strategy, providing a steady stream of intelligence that shaped their corporate decisions. Verizon Ventures echoed this by organizing regular events for their internal executive team, bringing in industry leaders and portfolio companies to present their innovations. These events weren’t just about showcasing startups; they were about fostering internal communication and ensuring that the CVC’s external discoveries were integrated into the company’s strategic thinking.
Moreover, CVC isn’t just about the immediate return on investment; it’s about the long game. It’s about creating an ongoing dialogue between the internal and external worlds of the corporation. Swisscom Ventures faced challenges with middle managers who were hesitant to take risks on external startups.
They overcame this by creating less resistance, ensuring that small investments didn’t burden middle managers with potential losses. This strategy paid off by fostering a culture of innovation and risk-taking, essential for long-term success. Ultimately, the goal of corporate venture capital is to act as a bridge between the corporate giant and the nimble startup world. It’s about connecting internal stakeholders with external innovators, fostering a culture of continuous learning and adaptation. The internal communication needs to be robust, ensuring that what’s discovered externally adds value internally. It’s about creating a seamless f low of information and insights, ensuring that the corporation remains agile, informed, and ahead of the curve.
innovators, fostering a culture of continuous learning and adaptation. The internal communication needs to be robust, ensuring that what’s discovered externally adds value internally. It’s about creating a seamless flow of information and insights, ensuring that the corporation remains agile, informed, and ahead of the curve.
Conclusion
Corporate venture capital is not merely an investment strategy; it is a critical tool for maintaining a competitive edge in a rapidly evolving market.
By leveraging CVC, companies can stay ahead of industry trends, foster innovation, and enhance their corporate image. The dual focus on external opportunities and internal integration ensures that CVC initiatives add strategic value while driving corporate growth. As we learn from the pioneers in this field, the journey of CVC is one of continuous learning, adaptation, and strategic foresight.
But the story doesn't end here. In our follow-up article, we will delve into the operational strategies and best practices that make these ventures truly successful. From governance structures to investment criteria and performance metrics, we will uncover the keys to operational excellence in corporate venturing. Stay tuned as we explore how the right strategies can transform bold ideas into groundbreaking realities. Don't miss Part 2, where the roadmap to mastering corporate venture capital unfolds.
About the Author
Dr. Babak Nemati, President and CEO of Strategic Intelligence, Inc. (SI), is an experienced leader in the life science industry with over 30 years of experience. His experience includes serving in C-level positions in emerging biotech and medical device companies. Previously, he held key roles at Johnson & Johnson, including Director of Surgical Oncology, where he was instrumental in developing strategies and executing licensing and acquisition transactions.
As the founder of Strategic Intelligence, he leads corporate venture and business development advisory services. SI helps companies that want to grow one or more of their businesses, are frustrated with the pace of internal R&D, and are open to leveraging external innovation. SI has successfully managed the externally facing functions of seed funds for leading companies like Alcon and Johnson & Johnson, providing strategic innovation and venture advisory.
He previously served as a Venture Partner at XSeed Capital Management and is currently a Commercialization Advisor for DARPA, a Catalyst Advisor for UCSF Medical Center, and an Innovation Technology Committee Member for the University of Washington’s Department of Ophthalmology.
Contact: bnemati@sicorporation.net
