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Corporate venture building (CVB): the new digital business model?

Corporate venture building – the most powerful business model for the digital era?
Image: © metamorworks / Adobe Stock

Joint forces of CVB: the symbiosis of entrepreneurship and corporate group status

Complex challenges such as climate change demand a combination of different strengths to get innovations off the ground quickly and sustainably. In traditional venture capital scenarios, startups don’t often succeed in establishing themselves on the market in the long term despite being highly innovative. When a startup is acquired, the disruptively thinking startup leadership and the corporate management frequently clash in their approaches. As a result, it’s not uncommon for the entrepreneurs to leave the company – with their employees (and the mindset that made the success possible in the first place) not being far behind.

However, being part of a corporate group can be beneficial due to its longstanding experience on the market and access to relevant networks, structures, data, knowledge banks, expertise and processes that give innovations the push they need and make it possible to establish a strong position.

So, what could be more effective than for large corporations to cooperate with entrepreneurs to put future-proof innovations in place using new digital business models?

Advantages of corporate venture building

In comparison to investing in innovation labs and accelerator programs in which the funders usually don’t have any say on the board to contribute their strategic ideas, corporate venture building provides a good alternative for large corporations wanting to embrace innovation. Unlike corporate venture capital (CVC), CVB is about building a startup from scratch.

What is corporate venture building (CVB)?

Corporate venture building means that a corporate group or parent company not involved in the financial sector builds an independent company in the form of a startup whose business model is fundamentally different from that of the group.

In Germany, examples would be Vattenfall and Gothaer Krankenversicherung, which have both built their own corporate ventures Solytic and [alley], respectively. In this linked article, we also take a look at how the Otto Group is developing companies within its company.

Goals and purposes of corporate venture building

  • Pursuing the strategic goals of the parent company
  • Developing new business models
  • Diversification
  • Tapping into new markets
  • Developing complementary products or services
  • Gaining a competitive edge through innovation

In the context of the CVB model, large corporations or company groups can make up for the weaknesses of innovation labs and accelerator programs. Due to their infrastructure, which also comprises processes and other assets, they thus offer clear advantages when it comes to successfully transforming company startups into successful digital firms by promoting highly innovative developments. Add networks to the mix, which make it easier for newcomers to get to grips with regulatory and legal requirements, and you have the perfect formula.

Strategic and sustainable: the potential of CVB

In contrast to traditional venture capital companies and investments, corporate venture building serves the strategic goals of the parent company or corporate group. That does not exclude ROI interests, but rather focuses less on fast-growing companies and scalable products and more on long-term, sustainable solutions. In this respect, the management board of a corporate group that has gone down the path of corporate venture building will first concentrate on developing complementary products that will allow it to unlock new technologies, business models, and markets.

Writing the future: how CVB can save the world

Sustainability is the way forward for those areas where corporate venture building is particularly constructive and effective: namely in the development of solutions to global challenges such as the climate crisis and healthcare. When established, experienced companies join forces with cleantech entrepreneurs in these areas, the odds will be in their favor when it comes to actually implementing the solutions in practice: A corporate group has market insight on its side, since the parent company understands how to act in complex regulatory frameworks, as is the case in healthcare, pharmaceutical research, and the environmental sector. CVB companies benefit from this expertise, because they can focus on developing products while drawing on the corporate group’s assets and structures.

The collaboration between Pfizer and BioNTech is a textbook example of this. The German startup BioNTech, which developed a vaccine against Covid-19, is being helped by its strong U.S. partner Pfizer in matters relating to production, safety, monitoring, and logistics. Without such a large corporation providing the support of its existing infrastructure, BioNTech would struggle to get its vaccine out onto the market at the required pace.

Prerequisites for successful corporate venture building

  • CEO support
  • Experienced CVB managers and founders
  • Streamlined investment committee
  • Parent company as mentor
  • Clear focus areas
  • Independent legal status

 

Corporate venture building: an investment with long-term added value

Determining how much to invest in corporate venture building depends on the business field and level of technologization: while 10 percent of the corporate group budget is a good ballpark figure for company funding in the majority of business fields, greater amounts may be required in technology-intensive sectors such as the automotive industry. It is therefore advisable to stagger investment expenditure in increments and not have too many experiments running at the same time.

The bottom line: corporate venture building is an ideal business model for equipping a parent company for the digital transformation and global challenges through the innovative power of a corporate venture company.

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