Corporate venturing: investing in digital expertise pays off
Fresh ideas and innovations from externally sourced bright minds – companies such as Google, Intel, and BMW are taking a corporate venturing approach to harness the expertise of startups in order to optimize digital technologies or tap into new business areas.
Investing in innovative growth
Many companies are being faced with the enormous challenge of keeping up with the constantly evolving and rapidly progressing digital transformation, flexible and agile business models, and the associated technical innovations. Adapting processes to the latest requirements, handling data, and meeting advanced customer needs are some of the issues that need to be considered if a company wants to achieve long-term success.
However, a lot of established companies lack the fundamental structures for meeting the demands of digitalization at the required speed. For this reason, even major brands like Apple and BMW are taking a corporate venturing approach by collaborating with small, innovative startups to reach their corporate goals effectively and quickly.
Corporate venture capital (CVC) is a form of venture capital (VC) in which affiliated companies invest the equity of their respective parent company in external startup firms. In contrast to venture capital companies, CVC activities are not only aimed at financial aspects such as high returns. The main objective of investing in business ideas and technologies is to promote the parent company’s strategic goals.
Options for organizing and implementing corporate venturing
Corporate venturing strategies can be implemented by companies either internally or externally. Internal corporate venturing focuses on strengthening and developing business processes within a company’s boundaries. External corporate venturing refers to all activities outside a company’s boundaries, leading to the formation of (semi-)autonomous corporate venture capital companies that are entitled to make largely independent decisions. Depending on the parent company’s strategy, the specific investment focus is placed on technologies, organizational matters, or rules regarding collaboration, for example.
Corporate venture investments are of a long-term nature because they are geared to strategic goals – in contrast to traditional VC companies, where the aim is to generate a financial return through a quick exit. Corporate ventures offer various exit options, such as a share deal or integrating the ventures into the company.
Challenges of corporate venturing
For the collaboration to work, clear strategies and objectives should be defined before and during the venture. Companies should consider potential challenges and critical success factors in advance:
- What well-known companies have successfully implemented corporate venturing? Drawing on best practice examples and the experiences of others can help you develop your own strategy.
- The corporate venturing strategy must match your company’s strategy in order to achieve the desired innovations. Collaborating with a startup is more than just a profitable investment – the support provided in terms of market access, contacts, and production expertise comprises important success factors that need to be taken into account.
- When deciding on a partner to collaborate with, time is of the essence because the competition could snap up the promising candidate first.
- This type of partnering isn’t just about your company’s success. For the collaboration to last, it has to be profitable for both parties.
- Communication and interaction between the CVC entity, the startup and the parent company are key to mastering digitalization effectively and quickly.
- Expect risks: corporate venturing can fail if the desired technological innovations are not feasible or the startup’s business model proves unsuccessful.
The bottom line: you need to collaborate to innovate
In a time of constant change, innovation is the essential key competence that determines the success of small and medium-sized enterprises. Agility, flexibility, resoluteness, and the courage to embrace a trial-and-error approach are qualities that innovative startups have in their DNA and from which SMEs can benefit in the long run on the path toward digital transformation.
With a well-thought-out corporate venturing strategy and the right startup partner, collaboration can be an exciting and promising opportunity for both parties.