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Choosing the best Corporate Venturing Projects - Ideas for Leaders
Idea #762

Choosing the best Corporate Venturing Projects

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KEY CONCEPT

A research study based on more than 120 interviews with chief innovation officers on three continents reveal some of the strategies that increase speed and reduce costs of corporate venturing projects.


IDEA SUMMARY

Corporate venturing, a collaboration between an established firm and an innovative start-up, has been gaining ground as a strategic path to innovation. There is a wide range of mechanisms for corporate venturing, of which the following is a sample: 

  • Scouting missions. Looking for innovations aligned with the company’s goals, representatives of the corporation meet with start-ups, inventors and researchers.
  • Sharing resources. The simplest form of collaboration between corporations and start-ups: start-ups get access to cost-effective or free corporate resources, while corporations improve their branding, attract talent and gain visibility.
  • Corporate accelerator or corporate incubator. A corporate accelerator is a corporate program that offers intensive support to cohorts from start-ups — from mentoring and training to physical working spaces to financial resources (often in exchange for a share of equity). A corporate incubator is the same kind of program offered to entrepreneurs. 
  • Corporate venture capital. Corporations invest in start-ups as a fast-track access path to innovations, technology and products or services. In addition to financial resources, start-ups gain access to the corporations’ know-how and advice.
  • Acquisition. Corporations may acquire start-ups outright, gaining immediate access to products, technology and capabilities. 

In choosing the right mechanism for their corporation, chief innovation officers in corporations must consider a number of key questions related to cost (in time and money) and speed, such as: How much will it cost to integrate opportunities’ value into the parent company using each corporate venturing mechanism? How can those costs be reduced? Do the costs differ according to mechanism? Are certain mechanisms quicker than others? 

A research report produced by a team from IESE Business School and the consulting firm BeRepublic and based on a survey of 121 chief innovation officers in firms from the U.S., Europe and Asia, provides some answers.

One important consideration in the choice of mechanism is the development stage (discovery, start-up, and scale-up) of the desired opportunity. Scouting missions and sharing resources are mechanisms for corporations who are looking to engage in the early discovery stages of innovation development. Establishing a corporate accelerator or incubator might be the best mechanism for corporations looking to engage with established start-up opportunities. Corporate venture capital or even outright acquisition may be the best strategy choice for corporations looking for well-developed opportunities that are seeking help in scaling up.

To better understand the speed of different corporate venturing mechanisms, the study breaks a corporate venturing project into three stages: 1) identification, which involves the corporation’s internal challenges and potential research areas and scouting for a problem-solution fit; 2) collaboration, the stage in which the corporation approaches and signs a collaboration agreement with a start-up; and 3) integration, the challenging third stage of integrating the value of the opportunity (e.g., knowledge, products, business models, or revenue sources) into the corporation. 

The integration stage typically takes the longest time. For example, the identification stage of a corporate incubator program takes an average of 3.5 months, the collaboration phase 7 months and the integration phase 16 months, for a total average time of more than 2 years (26.5 months). A corporate accelerator program is much more intense, lasting an average of less than a year, including 2.2 months for the identification stage, 2.3 months for the collaboration stage and 6.8 months for the integration stage. 

Costs also vary widely among the mechanisms. The average cost per opportunity per year of $152,450 for sharing resources is half of the equivalent cost for corporate incubators ($294,500) and corporate accelerators ($310,333). Costs can also vary widely depending on the opportunity: acquisitions in the study ran from less than $200,000 to more than $700,000.


BUSINESS APPLICATION

In addition to providing data for the various mechanisms, the study also provides some guidance in making the right corporate venturing decisions. For example, to improve your corporate venturing strategy, the study suggests using data not intuition in designing the strategy; plan carefully; and identify bottlenecks in the identification, collaboration or integration stages. 

To increase speed, adopt agile principles (flatter structure, modular processes), especially in the integration stage; prevent foreseeable delays (for example, if you’re moving into a new regulatory space, hire the legal expertise that will speed up the process); increase your brand awareness, which will speed up identification (as start-ups come to you) and collaboration. 

To reduce costs, the report suggests a “joint three pockets” approach, involving corporate headquarters and a business unit in the financing of the venture, thus adding two “pockets” to the innovation unit’s funding.


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FURTHER READING

  Julia Prats’ profile at IESE Business School
  Josemaria Siota’s profile on LinkedIn
  IESE Business School Executive Education profile at IEDP

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Idea conceived

February 1, 2019

Idea posted

Jan 2020
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