Corporate Venturing and CVC: Fads or Here to Stay?

Understanding the origins of Corporate Venturing and Corporate Venture Capital (CVC) dates back to the time of the large conglomerates that emerged during the period before and immediately after the First World War. In 1914, Pierre du Pont, president of the plastics and chemical manufacturer DuPont, invested in a six-year startup, a car manufacturer called General Motors. Du Pont identified synergies with the varnish, paint and artificial leather businesses that could be implemented in the manufacturing of new vehicles. During the following decade, the relationship allowed the development of products for new market segments, such as household appliances and anti-knock additives. Other companies of the time, such as 3M, Boeing, Alcoa and Monsanto, were also investment leaders, focusing mainly on diversification strategies.

Including that period, it is considered that Corporate Venturing and CVC have had four important waves. The second wave spans the 1980s to mid-’90s and laid the foundations to consolidate what is now Silicon Valley, with key figures such as Steve Jobs and Bill Gates. During that time, companies like GE and Xerox, were key players, focusing not just on diversification but also on investing in startups to enter adjacent markets.

The third wave took place between the mid-’90s to early in the new millennium and stands out for the expansion of  the internet that ended up in the dot-com startup crisis. This period consolidated companies with a focus on acquiring startups to strengthen their R&D, attracting innovation from the outside. Cisco was a key player but companies like Intel, Reuters and Oracle also  joined in.

The fourth wave began in the mid-’00s, after the dot-com bubble and continues to this day. It’s emphasized by the emergence of unicorns, a greater maturity in the type of acquisitions and a greater volume of investments as well as in number. According to CB Insights, CVC investments have increased from US$32 billion in 36 operations in 2016 to US$73.1 billion in 182 operations in 2020 and last year reached figures of US$169.3 billion with an additional increase of 221 new CVCs. Another interesting fact is that several of the companies that were still startups a few years ago, such as Google and Amazon, have created investment arms, such as Google Ventures (GV) or Alexa Ventures, to develop or acquire other startups that strengthen their offer to the market.

Over time, the CVCs' vision has changed, increasingly becoming long term and balancing strategic and financial objectives.

Current Development

Investments and the development of CVC vehicles have grown worldwide, with regions that are distinguished by the volume of their investments as well as the number of transactions. Although North America, headed by the US, is the world leader, Asia, with countries like China, has been stepping up heavily and standing out in some verticals, such as retail.

CVCs regularly invest in strategic or financial opportunities or in a combination of both, which allows them not only to have a better return on their investments but also to play smart and guarantee the survival of the company by strengthening its core businesses, while exploring new markets or new products before the current ones reach their level of obsolescence.

Taking Advantage of a Corporate Venturing and CVC Model

In our experience, the best results for companies are obtained when they simultaneously pursue strategic and financial objectives that allow them to focus on two or possibly three main purposes for the organization:

1. Allow a strategic renewal of the company's current products and business models

2. Identify new business opportunities that impact and allow entry to adjacent markets or generate a disruption or income in future markets

3. And a third and more radical approach, which allows it to be reborn digitally in order to compete with companies that are digital natives, such as NU Bank, Rappi and Clara, among others

Hence, the relationship between startups and corporations can occur in the following ways:

• Identify a new technology provider

• Licensing a technology that facilitates the development of new products or renewal of existing ones. 

• A joint-venture between both companies that allows them to share risk

• Co-develop a new service or product complementing their capabilities

• Develop revenue-share models by facilitating resources from one of the parties to the other

• Investment by the corporate when identifying a learning opportunity or future acquisition

• Acquisition by the corporation when the technology or business model offers a source of competitive advantage that is difficult to overcome by the competition

However, achieving these objectives requires in turn a series of prerequisites that are also relevant:

• Transforming the vision and governance of the organization

• Developing a growth mindset and culture based on innovation

Transforming the Vision and Governance of the Organization

This has to do with the change of vision within the organization in regard to the current business environment, focusing on three fundamental axes that make up the new governance of the company:

Leadership and focus on growth: The environment is increasingly uncertain, so the organizational structure must be able to quickly adapt to changes and have a vision of growth through leadership that facilitates empowerment in decision-making.

Knowledge Life-cycle Management: Knowledge, business models and sources of competitive advantage are becoming obsolete faster than ever. Organizations that grow learn constantly, generating data from the environment and from customers to incorporate them into the development of new products that are essential, not only for the survival, but also for the prosperity of companies.

Uncertainty and risk management: In a volatile environment, investments are also subject to great risk and must be executed smartly. For this reason, the adoption of new philosophies, such as trying, fast-failing and learning, makes it easier to pivot with a small budget to develop new products and incorporate the knowledge obtained.

Developing a Growth Mindset and a Culture Based on Innovation

Today, innovation plays a decisive role in attracting new customers, achieving differentiation, increasing the lifetime of the customer (LTVC), identifying white spaces and increasing entry barriers.

To achieve this, it is necessary to mobilize the organization around:

• Generating processes that allow building a vision around innovation and entrepreneurship

• Building structures, platforms and ecosystems that support growth

• Identifying tools to support growth

• Establishing the appropriate mechanisms and incentives

• Developing a culture that promotes and facilitates corporate entrepreneurship

Corporate Venturing, CVC Are Here to Stay

Corporate Venturing and CVC are an additional growth vehicle based on innovation that facilitates the generation of sources of competitive advantage and contribute to the permanence of the organization, generating knowledge and new visions of the world and business.

Luis Hernández Alburquerque is an expert leader in Corporate Venturing and Corporate Venture Capital (CVC) focused on transforming mindsets to build growing organizations based on innovation, technology and venture investments.