CVC Funds to Transform Companies

According to PwC's 27th Annual Global CEO Survey, which surveyed 4,702 CEOs across 105 countries and territories, nearly half of respondents expressed increased concern about their long-term business viability. Nearly half say they are concerned their businesses will not be viable beyond the next decade. According to Bob Moritz, global chair of PwC, as business leaders worry less about macroeconomic challenges, they focus more on disruptive forces within their industries. Despite growing optimism about the global economy, they are less optimistic than last year about their own revenue prospects and more aware of the need for a fundamental reinvention of their business.

This survey corroborates the findings of McKinsey's 2016 study, which found that the average lifespan of companies in the Standard & Poor's 500 was 61 years in 1958. Today, it is less than 18 years. McKinsey believes that by 2027, 75% of the companies currently listed on the S&P 500 will be gone. They will be bought, merged or bankrupt like Enron and Lehman Brothers.

The reality is that the confidence of managers is fragile as megatrends that include the technological disruption of each of the industries converge.

While this high degree of uncertainty across industries puts businesses at risk, it is time to act. Transform business models, invest in technology and the development of new capabilities and knowledge, as well as manage the risks and opportunities that arise.

For this reason, today more than ever, it is important for managers to develop new growth vehicles that allow them to achieve the transformation of organizations and that consider the megatrends that are disrupting the world and industries.

Impact of Megatrends on Industries

Over the past 20 years we have experienced several important changes in the way we function as a society, and with those changes come new opportunities to rethink the corporate future. The most successful company shareholders and CEOs will be those who challenge current industry assumptions, accurately predict how these megatrends will impact their business model and develop a vision for the future.

Megatrends are having a high impact on how we develop, consume, compete, move and understand the world. Digitalization, artificial intelligence, the green economy, climate change, workforce, remote work and aging societies are some examples of these megatrends.

In addition, six different generations are living together in business, in the market, and in consumption: the silent generation, baby boomers, Generation X, millennials, generation Z and Generation Alpha. This has great implications from the perspective of worldview, consumer habits, the way they relate to each other, and certainly from the workforce and the relationship with products and services.

All these changes are intertwined and correlated, affecting companies and their business models.

CVC Funds to Transform Companies

Corporate Venture Capital (CVC) is a proven innovation-based growth strategy in which a larger, more established company invests in several technology-based startups. The corporate objective is to effectively take advantage of the organization's assets to promote the development of innovative products and services.

One of the greatest benefits of CVC is that it mitigates the corporate's risk against disruptive innovation. By investing in startups working on potentially disruptive technologies, large companies can stay ahead and avoid being disrupted.

CVC provides numerous benefits, including fostering innovation through a portfolio of alternative solutions, while driving growth by exploring new markets. Diversifying risks and leveraging external innovation increases the organization's competitive advantage.

Corporate Transformation: A Backward Design

Disruption occurs when new technologies create products or services that are more accessible, convenient and affordable than existing offerings. Anticipating the future requires the development of innovative solutions that are quickly adopted by the consumer. Many of these developments today are in the hands of various entrepreneurs who have gone through a process of building their startups.

For a corporation, it is best to think about how to partner with these entrepreneurs by investing in them and jointly scale quickly in the market. This will help the corporation transform its organization and the industry.

The transformation process of a corporation requires integrating several stages into a model with a long-term vision, but pragmatically integrated in a way that allows, on the one hand, to anticipate the future and, on the other, to create a portfolio of growth opportunities based on innovation. The transformation model integrates the following stages:

Analyze trends – The first step is to analyze the future through trend research and understand the technological horizons in the next 10 to 15 years. Business models, solutions and technologies that cause change are identified, while customer needs and perspectives are listened to.

Design the future – Next is to formulate bold ideas, design and create compelling scenarios of how new businesses would add value to the consumer, to solve their needs and demands, to the industry and to the strategic growth of the organization. This will also allow us to largely define the investment thesis of the Corporate Venture Capital fund that ensures the greatest impact on the transformation process, the structuring of new businesses and the adoption of new technologies.

Build the future – At this stage, through a scouting process, identify startups and innovative companies in the various industry segments that meet the fund's investment thesis.

Connect with the various innovation ecosystems, talk to entrepreneurs and establish agreements that allow you to work together with their startups and develop mutual business opportunities. 

Validate and iterate – In the final step, the process focuses on validation with a customer base on a controlled scale that allows the corporation and the startup to ensure that the value proposition meets the requirements and satisfies the needs of consumers. If not, look for quick iterations that allow you to refine the solution until you develop the experience that satisfies the client's needs and from there measure the strategic and economic impact for the organization.

Scale – Once each of the opportunities in the growth business portfolio has been validated, invest in them through the CVC fund and prepare the business for scaling.

A transformation process takes several years for a corporation, but it is better to start now and avoid the risk later of reaching the stage of decline, when it will be almost impossible to react.

The impact of this model on the organization will transform the culture, growth, innovation, the development of new capabilities, knowledge, adoption of new tools, as well as the retention and adoption of new talent.

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.