Table of Contents
- What is a corporate venture?
- What is the difference between a startup and a corporate venture?
- How are corporate ventures created?
- What are some examples of Corporate Ventures?
- What is corporate venturing also known as?
- What are the benefits of corporate venturing?
- What are the risks of corporate venturing?
- Why do corporate ventures fail?
- What is the failure rate of corporate ventures?
What is a corporate venture?
Corporate Ventures are new businesses developed from within a corporation, usually to help diversify revenue generation or meet other strategic goals. Ventures may be businesses adjacent to the core business or net new businesses for the company.
Corporate ventures have a dedicated team and operate with varying degrees of autonomy from the legacy organization. As these ventures mature, they may have their own brand, market positioning and business model. They can be developed in-house using the capabilities of the corporate, co-developed with partners who have venture building expertise, or emerge from a combination of existing assets and ones acquired from outside the company.
What is the difference between a startup and a corporate venture?
There are several differences between startups and corporate ventures.
- Ownership: Startups are created and owned by a founding team, with investors and potentially employees having an equity stake. Corporates may be considered as customers, or someone who may acquire or invest in the startup. Corporate ventures are majority owned by an established company. Though, some hybrid approaches may allow for external investors or even part employee ownership.
- Investors: Startups may be self-funded by the founding team (i.e., “bootstrapped”), use a bank line of credit, receive funding from angel investors, venture capital, or corporate venture capital. Corporate ventures usually receive funding directly from a corporation.
- Strategic goals: Startups aim to generate revenue or create a liquidity event via an acquisition for the founding team and investors. Corporate ventures aim to commercialize technical, product, service, or business model innovation generated wholly or partially from inside the organization. The goal is to learn about new markets and build new revenue streams.
- Talent: Startups are founded by entrepreneurs, while corporate ventures may be founded by employees within a corporation, who have entrepreneurial attributes or experience. We call these employees Corporate Explorers.
- Skills: the work of ideating, incubating, and scaling a new venture is broadly the same whether it is done inside or outside a corporation. Though, the differences between each context present different challenges (e.g., inertia of corporations; lack of discipline of startups) and advantages (e.g., assets of a corporation; access to capital of a startup).
- Attributes: Leaders of startups and corporate ventures share many of the same traits: passion, tenacity, vision, tolerance or risk and uncertainty, confidence, and willingness to break the rules. Each must be expert at managing their investors, though Corporate Explorers must win support from a wider set of internal stakeholders, and are usually more humble and socially connected within organizations than entrepreneurs.
- Competitive advantage: A key competitive edge of Corporate Ventures vs startups are the resources and assets the can access from the corporate itself including existing customers, channels and markets, IP, and brand. Startups have to build up their assets and competitive advantage over time. It is notable that over 80% of startups seek an “exit” by being acquired by a corporation in the expectation that that will deliver scale.
- Flexibility: Startups are less structured and have less specialized roles than corporate companies. Startups can also act nimbly to adjust business practices and hit shifting goals.
- Decision-making: Corporate ventures may be slower to make decisions and may be more prone to overspending on innovation without evidence.
- Timeline. Corporate ventures often take a more measured approach to scaling vs. startups who are looking to grow quickly. Corporate ventures often have a longer timeline than startups.
How are corporate ventures created?
Generally, there are four ways that corporate venture building works within a company.
- Explore Business – a unit focused on developing a specific business idea to solve a high value customer problem (a (“hair on fire” problem that someone is willing to pay you to solve). The venture often emerges from the insight and energy of an individual Corporate Explorer without the benefit of an “innovation unit” to support their work.
- Explore Unit/Venture Unit – a separate unit set up to explore new market areas and create new ventures. This unit is responsible for ideating and incubating new business ideas outside the day-to-day operating environment. These businesses are scaled either within the unit, a sponsoring Business Unit, or “spun-out” as a new entity.
- Accelerator– a program run at the corporate level, for potential venture leaders to validate their idea. This program helps new projects apply a methodology to validate a business model by providing mentorship, training, and tools. Ventures have the potential to spin out of the corporation, or spin into a Business Unit.
- Venture Studio– external entrepreneurs and funders develop ventures with a corporate, using some of its assets. The ventures may then be developed into a fully fledged unit, sold externally, or developed internally with external entrepreneurs, often called Entrepreneurs in Residence. This might happen within an Explore Unit, or as part of an external partner’s venture studio. Corporates may retain an ownership stake and option to spin-in post-incubation, or to be part of a liquidity event via an acquisition.
What are some examples of Corporate Ventures?
There are numerous examples of corporate ventures.
- Explore Businesses. Best Buy Health, LexisNexis Risk Solutions, UNIQA Cherrisk, General Motors Durrant Guild.
- Explore Units. Enel Green, UNIQA Mavie Next, PanasonicWELL, IBM EBOs, NEC Global Innovation Unit, AGC Business Development Division, Analog Devices Garage,
- Accelerator. Mastercard Labs, Bosch Validation Engine, Analog Devices IOT Sprints, Intel Emerging Business Initiative
- Venture Studio. NEC X, Walmart Store #8, Nestle.
What are the benefits of corporate venturing?
Companies experience many benefits from corporate venturing.
- Generate net new revenues.
- Provide access to new markets and customers.
- Test new business models and offerings; gain a competitive edge.
- Discover, define and build relationships with ecosystem partners.
- Learn about new technologies and business models.
- Attract and retain top talent.
- Foster a culture of innovation within the organization.
What are the risks of corporate venturing?
The risks of corporate venturing include:
- Conflict: Conflict may arise between the corporate parent and the new venture, particularly around risk tolerance, business outcomes and incentive structures.
- Unsuccessful venture: There is always a chance that the new venture will not be successful.
- Missed opportunities: Core business may miss opportunities as it diverts resources to new ventures.
- Dilution of stake: The stake of the founding and/or management team may be diluted meaning they have less skin in the game and may not be as motivated as founders of a startup.
- Financial investors driving priorities and terms: The corporate may not always be the lead investor, and other financial investors may drive the priorities and terms.
Why do corporate ventures fail?
Corporate ventures can fail for many reasons. We call these silent killers of innovation.
- Leaders do not support innovation.
- Managers lack the skills to act as entrepreneurs.
- Companies push solutions inside-out, without doing proper customer discovery.
- Risk avoidance.
- Competing priorities; corporate is optimizing for short-term gain.
- Culture- the test-and-learn approach clashes with the company’s focus on operational efficiency.
- Failure to provide sufficient incentives.
What is the failure rate of corporate ventures?
The failure rate of corporate ventures is difficult to measure since there is less data publicly available about the success of corporate-backed ventures. However, firms who research these failure rates (BCG1, McKinsey), suggest that the success rates of corporate ventures are similar to or slightly lower than the success rates of venture capital funds, which fall in the range of 20 %to 30%.
1 A Proven Model for Corporate Venturing, Patrick Forth and Stefan Gross-Sellbeck, June 15, 2022, BCG