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Corporate venturing has begun to garner more and more headlines in recent years, as an increasing number of companies commit to venture investing for the long term. Below, Boris Battistini, Fredrik Hacklin, and Pius Baschera discuss four steps that are consistently applied to make corporate venturing work.

Corporate venturing has begun to garner more and more headlines in recent years, and

this trend looks set to continue. Across industries, we observe an increasing number of companies as diverse as ABB, BMW, Google, or Tencent committing to venture investing for the long term, to complement, rather than substitute, ex-isting innovation and growth activities. In the last year alone,1 more than 550 corporate venturing units from around the world participated in about 1,100 deals, for a total size of funding rounds of more than $19 billion. The exit pipe is opening strongly, particularly in the U.S., as public markets roar back to life.

However, such headlines are the mere tip of the iceberg. Once a rela-tively low-profile activity, corporate venturing has moved into a signifi-cant position, playing an increasingly prominent role in the venture capital market. It has quickly assumed more importance as a strategy to increase in-novation returns, identifying and cap-turing the strategic value of emerging technologies, business models, and en-trepreneurial ventures.

But how do companies effectively or-ganise for venturing? What is the path to success to establish a new corporate ven-turing program? To address these ques-tions, we conducted a multi-phase global study of 48 high-profile venture units at leading international corporations in the Forbes Global 2000, in collaboration with Bain & Company2. Based on this

study, our research indicates four steps that are consistently applied to make corporate venturing work.

1. Evaluate the case for corporate venturing. Corporate venturing can be a highly effective approach to increase awareness of and gain access to leading-edge technologies and business models of strategic interest. Through providing an effective early warning of develop-ments in various sectors, corporate ven-turing activities can accelerate the pace of innovation. However, a company must carefully consider if corporate ven-turing appropriately addresses the chal-lenges it faces. Example questions (see Exhibit 1) to ask include: “Do we need to go outside to complement our inter-nal growth efforts?” and “Do we lack a thorough understanding of business dy-namics in adjacencies that might pose an opportunity or a threat?” Further, the company must assess whether the state of the core business can benefit from corporate venturing activities. That entails defining the relationship to the core business and examining the related opportunities and threats.

2. Choose objectives and setup. When establishing a corporate ventur-ing program, it is critical to define the strategic mandate and then select spe-cific objectives to address the challenges

Exhibit 1.Is corporate venturing the right choice for you?

Corporate venturing is not the solution to all innovation challenges in your company. However, if the criteria below apply to your case, a corporate venture unit is worth considering.

Do we lack a window on new developments in our business space? Do we need to go outside to complement our internal growth efforts? Is there a gap between internal R&D (BU-focused) and overall corporate growth objectives? Do we think the industry/technology landscape will change significantly in the future and it will be useful to make some strategic bets to position us for change?Do we lack a thorough understanding of business dynamics in adjacencies that might pose an opportunity or a threat? Are there corporate assets that could be leveraged to other markets using external ventures? Are there ideas internally that do not get escalated?

Source: Corporate Venturing Research Initiative (ETH Zurich / Bain & Company)

Organising for Corporate VenturingBy Boris Battistini, Fredrik Hacklin, and Pius Baschera

Strategy

faced. While a variety of approaches can be adopted for venture invest-ing, ranging from a strategic focus to a largely return-based orientation, a strong and well-defined mandate to cor-porate venture units from the executive team and board of directors ensures faster decisions, consistency of ap-proach, and follow-through on commit-ments on behalf of the corporate parent towards co-investors and ventures. A strategic mandate and objectives must be cascaded into a compatible organ-isational setup. All along the spectrum, from strategic to financial objectives, there must be reinforcement in support of the guiding principles, management practices, and performance measures to ensure success.

3. Define investment strategy and maintain discipline. In order to ensure strategic relevance, it is necessary to define clear investment criteria with regard to the venture unit’s chosen objectives. Our research indicates that multiple investment objectives are increasingly adopted and financial returns are considered essential to the long-term suitability of their activities — both internally to ensure the support of the corporate parent and externally to secure legitimacy in the venture capital community and to access

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high-volume, high-quality deal flow. Once the investment criteria are delin-eated, performance and management–related target values must be defined. It is equally important that these crite-ria and thresholds are not whimsically abandoned as time goes on. The invest-ment criteria and performance metrics are central to improve clarity on goals and alignment with the strategic objec-tive of the venturing initiative. The venture unit must evaluate potential investments consistently and ensure that follow-on investments continue to adhere to set investment criteria. This helps balance the return-based orientation of investors and the de-velopment gains of portfolio startups, on the one hand, with the innovation and growth targets of the corporate parent, on the other.

4. Review and adapt. Rarely do things remain constant, especially in the high-tech space in which many corporate venture units operate. Therefore, venture units must allow for changes in the fundamentals if challenges to be addressed evolve over time. However, it is important that once it has been decided to adapt a corporate venturing approach, the changes must be carried out system-atically, repeating the preceding steps and ensuring the rigorous application of the lessons learnt, rather than on a piecemeal basis (see Exhibit 2).

Caveats for ManagersCorporate venturing can indisputably be a powerful tool to achieve a variety of strategic and financial objectives, but it is not always the most appropriate tool, and considerable challenges stand in the way of success. When seeking a growth engine, a number of alterna-tives must be considered in concert. Traditional research and development, open platform innovation, M&As, and alliances are a few tools that may be more appropriate or have higher prob-abilities of success in certain scenari-os. Likewise, different industries and technological sectors may lend them-selves to one tool more than another. Corporate venturing requires long-term company support, rather than just the buy-in of an executive champion. The timeline to reap success from a corpo-rate venturing program is longer than the tenure of many executives. This ‘timing mismatch’ is one major chal-lenge to reaping success from corpo-rate venturing. The revolving doors of executive suites may lead to changes in commitment to a corporate venture unit. Another key challenge is main-taining discipline to delineated objec-tives and corresponding investment cri-teria over a prolonged period of time. Corporations tend to have less experi-ence in this realm than independent venture capital funds.

However, all is not lost. After some

50 years of corporate venturing history, there is more experience than ever before in doing things properly. The four steps recommended to increase the probabil-ity of success of a corporate venturing program draw on this cumulative wealth of experience. The economic cycle may ebb and flow, but today, more than ever before, the success of corporate venturing lies within every manager’s reach.

We are grateful to Alexander Pertot, Thomas Lustgarten, and Rebecca Altmann from Bain & Company for their support and participation in the Corporate Venturing Research Initiative. We would also like to thank the Swiss Commission for Technology and Innovation for the financial support (CTI grant 13872.1).

About the AuthorsBoris Battistini is a Senior Research Fellow at ETH Zurich and Project Leader of the Corporate Venturing Research Initiative with Bain & Company. His research interests are in venture capital, innovation and entre-preneurship and his work his work has appeared in journals such as MIT Sloan Management Review, Long Range Planning and Nature Biotechnology.

Fredrik Hacklin is an Assistant Professor of Entrepreneurship at ETH Zurich and Head of the Corporate Innovation Lab. He is the author of the book Management of convergence in innovation. His research interests are in corporate innovation and strategic entrepreneurship.

Pius Baschera is the Chairman of the Board at Hilti Corporation, where he previously served as Chief Executive Officer. He is currently Professor of Entrepreneurship at ETH Zurich, and board member at Roche and Schindler, among others. His research interests are on corporate renewal and business model innovation.

References1. According to the specialised data provid-ed by Global Corporate Venturing.2. B. Battistini, F. Hacklin, P. Baschera. (2013) The state of corporate venturing: Insights from a global study. Research-Technology Management, Volume 56, Number 1, January-February 2013, pp. 31-39(9)

Build and evaluate case for CV

Choose objectivesand set-up

Define strategy and maintain discipline

Exhibit 2. Four steps to set up corporate venturing

Setting up your corporate venturing activities needs to follow a stringent and goal-oriented process. In four steps, you can replicate what successful players in the industry have done and learned in the past.

Check if challenges faced are appropriately addressed by Corporate Venturing Assess if state of core business allows it to benefit from CV activities.

Decide on strategic mandate and choose objective to address challenges faced Translate mandate and objectives into profound oraganizational set-up supporting CV rationale

Define investment space Develop means that assess if investments fit into chosen space Going forward, ensure that all investment are locate in chosen space

Review and adapt consistently

Allow for changes in CV set-up if challenges to be addressed changeAs experince is gained, CV activities can have broader boundries Change CV set-up holistically and consistently throughout preceding steps

Source: Corporate Venturing Research Initiative (ETH Zurich / Bain & Company)

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