My previous post in the corporate venture capital (CVC) series provided a broad historical perspective on the sector. In this post I review important lessons learned by CVCs that have been operating for many years and several economic cycles and best practices being used by newer CVCs. The lessons in this post would be of value to CVCs looking for best practices and corporate leaders whose companies have already established venture organizations or are considering doing so as part of enabling innovation.
In the last two years I have spoken to many business, technology, and corporate venture executives about their companies’ innovation goals and the initiatives they establish to address these goals. Several of these leaders are involved in the automotive industry and through our conversations I have concluded that a) in the next 10 years we will create more innovations that will impact the automotive industry than we have created in the previous 100, b) these innovations will be embraced because of certain important problems that must be addressed and will couple technology with other forms of innovation, c) because of the disruptive innovations that were introduced to the market in the last 3-4 years, and the ones that will be introduced in the near future, particularly those relating to the electric-autonomous-connected car, the automotive industry is approaching a tipping point of disruption.
In this post I review the two value chains that have been built around the automobile, discuss the societal problems that must be addressed and how the technology and business model innovations being developed to address these problems are disrupting the automotive industry. I also present companies that are pioneering these innovations while offering fresh visions on personal transportation.
In the previous post I introduced a five-dimensional framework to employ while setting up a corporate venture group and discussed in detail two of its dimensions: strategy and people. The corporation must establish a long-term strategy for its venture group. As part of this strategy it must create a set of objectives, formulate an investment thesis, decide on the stage of the target investments, the life of each fund, and the amount per investment. Recognizing that venture investing is a peoples business, the CVC must pay particular attention in hiring well. A CVC group may have up to six different teams depending on the scope of its activities and overall strategy. Next I will present the three additional dimensions: the incentives to offer to the members of the corporate venture group, generating the right deal flow to achieve the group’s strategy and satisfy its investment theses, and guidelines for the CVC group’s governance.
In the first part of the series on corporate venture capital I explored how the disruption of institutional VCs (IVCs) and the imperative for corporations to innovate provide an opportunity to corporate VCs (CVCs) to make their mark in the startup ecosystem and be viewed as viable and valuable financing sources to private companies. In the second part I provided more context on CVCs by presenting a brief history of corporate venture capital, and detailing the characteristics of CVCs during the dot-com period and today. In this blog I discuss when corporations should be establishing venture funds, I introduce a framework for creating venture funds and discuss two of the dimensions in this framework.
I started writing these posts with the hypothesis that in their effort to innovate, corporations must re-invent the traditional R&D model with one that augments the R&D efforts with venture investments, acquisitions, strategic partnerships and startup incubation. Corporate VCs (CVCs) are expected to play a big role in this innovation quest. It is assumed that a CVC can move faster, more flexibly, and more cheaply than traditional R&D to help a corporation respond to changes in technologies and business models. With that in mind corporations are establishing such groups in record numbers, including corporations from industries that have not traditionally worked with venture capital. Corporations have been providing their venture organizations with significant size funds to manage, and expect them to invest in companies of various stages and geographies. Today’s CVC prominence can result in many advantages for entrepreneurs and co-investment partners but also carries risks, many of which are due to the way CVCs are set up and operate within the broader corporate structure. In the last blog I examined how the disruption of institutional VCs (IVCs) can impact corporate VCs. In this blog I start taking an in-depth look of corporate VCs. I will examine the different types of corporate VCs, compare the characteristics of today’s corporate venture groups to the characteristics such groups had in the late ‘90s, and describe the areas where CVCs must focus on in order to succeed. In the next blog I will provide some ideas on how to best set up a CVC organization based on my work with such organizations to date.