Corporate Venture Capital’s Role in Disruptive Innovation Part 1: Institutional VC Disruption

A large corporation recently requested my advice on how to set up and structure their venture fund, which they wanted to base in Silicon Valley. This corporation had initially set up a venture fund in the late ‘90s to invest in Internet startups. By 2002 they closed down the fund after determining that its portfolio companies had lost their financial value and had created little intellectual property of interest. But the startup activity of the last four years and the disruptions startups are causing in the company’s industry is leading it to re-establish its fund. This example, and many other similar ones, demonstrates a recurring theme of the past three years: corporations from a variety of industries are establishing, or re-establishing, venture funds in Silicon Valley, and other innovation clusters, and are aggressively participating in startup financing rounds. According to Global Corporate Venturing today 1100 corporations have active venture funds.  The number of funds has doubled since 2009 and 475 of which have been established since 2010. VentureSource reported that corporate venture capital firms (CVCs) invested $5 billion during 1H14, a jump of about 45% from a year earlier and the highest level since the dot-com era. The emergence of corporate venture capital as a major source of startup funding has been the result of two factors, the first accidental and the second intentional. First, because institutional venture capital is being disrupted, corporate venture capital is able to fill some of the void that is created and emerge as an important startup-financing source. Second, as was previously discussed, corporations intend to access externally developed disruptive innovations by participating in the financing of startups. This blog examines what CVCs need to understand about the institutional venture capital disruption in order to best capitalize on the opportunities it will create. In the next blog I will explore how to best set up a CVC organization so that it can provide the corporation with impactful, over the horizon visibility to technologies, business models and startups that can help it achieve its innovation goals while becoming a trusted and value-added partner to entrepreneurs.

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Silicon Valley’s Role in the Re-Invention of the Disruptive Corporate Innovation Model

Corporations from industries as diverse as agriculture, manufacturing, logistics retail and financial services are being disrupted at an unprecedented rate by a variety of innovations. From technological breakthroughs in cloud computing and big data analytics to disruptions like crowdfunding and social engagement, most of these innovations are created by startups, including many that are based in Silicon Valley. As corporations attempt to address the implications of these disruptions and become more innovative, they are trying to determine how to interact with and benefit from the startup ecosystems creating these innovations. In this series of posts I will present and discuss a new model for corporations to use as they consider disruptive innovation. The model is very much influenced from my experiences over the past 25 years in Silicon Valley as an entrepreneur, startup and large company executive, and investor, as well as by the interactions on this topic I had with over 100 corporations over the past three years.

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