Innovation is a difficult task in a corporate setting. Many firms have established corporate development and research teams. But not innovation teams. Because corporations often have multiple divisions and people within their organizational charts, it can be difficult for one team or group to get a full view of the bigger picture. While intrapreneurship can inspire internal innovation and may be risky, this model is worth supporting.
Corporate Venture Capital: The nature of the investment
There has been a wide range of opinions about corporate venture capital (VC). Companies like Dell and Boeing have sacked their internal VC teams. Yet, CB Insights reports large tech companies increased their startup investments by $16.7 billion to $7.6 billion between 2019 and 2020. Google Ventures, Intel Capital, and Qualcomm are all examples of successful corporate VC organizations. But it’s difficult to duplicate this model. CB Insights found that 88% of S&P 500 firms do not have an in-house investment team.
Corporate investment’s goal is to support a company’s vision and harness the power of innovation. Startups are the most disruptive source of creation, and they are also inherently disruptive. They fill in technology gaps and might be able to access new customers or markets. Investing is an efficient and quick way to gain these resources.
But it can be challenging for corporations to identify well-run startups and have the right solutions to improve their businesses. Creating an internal VC team can be difficult because it is difficult for intelligent, experienced people. They can be expensive to hire, especially in Silicon Valley. It’s also difficult to motivate them to stay. For a small company to put together a team, it might cost millions. Employees are constantly at risk of getting job offers from competitors once they are in place.
Outsourcing corporate innovation (sometimes called venture capital-as-a-service) is a great way to find innovative solutions in a flexible, cost-effective manner. The corporation partners with a VC agency; they agree to performance indicators upfront, and the VC agency is responsible for their implementation. The Wall Street Journal stated that approximately 75 percent of venture-backed businesses in the U.S. aren’t returning investor capital. Therefore, it is logical to rely on skilled venture capitalists to make such investments.
It may be less expensive to outsource corporate venture capital than to create an internal investment team. The corporation can pivot and change its priorities at any time. Based on the client’s requirements, the VC firm will modify strategy and scale.
VCs can identify the right startups and innovate to help their corporate partner by conducting research and building strong relationships. Startups, who are typically more protective of their intellectual properties, might be more willing than corporations to share their technology secrets. They might fear that the corporation will profit from these secrets and make an investment.
Because successful startups don’t have a shortage of investors, they can quickly secure funding through the existing relationships with established VC firms. Corporately, the company has almost immediate access and innovation without having to set up an internal team.
We expect corporate venture capital’s evolution to continue over time. Some firms may succeed, while others will likely struggle. An intelligent way to achieve success is to hire a VC firm with the experience and team to do it. Doing this can lead to incredible innovation and benefit everyone around the world.