Corporate Venturing: The Ultimate Guide

New startups are sprouting up every day, bringing new value to the market, and disrupting the status quo with impressive innovations, new technologies and novel business models. Generational changes in spending power along with COVID-19 related shifts in consumer behaviour are further transforming the landscape, resulting in a:

• Distrust of large enterprises
• Preference for no-hassle online purchases
• Decreased response to traditional advertising
  

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Corporations, in turn, are looking beyond their trusted walls for new ways to:

• Keep up with the challenging pace
• Solidify their positions as market leaders
• Future-proof their businesses

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Corporate venturing is a powerful strategy that companies can leverage to achieve these goals.

Corporate venturing is a proven innovation and growth strategy in which a larger, more established company enters into a joint venture with one or more small, innovative startups. The goal of a corporate venture is to effectively leverage corporate assets to develop innovative products and/or services.

Entering a corporate venture can help established organisations tap into new markets, experiment with new technologies, try out new business models and create new revenue streams - all at a fraction of the risk.

The startup formula clearly works, as evidenced by some of the more popular cautionary tales, e.g., Airbnb vs traditional hotel chains, Uber vs the taxi- and rental car industries, Amazon vs the retail industry, the list goes on and on. So, are corporations just supposed to wait around for the next startup unicorn to come in and steal their market share from under them?

The answer is a definite and resolute no.

Corporate venturing can help you leverage your assets, reach new markets, discover new technologies, and adapt your core strategy to better meet today’s market challenges.

Corporate venturing is the key to speeding up innovation and financial growth in a rapidly changing market driven by disruptive startups. We’ve outlined some of the benefits below:

1. Speed

We’ve already gone through some of the factors that make it difficult for large corporations to innovate at the same speed startups do. Corporate ventures enable large companies to explore new opportunities with the same flexibility, autonomy and agility as startups.

2. New core business opportunities

Many fresh ideas in corporations are written off as “irrelevant because it’s not our core business”. This leaves these companies clinging to outdated offerings that could soon be made irrelevant by disruptive startups.

3. A broader market window

When scouting out for new business opportunities, companies are forced to learn about new and emerging markets. This leads to new insights that can broaden your vision and provide insights that can be applied to your current market - enabling you to better serve your customer of tomorrow.

4. High rewards with low risks

Launching corporate ventures enables companies to test new ideas in a lean, controlled setting. This is considerably less risky than testing a new concept, technology or business model company-wide, where it can be costly and damage the brand. Ideas and concepts that work can be rapidly scaled, and those that fail can be shut down with no real damage to the mothership.    

When it comes to corporate venturing (or any strategy for that matter), it’s imperative to anticipate the bottlenecks and have ways to overcome them efficiently. To help you do that, we’ve listed some common corporate venturing challenges and their simple solutions:

Challenge 1. Choosing the right venture.

Many corporations have trouble identifying the right criteria to choose their ventures. This will inevitably lead to difficulties down the road, like not getting the expected returns or not using the right tools to develop the venture.

The solution:

A good rule of thumb to avoid running into this challenge is to make sure your venturing arm is laser-focused on the company’s long-term growth goals, targets and resources. Build your decision criteria based on the corporate assets you can leverage as an unfair advantage.

Challenge 2. Balancing venture speed and corporate governance

Corporate assets like partnerships, expertise, funding, and other resources are vital for any successful corporate venture because they give you an advantage over competitors.

The problem is that it’s not always easy to leverage the necessary assets at the speed required by the startup. Corporate governance delays can cause the new venture to lose momentum and not reach its growth targets on time.

The solution:

The best way to address this challenge is to get ahead of it with proper planning and communication. A venture board can also be of great help, operating as an added layer around the team to ensure their success.

Challenge 3. Using the right incentives

Successful ventures require a leadership team that is resourceful, driven, motivated and above all, entrepreneurially minded. They need to have the proper incentives to go the extra mile and genuinely feel invested in their projects. Many corporations struggle to find the right incentives, which can be detrimental to the venture’s long-term success.

The solution:

Avoid this challenge by daring to incentivise your leadership team with the right legal entity setup and personal incentives. Use KPI-driven bonus models or offer equity shares.

Challenge 4. Managing customer data

Customer data has become an extremely precious resource. When efficiently leveraged, it can help you customise your offerings, improve your customer experience, increase sales, connect with your target audience and add useful features to existing products.

The problem is that even with all the available technology, we’re still having trouble collecting, analysing and securing it.

The solution:

Here are a few useful tips to help you manage your corporate venture’s customer data:

Know what you want to achieve with your data

Make the most of your data by linking it directly to your strategy. Remember, each objective you set at any phase must be measurable.

Make security a priority

According to IBM Security, the average cost of a company data breach globally is $3,86m (not counting the loss in customer trust). Take these steps to secure your data:

• Use a Customer Relationship Management (CRM), Customer Data Platform (CDP) or Data Management Platform (DMP).
• Invest in a data backup system.
• Make sure your employees are trained and certified to handle confidential data (GDPR).

Make sure your data is updated and accurate

Customer databases can quickly become cluttered, outdated and incomplete, leading to inaccurate conclusions during analysis. Take steps to prevent it.

Challenge 5. Ecosystem positioning

A business ecosystem is a set of companies that complement each other by:

• Supplying products for those in the ecosystem.
• Combining their offerings to create new value for the customer.
• Providing different ways to reach customers.
  

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The challenge is that it can be hard for new ventures to position themselves in an ecosystem and collaborate/partner/plugin into these complementary networks.

The solution:

Figure out what goals best fit your company’s capabilities:

• Is your goal to accelerate growth?
• Create new offerings?
• Build end-to-end solutions?
  

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Once you know that, you can start working towards your goals by establishing the right strategic partnerships and bringing in the entrepreneurial talent needed to move your agenda forward.

To give you a better idea of how corporate venturing works in practice, here are two examples of ventures that are helping their parent companies innovate from within:

1. Heineken’s Beerwulf

Headquarters: Amsterdam, NL‍

Industry: Food & Beverages

Founded: 2016

Flagship product: Craft beer platform

Employees: 51-200

Beerwulf is an online platform designed by and dedicated to beer enthusiasts. Its mission is to make a wide variety of craft and speciality beers accessible to everyone.

What makes this a successful venture?

When it came to the growing craft beer market, Heineken decided to facilitate the trend instead of fighting it. Today, Beerwulf is a thriving D2C platform where homebrewers can offer their creations to the public using Heineken’s infrastructure and reach. It also provides Heineken with insights about the different preferences of their beer enthusiasts.

2. ABN AMRO’s New10

Headquarters: Amsterdam, NL

Industry: Banking

Founded: 2017

Flagship product: SME digital lending services

Employees: 11-50

New10 is a fintech startup that enables SMEs and entrepreneurs to get loans online and find out if they qualify within 15 minutes.

What makes this a successful venture?

Through New10, ABN AMRO got to experiment with new technologies and learn from an alternate business model without risking too much capital. This led to:

• The chance to adapt to the changing standards in the business loans market
• Innovation without rocking the bank’s internal structures
• Access to a broader target audience.
  

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The platform is also a treasure trove of valuable insights, enabling the bank to learn more about its customer’s needs and preferences. For more examples, download our 50 corporate ventures report.

Now that you know more about your corporate venturing options, it’s time to identify which innovation tools work best for your organisation. Start by identifying your corporation’s higher-level objectives (i.e. the goals you want to reach) using the handy corporate objectives chart below:

Once you’ve done that, you can use the guide below to find out which tool would be most effective in helping you reach your specific objectives:

Ecosystem

Companies seeking an ecosystem objective need tools that can create an effective platform for startup engagement. We recommend tools like accelerators, events, and sharing resources.

Culture

Is your team or corporate structure lacking a startup mindset? To boost the entrepreneurial spirit within the office, corporates should choose tools that will help rejuvenate their corporate culture. To achieve this goal, we recommend incubation and sharing resources.

Innovation

If your main objective is to reach adjacent markets with modest change, use tools suited for incremental innovation. We recommend strategic partnerships, accelerators, incubators, and venture development studios.

New markets

Ready to get radical? If your goal is to venture outside your core business, we recommend a tool aimed at seeking out new sectors or target groups. Corporate venture capital investment, M&A, and venture development studios are all great choices.

Many companies start their corporate venturing journey either by building a single venture or by setting up a venture building machine, aka, corporate incubator. To help you figure out which approach is right for you, we’ve defined each tool in more detail and outlined some of their advantages and disadvantages below.  

Corporate incubation

Corporate incubators or in-house incubators operate within a corporate setting. They leverage internal assets, talent, networks and other resources to support intrapreneurs in building new ventures from scratch. The incubator approach essentially creates a framework or program to build a pipeline of new ventures.

Corporate venture building

Instead of building a program (like a corporate incubator), this approach focuses on building a single venture. Teams can immediately cut to the chase, learning as they go and hitting actual milestones a lot faster (e.g. MVP, launch, scale, etc.). It enables teams to start small and gain insights through their own “on-the-job” experiences.

The advantages

Despite their many similarities, these techniques tackle corporate venturing in different ways. Let’s take a look at the different benefits of each approach:

The disadvantages

Now, let’s take a look at some of the drawbacks of each approach:

If your company has a wide range of entrepreneurial experience - starting an incubator is probably the right way to go. Here are just a few of the questions you should consider:

• Does your company have any corporate venturing experience?
• Does anyone on your team have experience working with startups?
• Is there currently any type of venturing process in place (e.g. M&A)?
• Have you developed any internal innovation projects?  
  

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The more “YES” answers you have, the better the chance that you can start with a larger incubation program.

Entity structures can make or break new ventures, affecting their speed, development and success rates. Choosing the right one is a crucial part of the process, but it can be tricky with the seemingly endless list of possibilities (e.g. Spin-outs, spin-ins, business units, etc.).

In this section, we’ll focus on business units and spin-offs since they’re the most common options for companies that want to expand past their core activities to accelerate growth.

What is a business unit?

A business unit is a fully functional unit with its own vision and direction. Typically, strategic business units operate as separate entities while remaining an essential part of the existing legal structure of the parent company.

What is a spin-off?

A spin-off refers to the process of creating a new company that operates separately from an existing one (e.g. through the creation of a subsidiary or joint-venture).

Spin-offs have their own assets and distinct business operations that are no longer under the parent company’s control.

Make sure to carefully examine the characteristics of each entity so that you can make an informed decision about which one fits your company best.

We've all heard the statistic that 90% of new businesses fail within their first year for various reasons:

• Lack of funding
• Incompatible teams
• Inadequate validation and proof
• Inadequate marketing  
  

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Even corporate ventures, which have a significantly higher chance of success due to the smart leveraging of corporate assets, aren’t immune to the possibility - and there are plenty of examples to prove it.

The good news is that each failure delivers an endless array of insights, strengthening your company’s capabilities, knowledge and expertise and helping you avoid detrimental mistakes in the future. In other words, failure can be used productively. The trick is to keep your losses controlled and small by constantly validating various elements using lean experimentation techniques. This approach allows you to fail forward and gain the insights needed to make key decisions: iterate, pivot, or kill it.

Corporate venturing is a cost-efficient and effective way to accelerate growth, create new revenue streams and innovate:

• Bringing a deeper understanding of customer pain points and preferences
• Enabling companies to optimise their business models and offerings
• Facilitating out-of-the-box applications for new technologies
• Acting as a springboard for the creation of future products and services
  

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However, despite the vast rewards, it’s not a risk-free process and requires careful planning, preparation and an entrepreneurial mindset to execute successfully. Working with the right innovation tools, techniques and partners can go a long way in helping you overcome any risks and get the returns you’re looking for.

For more details, read what these four leading innovation experts had to say about innovation governance, agile organisations, targets, KPIs, and the very definition of corporate venturing.

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At Bundl, we help companies leverage their unique assets to boost innovation and accelerate growth from within. We’d love to be part of your corporate venturing journey and turn your vision into thriving new revenue streams.