In our last webinar session, we hosted a roundtable discussion on corporate venture building, with the industry experts: Julian Ritter, Associate Partner at Stryber, Giacomo Mollo, Co-Founder at iN3 Ventures, Jos Werner, Partner & 12X Lead Corporate Venture Builder at Aimforthemoon, Inigo Balbin, Venture Manager at 7r Ventures.
Make sure to follow us on LinkedIn and join our LinkedIn group to not miss the next webinar sessions. If you still have questions after the article, make sure to watch the recording of the webinar. The recordings of previous sessions are available within StudioHub premium membership packages. But now, let’s dive right in …
Corporate venture building changes the approach to innovation
The advantage of corporate venture building is that it will enable a larger company to move at the speed of a startup. Every day new agile competitors are entering the markets by enforcing their innovation efforts and working on them rapidly because they don’t have the burden of bureaucracy or managing reputational risk. Corporate venture building is an approach where one can use the already existing corporate assets while still moving at the speed of a startup.
Key factors that make corporate venturing attractive
Across industries, the life spans of companies are diminishing. Business models go out of fashion quicker with the innovative disruption. Many companies define themselves through one kind of core business model or a group of very related business models. Digital transformation and working on the core businesses are essential because that is the key revenue driver today. But to be relevant in the future, diversifying the business models is vital. When speaking to anyone at a corporate level, they are not tempted to invest a lot of money in something that could be big in the long-term, but it could also very well fail.
These diversification efforts take a long time to have an impact on the balance sheet and on the P&L, which is not ideal when working with a short term focus. Stryber has conducted research on this topic. They looked ahead over a 10-year horizon and through a list of 1800 companies across the US and Europe. Those companies that showed significant diversification in their revenue base outperformed the group of companies that didn’t diversify vastly. This happened way before you could see the impact of diversification on the P&L.
Metrics of corporate venture building
One of the key ingredients to make corporate venture building successful is the corporate governance. In the CVB unit, the governance should work more like a VC fund. The metrics used are startup metrics. And these are often very much focused on how unit economics perform over a particular time period and market scalability. Comparables are used to analyze how much the created business is worth. This means launching in the market, and seeing the median valuation in that particular geographic area. This process is not quite tangible for a lot of corporates. But that is where governance comes in and the role as the consultants primary to acting as the venture builders.
Set up and scale successful corporate ventures
The role of corporate venture builders is to try and make things easier and agile setting off in the best way possible, considering all of the neatest information to take in. There are two different scenarios to start.
There is a strategic mandate from top-level management to generate a certain amount of revenue from new businesses. In this scenario, it’s an industry hit hard by new entrants. New tech is coming along and the top management understands that they need to get revenues in businesses that don’t exist right now.
- The key action is to define an initial number and work backwards to build & define a strategy on how many businesses you need to ideate, design and launch.
- Based on the initial numbers, you can go back with top management and: fine-tune the level of ambition, areas of exploration, funding strategy, control, and exit strategy.
There is not a strategic mandate yet, so first, you need to generate the opportunity. The way to convince corporates in this scenario is to have a playbook and governance in which you know what would be the expected output on every next step. After the first phase, if you’re happy with the output, you can continue with the following phase, and so on. With this approach, corporate venture building is not different to any projects that corporates launch internally.
- Define sourcing: 3-5 key areas of exploration and identify which are the key stakeholders and experts in those areas. Define from those areas where do you have permission to play: places where you have an unfair advantage based on your assets (brand, patents, licenses, sales reps)
- Do an initial exploration phase and match problems in the key areas with assets to build a long list of potential business opportunities.
- From those opportunities, you can build a strategic plan bottom-up on how to approach the design and launch to present to the executive team with all stakeholders aligned
It’s also important to have support from senior management and involve them in the meetings to show them the work that has been implemented and all the data collected. And involve them in decision making to get their opinion, then turn it into an assumption and test it. In that way, they will also be a co-owner of the value proposition and start believing in it. They need to be part of it otherwise it might be difficult to get to a point where you want to proceed to the next stage.
A different model of corporate venture building
Corporate venturing can take different shapes and forms and the corporate venture studio is one of them. iN3 Ventures shares the same spirit in terms of de-risking and finding new ways to evolve corporations. That’s the same starting point, but then it goes in a different direction.
iN3 Ventures encourages companies to build equity portfolios in startups. The approach is to take small positions in a series of different companies that can be either strategic to the business or with a more diversified outlook, to have a foot in the door in a different industry. The idea is to create a sort of corporate VC fund within the company and support companies in building all the infrastructure around this. What is interesting about this approach, it is feasible also on a smaller scale. The company can feel the pulse of different industries in different directions and then eventually decide how to proceed in the best way possible.
The role of de-risking in corporate venturing
De-risking is part of the venture building process, but there are two sides to it. There’s an element of de-risking your individual bets. Starting with a big funnel and eliminating bad ideas is what drives ROI for the overall portfolio. The vast majority of projects are being ditched simply because there’s risk in everything that you do. A lot of them get terminated quickly after a week or two of like quick due diligence, some of them are being shut down after four weeks of high-level prototyping.
At the same time, risk is inherent in building startups. After all, there’s a lot of uncertainty, but risk is great because it drives value in the long term. Without taking any risks you will never create anything that has significant potential upside. VC funds and startups understand it and corporates must understand it if they want to compete with startups in the long term.
About the Speakers
Julian Ritter, Associate Partner at Stryber. Stryber is a Corporate Venture Builder with offices in Switzerland, Germany, the UK, Spain, Ukraine, and the UAE. Julian is leading Stryber’s UK office, is a startup investor and mentor, a former startup founder and consultant at Bain & Company.
Giacomo Mollo, Co-Founder, Partner at iN3 Ventures. Investing in high potential early-stage companies that are in line with his passions. He believes in exceptional entrepreneurs, structured risk analysis and strategic asset management for long-term portfolio growth.
Jos Werner, Partner & 12X Lead Corporate Venture Builder at Aimforthemoon. Aimforthemoon is an Amsterdam-based corporate innovation studio serving market leaders with a major presence in Western Europe. Arguably one of the most experienced venture builders in Europe, Jos started his career at Nestlé with the successful market introduction of Nescafé Dolce Gusto before joining Aimforthemoon where he’s involved in innovation strategy and venture building across multiple industries.
Íñigo Balbín, Venture Manager at 7r Ventures. 7r is a Corporate Venture Builder based in Spain. He has startup experience having launched a travel tech company and former consultant at Deloitte & Google.
ABOUT THE AUTHOR
Currently – Finishing my Bachelor’s Degree in Polytechnic of Turin in Management and Engineering, while exploring the world and new opportunities.
Not planned – Recently found out that I enjoy writing about innovation and the future of business and entrepreneurship.