論説
At one time, most of the profitable growth of the most successful companies came from focusing on leadership economics and maximizing the full potential of the core business. Recently something has changed. Today, leading companies recognize the need and opportunity to explore new paths. Bain & Company analysis of a sample of highly successful companies with sustained growth and strong core businesses found that nearly 60% of them derive a significant valuation benefit from the pursuit of new businesses. In fact, of the eight companies that have created the most value globally in recent years, nearly all are serial business builders, reinventing their core business and building new ventures at scale.
Corporate venturing is an umbrella term for the ways companies can explore innovation opportunities. It encompasses building new ventures, deploying venture capital through various investment models, and forging strategic partnerships. In our experience working with companies using these approaches, there is no single formula for finding the right balance. Multiple bets must be laid.
That’s partly because it’s not easy to launch a new business. The great majority of corporate startups die at the minimum viable product (MVP) stage, when key features of a new product or service are ready to test with customers. This hasn’t stopped an increasing number of companies from tapping into venturing for growth. According to the European Commission, the number of companies pursuing corporate venturing has grown by four times since 2013, and corporate venture capital (CVC) fund investment reached a record $169 billion globally in 2021, according to INSEAD.
One key reason for this is the business, societal, and political uncertainty that puts well-established companies at constant risk of disruption today. In response, companies recognize they need to reimagine what is possible, and many are using corporate venturing to accelerate innovation and build resilience. Eamonn Carey, former managing director at Techstars and current founding partner at Tera Ventures, describes early-stage venture as “counter-cyclical;” when the market turns, better businesses are being built. However, he says that “some companies go all in too early but lack the expertise in the ecosystem.”
Through our work at Bain’s Venture Ecosystem with corporate innovation leaders, venture capitalists, and startups, we have identified five insights to consider when approaching corporate venturing in 2023.
Venture Ecosystem
The Venture Ecosystem is a global team of change-makers and thought-leaders with deep experience in the start-up and venture-capital worlds. Our mission is to spark innovation between bold organizations and insurgents by activating our global network of disruptors and investors.
1. Innovative CEOs are ambidextrous
Two-thirds of executives Bain surveyed predicted that within five years the competitor they will be most worried about will be different from the one they most worry about today—usually a new insurgent with a differentiated business model. Moreover, these executives felt that 40% of their company’s growth over the next 5 to 10 years would have to come from new markets and models, but they worried that they were significantly underinvesting in them.
To nurture new growth engines, venture leaders advocate creating a completely new culture, lateral to the parent company’s, that breaks down silos and pushes decision making as close to the front line as possible in order to avoid senior leadership bottlenecks. “Free the venture’s wings from cumbersome governance and bureaucracy spilled over from the corporate, and let it fly,” advises Paul van Emmerick, founding partner of 9.5 Ventures. Marta Krupinska, head of UK Google for Startups, agrees: “Google knows that to breed innovation, you need to create the right circumstances for it and separate it from the core so it can move fast. At Area 120, our internal startup incubator, for instance, Googlers can come up with ideas for startups they would like to build.”
Creating such a culture calls for developing an ambidextrous organizational paradigm, one that finds chemistry between evolution of the original business and revolution of the new ones, between scale and speed, between productivity and creativity.
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2. Steer multiple innovation vehicles mapped to smart, investable themes
C-suites need to move their operational model away from a focus on building a linear, structured, and well-oiled machine, toward a flexible model enabled by systems thinking (meaning a holistic analysis of the broader impact that one innovation decision can have internally and externally). This helps ensure that various innovation activities—both internal efforts such as the building of digital infrastructure, and external ones focused, for example, on customers or exploring VC trends—are interconnected. The new operating model should dictate how innovation vehicles are chosen, and that should not be done independently from the venture ecosystem or consumer insights. The precursor to this is aligning on specific “investable themes” to ensure the teams diligently and succinctly explore business-model or technology innovations that unpack the right opportunities for the company.
Smart companies lay multiple bets when selecting innovation vehicles. Successful innovation often requires doing this simultaneously, with potential combinations of R&D labs, hackathons, incubators, accelerators, CVC, and venture building. CEOs must neutrally judge what is working—avoiding getting too attached to one single idea—as they seek to develop a serial business-building and investment capability.
Strategy will determine just how proximate to the core a company’s venturing should sit and the right innovation vehicle (see Figure 1). Companies that wish to stay near or adjacent to the core business while focusing on ideation might pursue innovation hubs, incubators, or accelerators. Those focused on emerging concepts and scale, or commercialization, would be more likely to focus on in-house research and development, or partnerships. Companies aiming to build entirely new growth engines with a longer time horizon could invest in a CVC arm to tap into emerging technologies and markets. For those with a quicker timeline, a short business-building activity (for example, a proof of concept built and validated, then piloted and tested as an MVP for quick feedback) might be a better fit.
Figure 1
In a Bain study, more than 80% of the most successful Engine 2 businesses had some connection to the core business. They drew value from existing corporate capital and knowledge sources, including the company’s customer base, geographic footprint, and intellectual property such as patents. But stick too close to the core and a company may not get as much value from its efforts. Bain research has found that 75% of all value recently created in the tech sector came from companies that aggressively pursued growth outside of their core business and in adjacent fields.
3. Inspiration from the venture world can vary from democratization of ideation to deal-flow augmentation
It’s easy to focus on flashy tech as a path to innovation, but companies should only invest in what will critically and sustainably grow their competitive advantage. Executives must ask how innovation benefits employees or clients. Jérôme Berger, managing partner at Orange Ventures, estimates that 90% of his firm’s investments in 2020 and 2021 either enhanced customer experience or increased efficiency for employees of its multinational parent company, the telecom Orange. Through its investment and partnership with Dataiku, which offers a central solution for the design, deployment, and management of AI applications, Berger says, Orange Ventures helped Orange and Dataiku further capitalize on data and AI processing via hundreds of use cases.
Employees, clients, and other stakeholders all can be valuable sources of innovation ideas. Such democratized innovation can help ensure that the Engine 2 is relevant for employees; it also fosters their involvement, while capitalizing on in-house experts’ understanding of specific markets and technologies. Company leaders can identify specific challenges for which they would like to hear employee feedback. They also can use firms like Sideways6 to help them innovate by tapping into the power of their people, and activating innovation campaigns integrated with an organization’s communication tools that solicit employee ideas or pain points.
Building innovation is hard, and companies need to be able to break it down into digestible, value-adding components. Google’s Krupinska explained a famous metaphor at Google X: “When trying to teach a monkey how to recite Shakespeare while standing on a pedestal, most people will rush off and start building a really great pedestal first. However, building the pedestal adds no value, as the actual challenge lies in teaching a monkey to recite Shakespeare.” Companies with the right ecosystem and venture economics knowledge can avoid this type of “innovation theater” and make a tangible impact.
Alongside prioritization, corporate venturing teams also can learn from the data revolution when investing in venture. Like VCs, corporate venture capital arms can utilize machine learning for deal sourcing and screening; improved portfolio management; and better matching with co-investors. In addition, they can use machine learning to spot market trends and gaps they could target, and to gather intelligence on competitors and improve pricing models. This, in turn, can be a foundation to explore whether to invest in or build for particular types of innovation. Like the next generation of VCs, corporate venturing teams will use more data. In light of pervasive, imperfect information and algorithmic biases, however, they will still need to lean on empathetic relationship-building and qualitative consumer insights.
4. Hire unbiasedly and think systemically about venture talent
Business design, a skillset that combines strategy, design, and business-building, is required to successfully pursue corporate venturing. This skillset includes expertise in customer desirability, technical feasibility, and financial viability. An approach is needed in 2023 that accounts for both systems thinking and ecosystem trends, as well as “impact” in its broadest sense. Unpacking and understanding what a venture’s outputs may mean for business, societal, environmental, and political outcomes is now an ethical responsibility—and a nonnegotiable element of the skillset.
Hiring the right mix of internal and external talent for venturing work is paramount to capitalizing on understanding what the parent company’s internal candidates bring; and on the external venturing experience that those outside the company can add. As part of their hiring, companies can work to address the industry’s significant diversity, equity, and inclusion (DE&I) gap. A Pitchbook study found that only 15% of general partners at venture firms are women, and venture capitalist Richard Kerby has found that in the US, 40% of decision makers went to just two colleges: Harvard and Stanford. Such a lack of diversity can hurt a venturing unit in a number of ways—from poor decision making due to groupthink to the risk of missing significant market and investment opportunities—and threatens to further aggravate the problem by perpetuating a system that already falls short on diversity when it comes to funding founders.
With data-driven behavioral insights and audited AI, more efficient, effective, and fair hiring processes can be created across the entire talent lifecycle, says Paul Jacquin, founding partner of Taptrove Ventures and an investor in Pymetrics, a worktech startup that helps corporates remove bias from the selection process and find the specific talent mix required to excel in venturing. “HR is not a soft skill, it is data-backed decision making.”
5. Set a triple bottom line: evaluating success through the lens of sustainability
In addition to investing in or building impact businesses, corporate venturing can embed environmental, social, and governance (ESG) in its decision making. Whatever innovation vehicle is chosen, the environmental and social outcome of these decisions should always be considered to ensure the maximum balanced, positive ESG impact. This can be the result of the corporate venture’s own sense of responsibility. It can also be a way to compete. According to a World Economic Forum survey, 64% of founders consider sustainability expertise to be important when choosing an investor. Finally, it is a way to meet the demand from increasing regulatory requirements, often also an important factor for consumers, for example, by complying with the Sustainable Finance Disclosure Regulation (SFDR) of March 2021, requiring investment funds in Europe to disclose sustainability product information.
Setting measurable objectives for the Engine 2 and its innovation activities is crucial to achieving ESG goals, but, it also runs the risk of setting up a box-ticking exercise (for example, “hire 30% women”), without ensuring tangible systemic changes. “Existing ESG frameworks do not clearly fit into venture capital decision making,” says Hannah Leach, a partner at Houghton Street Ventures and co-founder of VentureESG, a nonprofit working with over 300 VC funds and 90 LPs globally to make ESG a standard part of the investment timeline.
ESG in corporate venturing helps the parent company increase its competitiveness, transfer ESG knowledge and lessons learned both ways, and achieve long-term sustainability goals. It also represents an important investment opportunity. Global ESG assets are likely to surpass $50 trillion by 2025, according to Bloomberg Intelligence. Investing with a triple-bottom-line strategy enables financial returns while addressing societal and environmental challenges.
Exploring ESG in innovation requires balancing strong growth and returns with environmental and social impact. There can be tension, for example, between agritech innovation and farmer-centric ESG. When one of the world’s largest coffee companies developed its sustainability strategy, it explored vertical farming as a way to minimize its environmental impact and counter climate change. This can be beneficial for the “E” in ESG (“environment”), but it is also important to weigh the “S,” or social impact, such as a) whether the expertise and expense is a blocker for some local farmers, and b) the social equity of this technology, including if benefits will be reaped in the local economies, too.
Corporate venturing is not a short story, but it can create long-term value
There is no one-size-fits-all model for corporate venturing. Companies need to concurrently steer various innovation vehicles and lay multiple bets. When choosing specific investable themes, companies should consider where they want to be on the innovation continuum. The sweet spot is close enough to the core business to capitalize on existing corporate assets, but far enough from it to explore new markets and build a competitive advantage. C-suite executives need to take a systemic and intentional approach to venturing, but they also must accept that not all bets will land. An appetite for risk, potentially in exchange for transforming your industry, is necessary in the world of venture.
By connecting innovation to strategy, a company can ensure that it is not distracted by the hot air in the ecosystem nor vulnerable to the pursuit of “innovation theater.” Venturing can be messy, uncertain, and a corporate character-building process. It balances science and art, drawing inspiration from both consumer insights and our impact on the planet. With the right talent, mindset, and nuanced understanding of both the core and new business opportunities, companies can pivot toward their best model, where they pursue venturing with intent and impact, by keeping these five insights in mind.