Corporate Venturing — A Powerful Tool in the Innovation Arsenal
Insights from the Panel “Innovation as a Crucial Driver of a Company’s Growth Strategy and Corporate Venture’s Role” at the 2012 Corporate Venturing & Innovation Partnering Conference
Corporate venture capital (CVC) is on the rise, as more firms view venturing as an extension of corporate strategy and a powerful tool in firms’ innovation arsenal. Dow Jones reported that in 2010 CVC investments grew to a historic high at $2.4 billion, representing 8.4% of total VC investment, and CVCs were involved in 15-20% of all venture transactions. What is driving the rise in corporate venturing? What role does venturing play in a company’s growth and innovation strategy?
To explore these and related questions, Clareo, a sponsor of this year’s IBF Corporate Venturing & Innovation Partnering Conference, held a panel discussion titled “Innovation as a Crucial Driver of a Company’s Growth Strategy and Corporate Venture’s Role.” Led by Peter J. Bryant, Partner at Clareo, Senior Fellow of the Kellogg Innovation Network and co-author of soon-to-be-published Growth Champions, the panel included CVC thought leaders and practitioners:
Roy Williamson – Managing Director, Castrol innoVentures, BP Lubricants
Roger Colman – Vice President, Corporate Development, Alticor Corporate Enterprises
Phil Giesler – Director of Innovation, Physic Ventures (Joint Venture with Unilever)
Dr. Robert C. Wolcott – Founder and Executive Director, Kellogg Innovation Network (KIN); Faculty member, Kellogg School of Management; Partner, Clareo; co-author, Grow from Within
The panel discussion brought out five key insights around corporate venturing, highlighted by real-world perspectives of the panelists.
Insight 1: Corporate Venturing Can Help Extend & Protect the Strategy
Almost universally, CVC practitioners view corporate venturing as a tool to enhance the corporate strategy. They see some growth options that are beyond the reach of their core business, and also sense emerging threats to their core. In such cases, corporate venturing offers a market-based mechanism for strategic investors to reach beyond their core, and at the same time to hedge against potential future risks. Two of our panelists brought this insight to life:
In the case of Castrol, Roy Williamson discussed how Castrol innoVentures emerged out of the Castrol 2020 program. As part of Castrol 2020, senior leadership realized electric vehicles represented both opportunity and threat to Castrol’s core, and they needed to determine how to respond. However, Williamson pointed out, “We realized we had a gap in our innovation 3-10 years out.” As a result, innoVentures was formed to begin building and investing in future innovation for the company. Venturing is playing a critical role in the Castrol 2020 strategy.
Similarly, Alticor (parent company of Amway, a $10B+ leading direct selling giant) realized it needs to identify and plan for the “next horizon” of direct selling. “We’re worried about the ‘kid in the dorm room’ who could re-invent direct selling on the web,” says Roger Colman. He added, “We see corporate venturing as a way for us to build a powerful sensing capability around trends that could enhance or disrupt our business.”
Insight 2: CVC Offers an Efficient Mechanism for Creating Optionality
This kind of extend-and-protect approach doesn’t just come by accident. Dr. Wolcott emphasized that real strategy involves creating a portfolio of options for the future. For practitioners, corporate venturing offers an efficient mechanism for creating optionality because it allows the firm to place multiple small bets and have a clear exit plan for each. Roger Colman commented, “We’ve made numerous [internal build] investments over the past decade with little strategic intent or focus.” For Alticor, venturing is a way to create optionality at a (relatively) lower cost and risk.
Insight 3: Alignment Needed at Multiple Levels
The panelists also highlighted that to achieve success, CVC groups must build and maintain strong alignment with the enterprise, at multiple levels. Alignment must first and foremost be at the strategic level. This means the CVC’s mission, objectives, and investment focus areas must be aligned with and supportive of parent company’s vision and strategic objectives. Speaking about the connection with long-range strategy, Phil Giesler of Physic Ventures (a joint venture with Unilever) commented, “We’re looking for new capabilities, paradigm shifts in consumer behavior – specifically those related to sustainable living – as well as adjacent spaces.” For Unilever, the partnership with Physic Ventures offers another tool for strategic innovation that helps advance the vision and strategic objectives of the enterprise.
However, alignment must also be maintained at the operational level. CVC groups must create and maintain clear ties back to operational groups – and demonstrate business value. The notion of building operational linkage was a persistent theme in talks, breakout sessions and hallway conversations at the conference generally, and it was also reinforced by the panel. Roger Colman of Alticor commented, “We’re early in the process, but our goal is to build a robust infrastructure with clearly-defined processes and connections back to the business, all with well-defined rules of engagement and governance.”
Without these points of alignment, CVC groups may run the risk of becoming isolated, irrelevant to the enterprise, and failing to achieve the broader objectives that are central to their mission.
Insight 4: Look for Strategic, Not Just Financial Returns
The theme of alignment and linkage led to the topic of measurements. A common question of CVC practitioners, and one addressed by the panel, is “How do you measure success?” Our practitioners underscored that corporate venture funds must focus on strategic returns, not just financial returns. Phil Giesler offered, “We look at the typical financial metrics [such as IRR] but we set expectations appropriately.” He went on to offer a few very specific strategic criteria they use at Physic to measure success, “Strategically, we’re interested in two things: value of deals done with Unilever, and how many people have had business dealings with leaders inside the company.” This last one, to them, is a measure of operational engagement. Roy Williamson added, “We look at criteria such as thought leadership in places where we play; also process expertise, as measured by velocity, speed to market.”
Importantly, who is assessing strategic impact is just as important as what is being measured. On this, the panelists highlighted the importance of having the enterprise relay back the impact CVC is having on the business. Roy Williamson commented, “Make sure the business unit is articulating the business benefit [CVC is bringing to them], and that they stand up and support the effort.”
Phil Giesler and Dr. Wolcott each offered practical warnings on the topic of strategic value. Giesler commented that “In trying to demonstrate strategic value, the risk is if you ask too many people for input you’ll get too many priorities and fragment. You may also find others seeking your equity to solve their internal development gaps. Advice in these situations: Stay focused on your mission, and the truly big ideas.” Dr. Wolcott cautioned that placing too much emphasis on amorphous objectives such as “promote a culture of innovation” can be dangerous. He advises that CVC groups focus initially on building credibility and proving value with real business outcomes.
Clearly, financial measures are needed to ensure fiscal responsibility. Strategic measures are even more critical, but they must be clear, measurable, and realistic.
Insight 5: CVC Offers a Tool for Strategic Innovation
Finally, the panel surfaced and explored how corporate venturing can play a unique and powerful role in the innovation process. Venturing can open up new ways of thinking for the enterprise, surface new ideas or pilot concepts, or even help start totally new businesses as may occur with an operation such as innoVentures. Phil Giesler commented that what Physic often brings to Unilever teams is “a new angle or solution to an existing problem in the business.” This relates closely to the very definition of business innovation: creating new value in new ways for customers and shareholders.
In summary, corporate venturing is gaining a head of steam, and it’s not hard to see why. When designed properly, venturing can play a powerful role in the innovation process, extend and protect the corporate strategy, and create optionality for the enterprise.