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Insights about Corporate Venturing Capital and Innovation

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Insights about Corporate Venturing Capital and Innovation from a business model perspective

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Insights about Corporate Venturing Capital and Innovation

  1. 1. Insights about Corporate Venture Capital and Innovation from a business model perspective This work is undera Creative CommonsLicense Atribution-ShareAlike 4.0 International.
  2. 2. 2 what is corporate venturing? The way corporations innovate is changing. Conscious that startup companies are changing their market rules and creating new ones, corporations are trying to capture the maximum value by taking equity of these new companies. Corporate Venture Capital (CVC) is a practice where a large firm takes an equity share in a small but innovative or specialist firm, to which it may also provide management and marketing expertise; the objective is to gain a specific competitive advantage CVC is an activity into the Open Innovation paradigm that helps big companies (slow, bureaucratic, worried about its brand…) to invest in new ideas that are agile, quick and light brands. Typically, investment belongs to financial departments but CVC has a risky model (and high performance), so strategic approach needs to be taken because This paper will discuss what is the business model of CVC and how startups should deal with when asking for investment. introduction Managing a diversified portfolio of startup investments is a way of disruptive innovation
  3. 3. 3 what means investing in startups? Investing is a consequence of a foresight that a company value will increase. Investing is related to returns in advance. A startup needs investment to grow but also to achieve the next key milestones in its plan to success. introduction Initial value Final value Added value How the CVC helps to increase the value of a startup is not about the amount of money, but “smart money” Investment must be less than the added value to have a profit High risks lead to manage a portfolio of investments, not a one and only bet because about 85% of a portfolio ventures fail.
  4. 4. 4 CVC business model canvas Source: Placeholder example how it works Value Proposition High profitability business project generation Customer Relationship Customer Segments Key Partners Channels Cost Structure Revenue Streams Key Resources Key Activities Venture Capital and other co- investmen t vehicles Start-up Value generation partners Shares in startups with access to Admin Comitee Value Generation Asset Startup Call and Selection Maturation (value growing) Exploitation Call and selection costs Access to investor fund network Value generation process Profitability Track record and operations history Co-investments Investor and Fund Networks Investment Brokers and Banks Venture Capital (next stage) Other market players (Clients) Corporate and Providers Exits: by selling startup share Dividends (from startup) and Other (indirect sales) Spin-in (startup integration)
  5. 5. 5 creating value for the next investors Actually, a CVC must sell its shares to customers that strongly believe they are doing also a good investment Natural investors are next stage VCs, that will take the company to another level, if needed (ie. scale-up, growth…). Also, some CVCs transfer participated startups to clients or even these startups become clients for the CVC’s corporation. So, it’s a good instrument to generate new clients and stimulate new markets. If the startup is integrated into the CVC’s corporation, a direct income is not mandatory but interesting in order to align the CVC objectives to the innovation vision. Then, investment is done only in strategic startups, not looking only for a short term revenue. Customer relationship (how they get, keep and grow customers) in a CVC business model is based on:  Successful operations carried out in the past  Other investors that invest with the CVC how it works money fears uncertainty, so investment is made in based on trust and expectation more than ever
  6. 6. 6 delivering the value proposition What makes different a CVC is the value generation for the startup, how is its “smart money”. CVCs are in competition to capture the best startup projects. Only a competitive advantage (unique process and asset) will attract the right startups to the CVC. Otherwise, startup and CVC are losing time and money. Focus on this unique asset and process to deliver value.  Maturation process is key. If it delivers value, the call for investments and divestments are easy to achieve.  Identification of unique assets is not obvious for CVCs because startup necessities are quite different from corporation solutions, even the language.  Startup projects may not appear in the region a CVC is searching in. Effective communication and increase the call range is a challenge for some CVCs with special project requirements. how it works CVCs are offering new formulas “as equity” like brand, client access, notoriety, technology, labs, money... as long as the metrics of the value they provide are clear
  7. 7. 7 CVC goal definition how it works Customer Segment Goal Vision Characteristics VC (next stage) Financial Short-term returns High growing projects – This is the reason for the attractiveness of digital and ICT based projects versus industrial projects. Other market players and clients Financial / Strategic Mid-term returns Create potential new customers of the corporation Projects are slightly aligned with innovation strategy Corporation and Providers Strategic Long-term returns Innovation is incorporated through a new provider or existing one or directly absorbed by the corporation R&D It helps to explore new businesses
  8. 8. 8 modeling a CVC fund While CVC has doubled the number in 5 years, only few CVCs know exactly the value they add to participated startups. Most of them offer generalities and activities they haven’t proved yet to be valid and generate value. how it works Relevant Investments ResultsPortfolioand Average Ticket Unique Assets Project profiles Value Generation Asset Process for adding value and metrics to verify Project Maturity (Stage) Technology Market % of share Current operations Known companies the CVC invested in the past Profitability multiplier Current Size in projects Average Ticket Minimum Ticket Fund Size in money and current investment Co-investment Current invest Successful divest Successful spin-in Failures Strategy Capacity Some metrics that matter when comparing CVC funds.
  9. 9. 9 conclusions Adding and growing the startup value is the key Measuring the effectiveness of the maturation process is still a challenge for most CVCs  Which asset does provide value to startups?  Where are the startups to be accelerated with this asset?  How to demonstrate the effect of this is smart money? what’s next Asset and goals A financial perspective lead to exploit assets closely related to the current corporation activity, So:  If the asset utilization is in decadency, it looks a good idea to increase its profitability  If it is only underexploited by market conjuncture, it will surely compete with the current corporation’s activity in regular conditions. CVC and innovation CVC must be quicker than corporate innovation, but also, more sustainable as a long-term investment tool. Innovation and Financial might collaborateto ensure a balance between sustainability (short-term results) and innovation (long-term results)
  10. 10. 10 do you want a disruptive business? Miquel Angel Pérez holds a Telecommunication Master Degree and MBA by the UPC (Spain). He has more than 15 years experience in Marketing for B2B industrial markets and technology-based companies. Expert in research and innovation networks of Spain, he has carried out research about methodologies and systems for innovation, with the aim to assure market uptake and financial viability. Miquel Angel adds his knowledge in new product, service and business model conceptualization based on exploitation of intangible assets for clients of The Knowledge Agents Alliance and internally as well Business Designer | Innovation Advisor | Marketing Manager | #DesignInTech about the author @maperez1977 es.linkedin.com/in/miquelangelperez

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