Success Factors Corporate Venturing
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The document discusses the critical success factors for corporate venture capital (CVC) units, emphasizing the importance of aligning strategic and financial objectives while fostering internal and external collaboration. It highlights that top performers prioritize a dual focus on innovation and financial gains, employing diverse metrics for success. Additionally, it notes that effective deal sourcing and strong relationships with business units contribute significantly to the performance of CVC units across various industries.
Success Factors Corporate Venturing
- 2. P02. Key InsIghts »Benefits of corporate venturing are diverse. Thus corporate venture capital units can pursue multiple goals simultaneously, as long as they are aligned to corporate needs, clearly communicated within the organisation »Understanding internal and external and monitored on a long-term basis by deal sources and innovation hot spots, a concisely defined metric set. in terms of market and technologies, constitutes an integral part of corporate venturing activity. »Financial interests and innovation- related strategies are not mutually exclusive. »Assessment of investment opportuni- ties has to be done in cooperation with external partners and can be a time- »Corporate venturing units have to critical issue in some industries. operate autonomously, but be deeply rooted in corporate innovation strategy and connected to business »Processes integrating internal units to unfold their full potential. and external parties, inspired by new venturing approaches, have to be established, either by collaboration agreements or joint equity (syndication). Introduction Methodology Strategic Setup Investment Process Internal Collaboration Conclusion Contact
- 3. P03. IntroductIon The importance of corporations in venture capital (VC) has increased 120.000 Rather Financial Focus Rather Strategic Focus 30% Corporate venturing continuously, especially with respect 100.000 25% becomes a core to the number of deals they are invol- tool in innovation ved in. management. 80.000 20% Defining and At the same time corporate venturing measuring success (CV) strategies shifted from financial 60.000 15% factors is the key to more strategic objectives supporting performance driver. the innovation process. 40.000 10% The shift had no impact on the amount 20.000 5% of funding, but can explain the incre- asing share of deals with corporate 0 0% venture capital (CVC) involvement, as 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 many innovation-related objectives are Data: National Venture Capital Association 2011 based on deal diversity rather than on Total VC Investment in $M (LHS) deal size. Total CVC Investment in $M (LHS) % of $ Coming from CVCs (RHS) Definition and measurement of suc- % of Deals with CVC Involvement (RHS) cess factors is the most critical factor in 75 0/0 of the underperformers launching and running a successful CVC but only 22%0/0 of the unit. This challenge intensifies as CVC top performers regard the units shift their emphasis from purely definition and measurement of financial to innovation-related goals. success factors as a major General developments, such as shorter challenge. technology life cycles and the fragmen- tation of knowledge, further challen- ged traditional processes. Introduction Methodology Strategic Setup Investment Process Internal Collaboration Conclusion Contact
- 4. P04. ACTIVITy (Number of Portfolio Companies) Methodology In this study performance is approxi- mated by a function of continuity and 50 Positive Performance Negativ Performance 45 Financial returns activity, since financial returns are fre- do not represent the quently disclosed and do not represent 40 entire strategic the entire strategic value. It is assumed 35 value of corporate that continuity of the CVC units in the & ICT Media venturing activities. market and the respective current level 30 Performance can of activity provides an approximation to 25 only be approxima- the strategic value added to the corpo- ted and has to be ration. Firms would limit the venturing 20 ICPS seen in an industry activity in case of no value creation. To context. 15 control for differences in industries, the sample was segmented by investment 10 focus resulting in the two clusters (1) 5 Media & Information and Communica- CoNTINuITy (years of Experience) tion Technology (ICT) and (2) Industry 0 0 2 4 6 8 10 12 14 16 18 20 and Consumer Products and Services Analysis based on global online survey (CVC units, n=19; VCs, n=98) and focus interviews (n=91) among managing directors of CVC and VC (ICPS). The Media & ICT cluster is charac- units; Absolute performance represents the distance to the industry averages, divided by the industry specific standard deviation. terized by a larger deviation of activity and continuity and more venturing experience. Top performers are located 1. Media & ICT 2. Industry & Consumer Product Services (ICPS) Electronics, Media & Entertainment, Chemicals, Business Products & Services, Consumer Products & above the respective industry averages Telecommunications, Computer & Peripherals, Services, Financial Services, Life Science & Healthcare, Supply Chain/ (trendlines), underperformer below. Software & IT Services Logistics, Energy & Renewables, Materials, Manufacturing The data used originates from a comprehensive online survey among 19 CVC units from 8 countries. The questionnaire was based on a large number of focus interviews among Introduction CVC units and independent venture Methodology capitalists (IVCs). In addition, an Strategic Setup adapted version of the online survey Investment Process was conducted among almost 100 IVCs. Internal Collaboration Conclusion Contact
- 5. P05. Methodology Strategic Setup (1) is defined as the initial setup of strategy HyPoTHESIzED SuCCESS FACToR By PRoCESS PHASES Three phases and objectives and the respective 1. 2. 3. constitute the performance measurement. Further, re- STraTegIC InveSTMenT InTernal SeTuP ProCeSS CollaboraTIon corporate levant process capabilities, in particular venturing process: process acceleration capabilities, have Strategic orientation deal Sourcing relationship to bus (1) The Strategic to be developed. Setup, (2) The Investment inveStment proceSS (2) related factors financial orientation external Collaboration relationship to CP Process and (non equity partnering) range from deal generation to external (3) Internal relations and are regarded on a deal Collaboration. basis, but implemented parallel. Strategic ambiguity Syndication long-Term Horizon (joint equity partnering) Continuous internal collaboration (3) with the corporate parent (CP)and its business units (BUs) is a major point Performance Measurement venture Support of differentiation of CVC units from IVCs. SuCCESS FACToR IN CoRPoRATE VENTuRINg MoDEL Process Capabilities exit Strategy InTernal CollaboraTIon InveSTMenT ProCeS external Communication STraTegIC SeTuP DIMENSIoNS oF ANALySIS InduSTry effeCT on SPeCIfICS PerforManCe Introduction Methodology Strategic Setup The corporate venturing framework is based Investment Process on a literature review and focus interviews. Internal Collaboration Conclusion Contact
- 6. P06. STRATEgIC goALS By PERFoRMANCE TyPES... strategIc Strategy Contrary to conventional wisdom top 100% setup Technical Innovations + 0% 100% performers tend to follow a wider 89% range of innovation-related strate- Window on Technology 67% + 32% Defining innovation- gies rather than focusing on one core Business Model Innovations 67% + 0% 67% related goals, business line, while taking into account 78% open New Markets + 77% without neglecting the importance of financial benefits. 44% 67% financial objectives The dual focus on financial and strategic Financial Interest 44% + 52% is a core performance objectives of top performer showcases 44% + 16% Improve Corporate Image on Innovation 38% driver. Performance on the one hand the multiple benefits 44% measurement should Ecosystem Development + 100% of corporate venturing in the manage- 22% be based on either 22% - 33% ment of innovation, on the other hand Control for Potential Future Competition 33% a qualitative or the need of financial return to legitimate Make use of Non-Streategic Intellectual Property 33% + 154% quantitative metric 13% the venturing activities in the long run. 33% set. Promote Corporate Entrepreneurship + 154% 13% 11% performance meaSurement Improve Consumer orientation 25% - 33% Top performers measure the impact of Attract and Retain High Potentials 11% + 100% their corporate venturing activities by a clear set of either qualitative or quanti- Top Performer tative Key Performance Indicators (KPIs) underperformer with a long-term horizon. STRATEgIC PLANNINg oN KPIS QuALITATIVE VS. QuANTITATIVE KPIS 44% 57% 56% 44% Top Performer 14% 43% 43% 22% 22% 56% underperformer Short-Term (<6 Month) Quantitative Medium-Term (6-24 Month) Qualitative Long-Term (>24 Month) Dual Introduction Methodology strategic setup Investment Process Internal Collaboration Conclusion Contact
- 7. P07. strategIc Strategy & performance meaSurement MedIa & ICT STRATEgIC goALS By PERFoRMANCE TyPES... ICPS setup Accessing technological innovations is the major focus of all CVC units. + 0% 100% 100% Technical Innovations 100% 100% + 0% 100% Window on Technology 80% Industry This underlines the role of CVC in the + 33% 75% 60% + 33% background shapes management of innovations. - 50% 50% Business Model Innovations 80% + 33% 75% 60% strategic setup. Creating a ‘window on technology’ is 75% 80% + 200% open New Markets + 33% Process acceleration generally considered important, but is 25% 60% 75% 80% capabilities are more relevant in the Media & ICT cluster, +50% 50% Financial Interest 60% +33% primarily relevant due to shorter technology life cycles. 60% -100% Improve Corporate Image on Innovation + 50% in the Media In the ICPS cluster top performers show 50% 40% 50% 20% and ICT cluster. + 100% Ecosystem Development + 100% a stronger focus on ‚soft‘ objectives 25% 25% 40% related to image, culture and human - 100% 50% Control for Potential Future Competition 20% + 100% resources. + 100% 25% Make use of Non-Streategic 20% + 0% Intellectual Property 20% 25% 40% + 100% Promote Corporate Entrepreneurship + 60% Quantitative performance indicators 25% 25% 60% are more common in the Media & ICT + 0% 25% Improve Consumer orientation 50% + 50% cluster, which can be explained by - 100% Attract and Retain High Potentials 60% + 200% 50% 20% their greater emphasis on financial objectives and their generally larger Top Performer experience in venturing. underperformer 10 0/0 of the CVC units in proceSS capabilitieS the ICPS cluster regard their In the Media & ICT cluster process processes as fast compared capabilities, in particular investment to 63 0/0 in the Media and speed but also process flexibility, are ICT cluster considered to be more relevant and media should be part of the strategic setup. and ict Introduction icps Methodology strategic setup Investment Process Internal Collaboration Conclusion Contact
- 8. P08. InvestMent Deal Sourcing Even though proactive and structured process deal sourcing is broadly acknowledged, not all CVC units seem to have long- Top performers, term-oriented processes in this regard. venturIng trends especially in Deals are primarily sourced through New venturing approaches will rethink traditional ICPS cluster, do the personal network, whereas top deal sourcing, external collaboration and venture recognize the need performers concentrate further on deal support models. for a systemized ap- sourcing via syndication partners. proach in deal sour- Top performers have a much CVC units show a very po- cing and defining stronger ambition to open- sitive attitude towards more This network dominated deal source up their processes by incor- external collaboration and relevant technology structure suggests an opportunistic porating open innovation communication, especially and market targets. behavior, which explains the barely elements in their venturing in the Media & ICT sector, long-term oriented approaches in deal approaches than underper- nevertheless CVC units are sourcing. The ICPS cluster shows the formers. They appreciate less open than VCs. The approaches related to sour- progressive attitude in the strongest interest in this issue, which cing and nurturing seed Media & ICT sector and can be explained by their limited expe- and early stage ventures of IVCs indicates that an rience in corporate venturing and the and mainly value benefits established venturing cul- fast development of technologies in such as networking with ture has a positive effect on many sub-segments. entrepreneurs and global openness. sourcing of new ideas. % oF CVC uNITS HAVINg LoNg-TERM (>24MoNTH) % oF CVC uNITS uNDERLININg THE CHALLENgE PLANNINg APPRoACH IN oF SouRCINg 78% 56% Industry/Market Focus + 16% + 124% Sourcing of investment oppurtunities 67% 25% 56% 56% Technology Focus -16% + 124% Indentification and definition of target 67% 25% industries, markets and technology 22% Deal Sources + 0% 22% Introduction Methodology Top Performer Strategic Setup underperformer Investment process Internal Collaboration Conclusion Contact
- 9. P09. InvestMent external collaboration Only a minority of CVC units involve a SynDication Joint investments are an attribute of Top performers strongly syndicate process broad range of external partners on a continuous basis in their processes; top performing CVC units, showing that those CVC units have realized the value with other investors – in particular with Investment decisions consequently only few do long-term added by diversified corporate venture other corporations. are supported by planning in this regard. However, top support and deal evaluation. Further external partners performers involve selected external perceived key benefits are deal referrals such as other partners such as CVC units, IVCs, tech- from co-investors and mitigation of risk. investors, industry % oF CVC uNITS uNDERLININg THE CHALLENgE oF... nology and industry specialist, busi- Compared to their independent coun- experts, research institutions and ness angels, consumers and lawyers terparts, CVC units focus slightly more 67% + 415% Finding adequate co-investors 13% consumers. in their investment decision. Further, on joint investments with ICVs and other top performing CVC units, like IVCs , corporate investors. However, CVC units have a much more positive perception take more than two times less often of benefits in external collaboration. the lead in investments, which can be SyNDICATIoN BEHAVIoR By PERFoRMANCE TyPES... Potential of universities, incubators and explained by their historical follower consumers remains largely untapped. position. 89% + 33% Syndicate Beside trust, the integration of external 67% knowledge is perceived the biggest 78% + 136% Syndicate with 33% other corporations challenge, in particular by top perfor- 44% + 100% Lead Investor mers. External collaboration is strongest 22% and considered most relevant in the Media & ICT cluster. Top Performer underperformer LEVEL oF oVERALL ExTERNAL PARTNER INVoLVEMENT... Top Performer 33% 56% 11% 50% 40% 10% ICPS underperformer 33% 44% 22% 13% 63% 25% Media & ICT High High Medium Medium Low Low Introduction Methodology overall external partner involvement construct ist based Strategic Setup on continuity and diversity Investment process Internal Collaboration Conclusion Contact
- 10. P10. InvestMent venture Support The industry context plays a major external communication Despite the general interest in In line with their deal sourcing process role in the type of support provided. Marketing and human resources increasing visibility, top performers communicate investment deals and behavior, top performers use Intensive support support is for example much more networking relevant information, communication does not limit relevant in ICPS cluster, as these issues rather than corporate and CVC unit channels only for innovativeness. are usually less broached, required interests. This complements their deal networking and skills are more special and marketing sourcing behavior. Communication of communication of is more complex. Innovation-related deals via social media and a website investments. strategies are generally complemented targeted at network partners is a diffe- by comprehensive support. rentiation feature of top performers. % oF CVC uNITS CoMMuNICATINg... + 100% Corporate Information % oF CVC uNITS SEgMENTED By INDuSTRy This contradicts the common presump- Similar to external collaboration, 22% PRoVIDINg SuPPoRT IN... tion, that innovativeness is disrupted communication is most practiced + 100% CVC unit Information by intensive support. Opportunities of and desired in the Media & ICT cluster. 56% 80% Strategic and Financial Advice + 7% 75% external partner involvement in ven- Communication strategies seem to 22% - 50% Investment Deals 33% Research - 15% 60% ture support are not yet fully exploited, be under-developed regarding the 22% - 50% For Networking Purposes 71% in particular in comparison to IVCs. common focus of many CVC units on 33% 40% Sales and Distribution - 44% 71% Most external support is provided by public relations and the common 67% suppliers and other corporations and network focused-deal source structure. Marketing + 415% Top Performer 13% investors. 22% underperformer Manufacturing - 33% 33% oVERALL uTILIzATIoN oF CoMMuNICATIoN CHANNELS... 33% Human Recources + 136% 14% VC and Entrepreneurship Events and Fairs 16% ICPS Print Media 12% 41% Media & ICT Social Media 9% Associations Introduction 22% Methodology Websites Strategic Setup Investment process Internal Collaboration Conclusion Contact
- 11. P11. Internal relationShipS to buSineSS long-term horizon % oF CVC uNITS uNDERLININg THE CHALLENgE oF... unitS anD top management Successful CVC units give high scores collaboratIon Converting and transferring the ventu- ring output within the wider organiza- to their parents‘ ability to manage expectation and to create a long-term 67% + 168% Encourage long-term thinking and 25% support from the corporate parent Top performers stress tion is a further key value driver. Thus, horizon for the venturing activity. 67% the need for a strong building strong ties to the corporate Nevertheless, they still regard it as a 50% +34% Foster internal collaboration and alignment between Bus and the CVC unit cooperation between parent and the BUs is considered a major challenge. the business units major task by top performers. Top Performer and the CVC unit. underperformer They understand The ability of the top management the challenge to to motivate BUs to cooperate with the generate a long-term CVC unit is positively correlated to oriented horizon of performance and regarded a major expectation within point of critic on the corporate the corporation. parent and challenge by CVC units. top management Top performers additionally criticize the lack in financial commitment and flexibility of the parent. Underperformer and younger CVC units have problems to manage expectations towards the top management. However, they do not regard internal communication a major challenge. business Units CVC Unit Introduction Methodology Strategic Setup Investment Process Internal collaboration Conclusion Contact
- 12. P12. conclusIon SucceSS factorS by performance impact Critical performance 1. EFFECT oN PERFoRMANCE drivers are primarily STraTegIC High found within SeTuP Medium venturIng trends strategic setup Low Innovation Centers Innovation and internal Strategic orientation Insignificant Being less of a deal sourcing Incubation Initiative collaboration. tool, rather than a hub for Approach is appreciated by financial orientation innovation related activities, firms scoring high in strate- However, process phases such as innovation centers rather gic orientation and internal Strategic ambiguity deal sourcing and complement the strategic collaboration, due to its inte- syndication have as Performance Measurement orientation of the corporate grated intra corporate setup. venturing activity. well a vital impact Process Capabilities Micro Seed Funds on performance. 3. Targeted Innovation Firms emphasizing deal Relevance of certain InTernal Campaigns sourcing, internal collabo- success factors CollaboraTIon They are regarded an effici- ration and strategic orien- differs with industry ent deal sourcing tool as tation appreciate the value background. firms having a high finan- added of this approach, be- relationship to bus cial orientation and an ac- cause it sources seed stage MEDIA & ICT relationship to CP cent on deal sourcing attest start-ups on a large scale. High Industry Specific large value added to this Performance Impact 2. long-Term Horizon approach. InveSTMenT ProCeSS deal Sourcing external Collaboration Syndication venture Support Introduction exit Strategy Methodology ICPS High Industry Specific Strategic Setup external Communication Performance Impact Investment Process Internal Collaboration conclusion Contact
- 14. P14. contact Prof. Dr. Marc Drüner [email protected] Lars-Alexander Mayer [email protected] Philipp Dauderstädt [email protected] Scientific aDviSor contact us to discuss the Prof. Dr. Volker Trommsdorff TU Berlin implication of the study results for your meDia partner Global Corporate Venturing Magazine corporate venturing www.globalcorporateventuring.com strategy. trommsdorff + drüner innovation + marketing consultants GmbH We are looking forward to meeting you! Rosenstraße 18 10178 Berlin Fon +49 (0) 30 278760-0 Fax +49 (0) 30 278760-66 www.td-berlin.com Introduction Methodology Strategic Setup Investment Process Internal Collaboration Conclusion contact