Success Factors Corporate Venturing

Success Factors in Corporate Venturing

IntroductionMethodology

Strategic SetupInvestment Process

Internal CollaborationConclusion

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P02.

»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 and monitored on a long-term basis by a concisely defined metric set.

»Financial interests and innovation-related strategies are not mutually exclusive.

»Corporate venturing units have to operate autonomously, but be deeply rooted in corporate innovation strategy and connected to business units to unfold their full potential.

»Understanding internal and external deal sources and innovation hot spots, in terms of market and technologies, constitutes an integral part of corporate venturing activity.

»Assessment of investment opportuni-ties has to be done in cooperation with external partners and can be a time-critical issue in some industries.

»Processes integrating internal and external parties, inspired by new venturing approaches, have to be established, either by collaboration agreements or joint equity (syndication).

Key InsIghts




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The importance of corporations in venture capital (VC) has increased continuously, especially with respect to the number of deals they are invol-ved in.

At the same time corporate venturing (CV) strategies shifted from financial to more strategic objectives supporting the innovation process.

The shift had no impact on the amount of funding, but can explain the incre-asing share of deals with corporate venture capital (CVC) involvement, as many innovation-related objectives are based on deal diversity rather than on deal size.

Definition and measurement of suc-cess factors is the most critical factor in launching and running a successful CVC unit. This challenge intensifies as CVC units shift their emphasis from purely financial to innovation-related goals. General developments, such as shorter technology life cycles and the fragmen-tation of knowledge, further challen-ged traditional processes.

IntroductIon

75 0/0 of the underperformers but only 22%0/0 of the

top performers regard the definition and measurement of

success factors as a major challenge.

Corporate venturing becomes a core

tool in innovation management. Defining and

measuring success factors is the key

performance driver.

Data: National Venture Capital Association 2011

P03.

30%120.000

100.000

80.000

60.000

40.000

20.000

0

25%

20%

15%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

10%

5%

0%

Rather Financial Focus Rather Strategic Focus

Total VC Investment in $M (LHS)

Total CVC Investment in $M (LHS)

% of $ Coming from CVCs (RHS)

% of Deals with CVC Involvement (RHS)

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 units; Absolute performance represents the distance to the industry averages, divided by the industry specific standard deviation.




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In this study performance is approxi-mated by a function of continuity and activity, since financial returns are fre-quently disclosed and do not represent the entire strategic value. It is assumed that continuity of the CVC units in the market and the respective current level of activity provides an approximation to the strategic value added to the corpo-ration. Firms would limit the venturing activity in case of no value creation. To control for differences in industries, the sample was segmented by investment focus resulting in the two clusters (1) Media & Information and Communica-tion Technology (ICT) and (2) Industry and Consumer Products and Services (ICPS). The Media & ICT cluster is charac-terized by a larger deviation of activity and continuity and more venturing experience. Top performers are located above the respective industry averages (trendlines), underperformer below.

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 CVC units and independent venture capitalists (IVCs). In addition, an adapted version of the online survey was conducted among almost 100 IVCs.

MethodologyFinancial returns

do not represent the entire strategic

value of corporate venturing activities.

Performance can only be approxima-

ted and has to be seen in an industry

context.

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ACTI

VITy

(Num

ber o

f Por

tfol

io C

ompa

nies

)

50

45

40

35

30

25

20

15

10

5

0

0 2 4 6 8 10 12 14 16 18 20

CoNTINuITy (years of Experience)

Media & ICT

ICPS

Positive Performance

Negativ Performance

1. Media & ICTElectronics, Media & Entertainment,

Telecommunications, Computer & Peripherals, Software & IT Services

2. Industry & Consumer Product Services (ICPS)Chemicals, Business Products & Services, Consumer Products & Services, Financial Services, Life Science & Healthcare, Supply Chain/ Logistics, Energy & Renewables, Materials, Manufacturing

The corporate venturing framework is based on a literature review and focus interviews.




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Strategic Setup (1) is defined as the initial setup of strategy and objectives and the respective performance measurement. Further, re-levant process capabilities, in particular process acceleration capabilities, have to be developed.

inveStment proceSS (2) related factors range from deal generation to external relations and are regarded on a deal basis, but implemented parallel.

Continuous internal collaboration (3) with the corporate parent (CP)and its business units (BUs) is a major point of differentiation of CVC units from IVCs.

MethodologyThree phases

constitute the corporate

venturing process: (1) The Strategic

Setup, (2) The Investment

Process and (3) Internal

Collaboration.

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SuCCESS FACToR IN CoRPoRATE VENTuRINg MoDEL

HyPoTHESIzED SuCCESS FACToR By PRoCESS PHASES

DIMENSIoNS oF ANALySISSTraTegIC SeTuP

effeCT on PerforManCe

InduSTry SPeCIfICS

InTernal CollaboraTIon

InveSTMenT ProCeS

Strategic orientation

financial orientation

Strategic ambiguity

Performance Measurement

Process Capabilities

deal Sourcing

external Collaboration(non equity partnering)

Syndication(joint equity partnering)

venture Support

exit Strategy

external Communication

relationship to bus

relationship to CP

long-Term Horizon

1. STraTegIC

SeTuP

2. InveSTMenT

ProCeSS

3. InTernal

CollaboraTIon


strategic setupInvestment Process


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Strategy Contrary to conventional wisdom top performers tend to follow a wider range of innovation-related strate-gies rather than focusing on one core business line, while taking into account the importance of financial benefits. The dual focus on financial and strategic objectives of top performer showcases on the one hand the multiple benefits of corporate venturing in the manage-ment of innovation, on the other hand the need of financial return to legitimate the venturing activities in the long run.

performance meaSurement Top performers measure the impact of their corporate venturing activities by a clear set of either qualitative or quanti-tative Key Performance Indicators (KPIs) with a long-term horizon.

strategIcsetup

Defining innovation-related goals,

without neglecting financial objectives

is a core performance driver. Performance

measurement should be based on either

a qualitative or quantitative metric

set.

STRATEgIC goALS By PERFoRMANCE TyPES...

STRATEgIC PLANNINg oN KPIS

Short-Term (<6 Month) Quantitative

Medium-Term (6-24 Month) Qualitative

Long-Term (>24 Month) Dual

QuALITATIVE VS. QuANTITATIVE KPIS

P06.

Technical Innovations + 0%

+ 0%

+ 77%

+ 52%

+ 16%

- 33%

- 33%

+ 100%

+ 100%

+ 154%

+ 154%

+ 32%Window on Technology

Business Model Innovations

open New Markets

Financial Interest

Improve Corporate Image on Innovation

Ecosystem Development

Control for Potential Future Competition

Make use of Non-Streategic Intellectual Property

Promote Corporate Entrepreneurship

Improve Consumer orientation

Attract and Retain High Potentials

100%100%

89%67%67%67%

78%44%

44%

44%

44%22%

22%33%

33%

33%

25%

44%

14% 22%43% 22%43% 56%

56%57% 44%

13%

13%11%

11%

38%

67%

Top Performer

underperformer

Top Performer

underperformer

media and ict

icpsIntroduction

Methodologystrategic setup

Investment ProcessInternal Collaboration

ConclusionContact

Strategy & performance meaSurementAccessing technological innovations is the major focus of all CVC units. This underlines the role of CVC in the management of innovations. Creating a ‘window on technology’ is generally considered important, but is more relevant in the Media & ICT cluster, due to shorter technology life cycles. In the ICPS cluster top performers show a stronger focus on ‚soft‘ objectives related to image, culture and human resources.

Quantitative performance indicators are more common in the Media & ICT cluster, which can be explained by their greater emphasis on financial objectives and their generally larger experience in venturing.

proceSS capabilitieSIn the Media & ICT cluster process capabilities, in particular investment speed but also process flexibility, are considered to be more relevant and should be part of the strategic setup.

strategIcsetup

10 0/0 of the CVC units in the ICPS cluster regard their processes as fast compared

to 63 0/0 in the Media and ICT cluster

Industry background shapes

strategic setup. Process acceleration

capabilities are primarily relevant

in the Media and ICT cluster.

P07.

Technical Innovations

Window on Technology

Business Model Innovations

open New Markets

Financial Interest

Improve Corporate Image on Innovation

Ecosystem Development

Control for Potential Future Competition

Make use of Non-Streategic Intellectual Property

Promote Corporate Entrepreneurship

Improve Consumer orientation

Attract and Retain High Potentials

STRATEgIC goALS By PERFoRMANCE TyPES...

MedIa & ICT ICPS100%100%100%100%

80%100%60%75%80%50%60%75%

80%75%60%25%

60%50%

60%

20%50%40%50%

80%75%

40%25%20%50%

20%25%

25%

40%25%

50%25%

20%

20%50%

60%25%

60%

25%

+ 0%+ 0%

+ 33%- 50%

+ 33%+ 200%

+33%+50%

+ 50%-100%

+ 100%- 100%

+ 50%+ 0%

+ 100%+ 100%

+ 200%- 100%

+ 0%+ 100%

+ 60%+ 100%

+ 33%+ 33%

Top Performer

underperformer


Strategic SetupInvestment process


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Deal SourcingEven though proactive and structured deal sourcing is broadly acknowledged, not all CVC units seem to have long-term-oriented processes in this regard. Deals are primarily sourced through the personal network, whereas top performers concentrate further on deal sourcing via syndication partners.

This network dominated deal source structure suggests an opportunistic behavior, which explains the barely long-term oriented approaches in deal sourcing. The ICPS cluster shows the strongest interest in this issue, which can be explained by their limited expe-rience in corporate venturing and the fast development of technologies in many sub-segments.

Top performers have a much stronger ambition to open-up their processes by incor-porating open innovation elements in their venturing approaches than underper-formers. They appreciate approaches related to sour-cing and nurturing seed and early stage ventures and mainly value benefits such as networking with entrepreneurs and global sourcing of new ideas.

CVC units show a very po-sitive attitude towards more external collaboration and communication, especially in the Media & ICT sector, nevertheless CVC units are less open than VCs. The progressive attitude in the Media & ICT sector and of IVCs indicates that an established venturing cul-ture has a positive effect on openness.

InvestMentprocess

venturIng trends

New venturing approaches will rethink traditional deal sourcing, external collaboration and venture support models.

Top performers, especially in

ICPS cluster, do recognize the need

for a systemized ap-proach in deal sour-

cing and defining relevant technology and market targets.

% oF CVC uNITS HAVINg LoNg-TERM (>24MoNTH) PLANNINg APPRoACH IN

% oF CVC uNITS uNDERLININg THE CHALLENgE oF SouRCINg

Top Performer

underperformer

P08.

78% 56%

56%56%

22%

67% 25%

25%67%

22%

Industry/Market Focus + 16% + 124% Sourcing of investment oppurtunities

+ 124% Indentification and definition of target industries, markets and technology

Technology Focus -16%

Deal Sources + 0%




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external collaborationOnly a minority of CVC units involve a broad range of external partners on a continuous basis in their processes; consequently only few do long-term planning in this regard. However, top performers involve selected external partners such as CVC units, IVCs, tech-nology and industry specialist, busi-ness angels, consumers and lawyers in their investment decision. Further, top performing CVC units, like IVCs , have a much more positive perception of benefits in external collaboration. Potential of universities, incubators and consumers remains largely untapped. Beside trust, the integration of external knowledge is perceived the biggest challenge, in particular by top perfor-mers. External collaboration is strongest and considered most relevant in the Media & ICT cluster.

SynDicationJoint investments are an attribute of top performing CVC units, showing that those CVC units have realized the value added by diversified corporate venture support and deal evaluation. Further perceived key benefits are deal referrals from co-investors and mitigation of risk. Compared to their independent coun-terparts, CVC units focus slightly more on joint investments with ICVs and other corporate investors. However, CVC units take more than two times less often the lead in investments, which can be explained by their historical follower position.

InvestMentprocessInvestment decisions

are supported by external partners

such as other investors, industry

experts, research institutions and

consumers.

Top performers strongly syndicate with other investors – in particular with other corporations.

P09.

% oF CVC uNITS uNDERLININg THE CHALLENgE oF...

SyNDICATIoN BEHAVIoR By PERFoRMANCE TyPES...

Top Performer

underperformer

+ 415% Finding adequate co-investors

+ 33% Syndicate

+ 136% Syndicate with other corporations

+ 100% Lead Investor

67%

89%

78%

44%

13%

67%

33%

22%

LEVEL oF oVERALL ExTERNAL PARTNER INVoLVEMENT...

overall external partner involvement construct ist based on continuity and diversity

High High

Medium Medium

Low Low

33% 50%

33% 13%

56% 40%

44% 63%

11% 10%

22% 25%

Top Performer ICPS

underperformer Media & ICT




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venture SupportThe industry context plays a major role in the type of support provided. Marketing and human resources support is for example much more relevant in ICPS cluster, as these issues are usually less broached, required skills are more special and marketing is more complex. Innovation-related strategies are generally complemented by comprehensive support.

This contradicts the common presump-tion, that innovativeness is disrupted by intensive support. Opportunities of external partner involvement in ven-ture support are not yet fully exploited, in particular in comparison to IVCs. Most external support is provided by suppliers and other corporations and investors.

external communication Despite the general interest in increasing visibility, top performers communicate investment deals and networking relevant information, rather than corporate and CVC unit interests. This complements their deal sourcing behavior. Communication of deals via social media and a website targeted at network partners is a diffe-rentiation feature of top performers.

Similar to external collaboration, communication is most practiced and desired in the Media & ICT cluster. Communication strategies seem to be under-developed regarding the common focus of many CVC units on public relations and the common network focused-deal source structure.

InvestMentprocess

Intensive support does not limit

innovativeness.

In line with their deal sourcing behavior, top performers use communication channels only for networking and communication of investments.

P10.

% oF CVC uNITS CoMMuNICATINg...

oVERALL uTILIzATIoN oF CoMMuNICATIoN CHANNELS...

% oF CVC uNITS SEgMENTED By INDuSTRy PRoVIDINg SuPPoRT IN...

Top Performer

ICPS

underperformer

Media & ICT

+ 100% Corporate Information

+ 100% CVC unit Information

- 50% Investment Deals

- 50% For Networking Purposes

VC and EntrepreneurshipEvents and Fairs

Print Media

Social Media

Associations

Websites

22%

22%

22%

56%

33%

33%

Strategic and Financial Advice + 7%

Research - 15%

Sales and Distribution - 44%

Marketing + 415%

Manufacturing - 33%

Human Recources + 136%

80%75%

60%71%

40%71%

67%13%

33%

33%14%

41%

16%

12%

9%

22%

22%



Internal collaborationConclusion

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relationShipS to buSineSS unitS anD top managementConverting and transferring the ventu-ring output within the wider organiza-tion is a further key value driver. Thus, building strong ties to the corporate parent and the BUs is considered a major task by top performers.

The ability of the top management to motivate BUs to cooperate with the CVC unit is positively correlated to performance and regarded a major point of critic on the corporate parent and challenge by CVC units. 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.

InternalcollaboratIon

Top performers stress the need for a strong cooperation between

the business units and the CVC unit.

They understand the challenge to

generate a long-term oriented horizon of expectation within

the corporation.

long-term horizonSuccessful CVC units give high scores to their parents‘ ability to manage expectation and to create a long-term horizon for the venturing activity. Nevertheless, they still regard it as a major challenge.

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% oF CVC uNITS uNDERLININg THE CHALLENgE oF...

CVC Unit

business Units

top management

Top Performer

underperformer

67%

67%

25%

50%

+ 168% Encourage long-term thinking and support from the corporate parent

+34% Foster internal collaboration and alignment between Bus and the CVC unit



Internal Collaborationconclusion

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SucceSS factorS by performance impactconclusIonCritical performance drivers are primarily

found within strategic setup

and internal collaboration.

However, process phases such as

deal sourcing and syndication have as well a vital impact

on performance. Relevance of certain

success factors differs with industry

background.

venturIng trends

P12.

Innovation CentersBeing less of a deal sourcing tool, rather than a hub for innovation related activities, innovation centers rather complement the strategic orientation of the corporate venturing activity.

Targeted Innovation Campaigns They are regarded an effici-ent deal sourcing tool as firms having a high finan-cial orientation and an ac-cent on deal sourcing attest large value added to this approach.

Innovation Incubation InitiativeApproach is appreciated by firms scoring high in strate-gic orientation and internal collaboration, due to its inte-grated intra corporate setup.

Micro Seed Funds Firms emphasizing deal sourcing, internal collabo-ration and strategic orien-tation appreciate the value added of this approach, be-cause it sources seed stage start-ups on a large scale.

1. STraTegIC

SeTuP

3. InTernal

CollaboraTIon

Strategic orientation

relationship to bus

deal Sourcing

financial orientation

relationship to CP

external Collaboration

Strategic ambiguity

long-Term Horizon

Syndication

Performance Measurement

venture Support

2. InveSTMenT

ProCeSS

Process Capabilities

exit Strategy

external Communication

High

High Industry Specific Performance Impact

High Industry Specific Performance Impact

EFFECT oN PERFoRMANCE

MEDIA & ICT

ICPS

Medium

Low

Insignificant

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contact

Prof. Dr. Marc Drüner [email protected]

Lars-Alexander [email protected]

Philipp Dauderstä[email protected]

Scientific aDviSorProf. Dr. Volker Trommsdorff TU Berlin

meDia partnerGlobal Corporate Venturing Magazinewww.globalcorporateventuring.com

trommsdorff + drünerinnovation + marketing consultants GmbH

Rosenstraße 1810178 Berlin

Fon +49 (0) 30 278760-0Fax +49 (0) 30 278760-66

www.td-berlin.com

contact us to discuss the implication of the

study results for your corporate venturing

strategy.

We are looking forward to meeting you!

P14.