The Brave New World of Corporate Venturing. Part II: Emerging Models
In part I of this blog, I discussed the traditional corporate venturing models. These are several variants of corporate venturing activities than can be roughly categorized as Internal Ventures, Startup Partnering and Corporate Venture Capital. The purpose of the CV models seem clear – help a corporation deal with a litany of value shifts and translate research and points of view into real market opportunities. The problem is that these models were designed as stand-alone silos, equipped to navigate in yesterday’s, calmer innovation oceans, not today’s world of cross-industry threats and opportunities, driven by both soft and hard technologies. Enter the emerging corporate venturing models.
Emerging Corporate Venturing Models
The emerging corporate venturing models are being formed at the intersection of the major traditional models to address the typical shortfalls of the myopic approach to both noticing and acting on an opportunity (either an all-internal or all-external endeavor or either a partnering or investment endeavor, but rarely both). Emerging corporate venturing models can also be mapped along two dimensions: The ‘nearness of the value shift’ they are tailored to seize and the degree of ‘control over learning’ that the organization desires (See Fig 1):
- Collaborative Venturing
- Sponsored Acceleration
The emerging corporate venturing models break the compromises of the traditional models while giving the corporation and even greater control of learning.
The Collaborative Venturing Model
Collaborative Venturing is the process of searching and executing new ventures through the combined efforts of a large corporation with one or more external partners, namely startups. The collaborative venturing model breaks the compromise of control vs. an open approach to corporate venturing – it combines the entrepreneurial, think-for-yourself elements of Internal Venturing with the collaborative approach of Startup Partnering to explore new, value shift opportunities, not simply lift the value of existing platforms and products.
Major Principles of Collaborative Venturing
Collaborative venturing can further be described by the following design principles:
- Corporation identifies areas of opportunity for innovation, including specific concepts (problem/solution/business model thesis)
- Corporation then goes into build/partner/buy mode to pursue opportunity/concepts (heavily-influenced by Open Innovation)
- Collaborative Venturing is ‘project based’, trying to accelerate time to market for specific concepts
- Corporations look for licensing and co-development opportunities related to technology, product AND scalable business model
- Partners include universities, research labs, other large corporations – BUT, favors startups
- Involves periods of co-location of respective development teams
Collaborative Venturing with Startups
Collaborative venturing with startups entails the following:
- Co-development of a ‘new to world’ solution (usually a specific end product, service, or tool)
- Involves money (either equity investment &/or guided non-recurring engineering fee &/or IP licensing and royalties (revenue share))
- Requires careful separation of IP rights (May involve investment and support to create new startup IP in return for privileged, field-of-use rights)
- Much more hands-on than a typical startup partnership (co-creating something new, not simply bundling existing offerings) – Corporation thus involves venture builders as the key relationship managers
- Corporations must be ready to fully-support startup, not a 1-way street (must be careful with too many strings attached)
- The goal is to build a new business together (either the entire startup or the co-development project become possibility for M&A or long-term strategic partnership))- Thus, no quick exit mindset
- Occasionally, a corporation may wish or have to ‘acqui-hire’ part of the startup’s staff and purchase or license portions of the startup’s IP at the beginning of the collaboration
When & Why Startups
Collaborative venturing can be done with a variety of partners but is best done with startups provided the right context:
- The large business opportunity is characterized by high uncertainty (technical, but mostly business model risk where parent company has little or no expertise)
- Partnering with startups allows an opportunity to be discovered through unbiased business models
- Partnering with startups allows one to match investment commitment with risk profile of opportunity (Lean)
- Partnering with startups allows ‘portfolio’ approach to searching for scalable business model
- Startups value corporate relationships (revenue, connections, mentoring and exit story)
- Competitors are courting startups (risky to be left out)
Collaborative Venturing Case Study
A large, South-East Asian apparel manufacturer decided to venture into smart-fabrics (the value-shift to multi-functional clothing at the intersection of fashion and technology).
It rapidly iterated its approach to venturing, from stand-alone Internal Ventures and Open Innovation to Collaborative Venturing as it realized the various unknowns and challenges along the continuum of innovation.
V 1.0 Traditional Internal Venturing
- Do everything in-house
- Problem: Limited business model innovation; Slow to proof of concept (needed time to acquire technical and product development capabilities)
V 2.0 + Open Innovation
- Partner for technology (With universities, research labs)
- Improvement: Open to new product possibilities
- Problem: Limited business model innovation; Slow to market (needed time to acquire product development and marketing capability)
V 3.0 Collaborative Venturing
- Partner for technology, product development & go-to-market (With startups)
- Improvement: Startups bring technology, product development, initial business model proof (Can collaborate to accelerate discovery/initial sales efforts)
The results have been impressive: Several start-up joint-ventures formed to date with novel, new to world products in market (Both the corporation and startups sharing revenue and equity upside in carved-out JV efforts – startups maintaining independence).
Collaborative Venturing Examples
Various companies have started experimenting with collaborative venturing as a logical extension to Internal Ventures in areas where they would need to develop significantly new competencies from scratch and where they are finding capable startups (or founders) that can help navigate uncertainties faster. This includes Coca-Cola’s Founders, AT&T’s Foundry, Samsung, Allianz, Qualcomm (w/ Brain Corporation) and Sanofi. Sanofi is an interesting example of Colab Venturing in which they create new companies with VC’s or invest in early-stage startups and collaborate to quicken discovery (with an eye towards licensing or acquisition). AT&T’s efforts involve other corporate partners (e.g. Ericsson, Cisco).
Collaborative Venturing Challenges
By its very nature, Collaborative Venturing requires advanced skills in partnering with other entities for co-creation. IP ownership and separation issues are especially challenging to navigate and require a high degree of know-how and discipline to not get in the way of progress. This requires experienced IP counsel on both sides.
Startups can also be weary of co-development with large companies, who mostly do not speak the same language (or move at the same speed). This may require the startup to own the bulk of the development tasks and initially use its own brand and marketing tactics during ‘transactional learning’ (although a tech-transfer agreement will make sense in some cases where the startup is essentially an R&D engine).
Finally, Collaborative Venturing is restricted by its project based, partner with a few, not many approach – It goes deeper into a particular business opportunity but doesn’t provide the same integral access to a very wide array of startup partners. It’s thus appropriate for an earlier stage value-shift move, where there isn’t an abundant partner choice dilemma, rather a pioneering opportunity.
The Sponsored Acceleration Model
Sponsored Acceleration is the process of searching and executing a startup ecosystem dependent, platform business model. The Sponsored Acceleration model breaks the compromise of startup partnering vs. investment relationship to discovering new possibilities (it accommodates, not necessarily forces both). The Sponsored Acceleration model is similar to the Collaborative Venturing model in some respects. However, the big difference is that in Sponsored Acceleration, corporate assistance is provided to a batch of startups during a pre-specified time period, not a project based, co-development approach.
Sponsored acceleration is not simply a Partnering Storefront, as described in the previous blog. Partnering Storefronts are designed to execute (scale) known platforms in areas with plenty of existing developers and startups. The relationship is often transactional and partly automated (download of API’s, access to cloud services, etc.). Sponsored Acceleration is designed to search for and test a new platform (or its major details) and/or the proverbial, killer app by working side-by-side with startups.
Major Principles of Sponsored Acceleration
Sponsored acceleration can further be described by the following design principles:
- The sponsoring corporation identifies a strategic area of interest
- The sponsoring corporation is keen in either:
A) Market intelligence to define or refine a new growth platform in the strategic area of interest
B) Ecosystem booster for the new growth platform in search of a killer app (Startups search for killer app)
- Corporation must decide on mix of value-add to startup including money, advice, resources, connections, creating a common customer, etc. (Acceleration is a competitive field to attract the best!)
- Corporations can run acceleration camps on their own or partner with specialists (e.g. TechStars)
- Complementary to Corporate Venture Capital efforts where seed stage (even pre-seed) involvement necessary
- Includes a physical location (a Colab)
Sponsored Acceleration with Startups
Sponsored acceleration with startups entails the following:
- Co-discovery and testing of a ‘new to world’ platform and killer app (Corporation and startup each have discrete solutions to build that complement each-other, not a single, joint co-development project as in the case of Collaborative Venturing)
- Involves money (equity investment and/or other in-kind tools and services that reduce startup costs)
- Much more hands-on than a typical CVC investment (uncovering the potential of a new platform together, not simply investing to advise and learn during quarterly reviews) – Colab is thus staffed with corporate venture builders and those who can help the startup network internally
- Corporations must be ready to fully-support startup during and after the acceleration period, not a 1-way street (must also be careful with too many strings attached)
- The goal is to discover and test a new platform and killer-app together (the startup may occasionally become a possibility for M&A or long-term strategic partnership))
- Sponsored Acceleration may involve the use of a pre-determined set of corporate components and API’s, but doesn’t necessarily have to (it may be early in the corporate’s journey to define its platform and plug-ins and the startup should have complete freedom to build its product)
Sponsored Acceleration Case Studies
In early 2014, Cisco decided to start a sponsored acceleration program named Cisco EIR targeting startups in each of its key strategic areas of interest for innovation (The Internet of Things (IoT), Smart Cities, Enterprise Security and Big Data & Analytics).
Details of the program include:
- Hosting small cohorts of startups in US & Europe for 6 months (At Cisco locations & partner incubators (e.g. San Diego’s EvoNexus)
- Seed stage + Series A & B targets
- Cisco and external mentors
- 2 possible value tracks (Partnership Only or Partnership & Investment)
- Startup assigned to business unit executive sponsor (Ensures hands-on involvement, helps determine eventual value track)
- Value to startup includes co-working space, networking within Cisco and laboring to secure a common customer
- Value to Cisco includes refinement of its platform strategies and offerings in areas of interest (And privileged due-diligence to potential startup acquisitions in select circumstances)
The program is off to a flying start, expanding from a single location at Cisco’s headquarters in Silicon Valley to several other locations including Europe. Cisco EIR program is credited with acceleration the company’s entry into its select innovation areas of interest and has led to major startup partnerships and acquisitions.
Qualcomm Robotics Accelerator
In early 2015, Qualcomm decided to start a sponsored acceleration program named Qualcomm Robotics Accelerator targeting startups in particular robotics areas of interest for the company (with a heavy representation of Drone-centric startups). In its first installment, Qualcomm partnered with TechStars to run the program (although it will not be continuing this arrangement in the future).
Details of the program include:
- Hosting cohort of 10 startups at Qualcomm San Diego HQ
- Seed stage targets
- Qualcomm and external mentors
- Investment provided by TechStars and Qualcomm upon graduation
- Value to startup includes co-working space and networking within Qualcomm
- Value to Qualcomm includes refinement of its platform strategy and offerings in robotics
The program’s first installment met its stated objectives of helping Qualcomm refine its approach to the robotics arena, especially pertaining to the vast opportunity in commercial drones. Qualcomm has used the Sponsored Acceleration approach to more quickly translate research into commercial products in a new growth area for the company, a great example of the evolution of its Corporate Venture Capital function – ever more involved with venture building by working vs. simply arms-length investing.
Sponsored Acceleration Examples
Various companies have also started experimenting with sponsored acceleration as a logical extension to Corporate Venture Capital in areas where they need closer access to what they can learn and test with startups to guide their own venturing bets. This includes various companies that have partnered with TechStars at one time or another (e.g. Nike, Microsoft, Verizon, Ford, Magna, etc.) and others like Intel (e.g. Intel Ed-Tech Accelerator), Citrix (e.g. Future of Work Startup Accelerator), Telefonica (Wayra) and IBM (e.g. Alpha Zone in Israel with Becton Dickinson).
Sponsored Acceleration Challenges
Sponsored Acceleration requires deep understanding of platform-based business models and startup ecosystem shaping. But in a world of cross-industry opportunities where ‘winner takes all’ is increasingly an unattainable strategy, Sponsored Acceleration requires a true win-win attitude to explore mutual share of value (which will also translate to partnering with other large companies in burgeoning, multi-industry ecosystems, e.g. smart-automobiles, wearables/ healthcare, the consumer-centric, energy-efficient home, etc.).
Sponsored Acceleration is one step removed from actually building a new venture – in order to be successful, this model requires close collaboration with those that mostly benefit, the platform owners (Cisco EIR is tightly integrated with sponsoring business units, Qualcomm’s RA is tightly integrated into corporate R&D, owners of the robotics platform strategy).
Conclusion of Emerging Corporate Venturing Models
Corporations are gradually evolving their traditional corporate venturing models from restrictive activities to hybrid models that understand the blend of corporate entrepreneurship with startup partnering (The Collaborative Venturing model) and/or the blend of startup partnering with startup investments (The Sponsored Acceleration model). In general, the emerging models of corporate venturing allow the corporation closer access to learning the timing and implications of value-shifts, both by doing and observation. The emerging models also equip the corporation to act on their lessons learned, leaner and faster through the power of partnerships to supplement in-house knowledge and points of view.
As described above, operated as stand-alone efforts, each of the emerging corporate venturing models has salient pros and cons (See Fig 2):
The emergent corporate venturing models offer complementary advantages to the traditional models – not necessarily wholesale replacements (horses for courses, as the British would say).
They are still insufficient if operated as stand-alone units, not part of a holistic approach to innovation. Each model (traditional or emerging) runs the risk of becoming self-serving, a particular executive’s pet project, competition for attention (on its own agenda), rather than contributing to the collective good of the company and its innovation aspirations. This is where a Chief Innovation Officer role comes into useful play – to determine the array of needed corporate venturing mechanisms and their relationship with each other as well as with the other innovation levers along the Research, Venturing, M&A continuum of anticipating and reacting to relevant value-shifts.
Eventually, I would argue for an integrated model of corporate venturing that includes strategy, entrepreneurial, partnering and investment functions into a single innovation unit. This model, Fractal Venturing, will be designed as a hub-&-spoke operation, coordinating centralized corporate efforts with those of operating business units and with physical presence in both the corporation’s existing innovation centers as well as outposts in startup hotbeds such as the US, Israel, China, Europe and India. Stay tuned for part III then (My proposal for Fractal Venturing).
Image credit: Future world by Stefan Morrell