I’ll go through these steps one by one, showing how firms can establish venture funds that are as savvy and nimble as the best private VCs. Chemmanur and Elena Loutskina, 2008Ĭompanies hoping to acquire knowledge and agility from corporate venturing can benefit from following six steps, including aligning goals, providing the right incentives, and creating systems to transfer knowledge. But as disappointment with R&D results grows, there are indications that corporate venturing may be gaining ground-and respect. To be sure, running successful corporate VC programs isn’t easy: Companies’ processes and rules can make them slow-footed and unfocused. Even firms with successful funds have sometimes struggled to make use of the knowledge gained from start-up investments. Some have seen their venture initiatives fail outright, and many more have given up too quickly: The median life span of corporate venturing programs has traditionally hovered around one year. At the same time, of course, its investments may earn attractive returns-an added benefit for a tool that helps capture ideas that may ultimately shape an organization’s destiny.įor decades, large companies have been wary of corporate venturing. In some cases, such a fund can even help stimulate demand for a company’s own products. By 2013, Lilly Ventures had been involved in more than 30 such collaborations, many of which gave its parent company valuable insights into the science of developing drugs by analyzing biological data.Ī corporate VC fund like Lilly Ventures can move faster, more flexibly, and more cheaply than traditional R&D to help a firm respond to changes in technologies and business models. So in 2001 the company launched a corporate venture-capital fund in order to engage with cutting-edge biotech firms when they were just start-ups. When the genomics revolution was transforming the pharmaceutical industry, Eli Lilly realized that its survival might hinge on its ability to catch up with this disruption. Harvest valuable information.Ĭompanies need to invest as much in learning from their start-ups as they do in making and overseeing deals.ĭeux Angles/Two Corners, 2013, ephemeral 3-D tape drawing with black masking tape If a company is seen as a fickle investor, professionals will be wary of joining its venture unit, entrepreneurs will be reluctant to accept its funds, and independent VCs will be hesitant to join in. Tolerate failure.Ī zero failure rate may indicate that the fund is playing it too safe. Provide powerful incentives.Ĭompanies that don’t offer adequate compensation to their venture capitalists will face a steady stream of defections. Streamline approvals.Ī complicated decision process can burden the fund with too many goals and lead to ineffective investing patterns. Align goals.Ĭorporate venture funds are more successful if the business of the corporate parent and of the portfolio firm overlap. Six steps can help companies avoid the pitfalls. Some companies have seen their venture initiatives fail, and even firms with successful funds have struggled to make use of the knowledge gained from start-up investments. Managing corporate venture funds is not easy. During their first three years as public companies, firms backed by corporate venture funds show better stock price performance, on average, than companies backed by traditional VCs. And its investments may earn attractive returns. In some cases, it can stimulate demand for a company’s own products. The logic of corporate venturing is compelling: A well-run fund can help a firm respond quickly to changes in markets and gain a better view of threats. But as R&D organizations face pressure to rein in costs and produce results, companies are investing in promising start-ups to gain knowledge and agility. For decades, large companies have been wary of corporate venturing.
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