Today we have a new guest, please welcome the Lead Analyst at Admitad Projects Maksim Semyonov.
Difference between conventional and corporate venture building
Venture building is a venture mechanism that creates businesses from scratch and accompanies them up to the stage of active growth, sometimes even IPO. Venture builders work long-term unlike accelerators, venture capital funds, or incubators.
A corporate venture building is a tool that either belongs to or works for a corporation. Businesses developed within venture building are created according to the interests of the company.
History and relevance of corporate venture building
Within the framework of world history, venture builders appeared very recently. We wrote more about this in our material Corporate Venture Building: History and Interesting Facts (currently only available in Russian).
As for startup studios, this industry began to take shape at the end of the 20th century. Idealab became the pioneer, being followed by the wave of the first venture-builders in 2007: BetaWorks, Rocket Internet, and others. From 2013 to 2018, many startup factories were formed, and corporate ones appeared among them as well.
Today, there are about 400 startup studios in the world and much fewer corporate venture builders. In Russia, there are no more than a dozen startup studios and only three corporate ones that are known to the general public.
Industries that experiment with venture building the most
The most experimenting industries are, of course, fintech, insurance, and banking. For example, such companies as BBVA (Banco Bilbao Vizcaya Argentaria), AXAGroup, and Otto Group are the most innovative.
But banking and insurance sectors aren’t really dominating as there is approximately the same number of corporate fintech and telecom studios. Many companies have their own venture-building departments (i.e. Procter & Gamble or Johnson & Johnson). Finally, quite a large segment is taken by technology companies.
When an enterprise should think of its corporate venture builder
There are several criteria that characterize if an enterprise is ready to engage in startups and cooperate with a venture builder:
- It must be a mature business, not a startup. Only a financially stable company that has its own money will be able to implement the project.
- The company has worked with accelerators and venture funds. Then investors and top managers will be well aware of what to expect from startups.
- Within the company, there must be a leader who drives the project and promotes venture building to decision-makers. This way, the startup will be receiving maximum support from the entire company. Otherwise, the interaction will be much more challenging, and there will be no acceleration.
The challenge of implementing a project in a corporate structure
The main obstacle is the corporate culture as many large companies are slow and clumsy. It’s really hard for these big mammoths to test hypotheses quickly or create new businesses that are incompatible with the current business model or far from it. There’s immediate interference from the bureaucracy. Or, alternatively, a lack of the right people with the right mentality who could carry out projects from idea to launch. As a rule, workers hired by corporations are aimed at supporting existing processes. Whereas to create new businesses, you need people with a different mindset.
Building the interaction between the enterprise and the startup studio
Corporations can contact venture builders with the following tasks:
- There is a clear request, a specific product, an idea, or a set of ideas that need to be tested and verified.
- The company has already worked with a startup, but something didn’t work out. At the same time, there is a desire to reformat the process and try to implement it with a venture builder.
What Is needed for cooperation
It is necessary to conduct a preliminary analysis, to find out what businesses can be created in synergy with the corporation, what assets are available, what is happening in the market.
The next step is to examine the key employees of the company. Most often, a corporation plans to create a new business either in the same market niche or somewhere relevant. Some of the employees can be temporarily recruited into an external startup studio for the period of generating hypotheses. This is a good practice that can and should be followed.
It is important to structure the activity, i.e. to determine the format of the investment and find out whose money will be poured in to get the project implemented. It’s important to know how much money should be spent on testing hypotheses and launching the most successful ones.
Then, answering financial questions is crucial as well. At the very beginning of the journey, the team needs to agree on expectations and the distribution of shares. The interest rates of both venture builder and corporation should be clear, and if the venture builder does not take its interest, the cost of its services is to be discussed.
Then, there is discussing issues of coordination and management. These processes take place outside the corporation to avoid bureaucratic pressures and a strained atmosphere. But at some stage, of course, the initiator company and the new business will begin to interact, this is a must. All relationship formats are discussed in advance, determining key figures within the company who will be responsible for current work.
However, this is an incomplete list. Depending on the situation there may be more details and nuances.
Features of financing
Some corporations prefer the parent company to finance new activities. Others create special venture funds or separate joint ventures for these purposes. There is no recipe that would fit everyone universally.
What tasks venture builders solve
Corporations have many tools for working with startups. For instance, you can launch a venture fund or an accelerator. Also, there are internal entrepreneurship programs, hackathons, and contests. Each tool has its own ways of applying it, its own pros and cons. A startup studio is not a corporate venture builder or a universal answer to all questions, it is just another tool.
The main tasks that can be solved with the help of a corporate venture builder are:
- Creating projects that a company really needs, and/or projects that resonate with the main business strongly, strengthening its model or strategic positions.
- Accelerating and facilitating the process of integration. It takes a long time for large corporations to integrate a newly acquired startup into their structure. Years might pass until such a project becomes an integral part of an enterprise. But when a project is created by a venture builder, you can worry less since its team is already prepared for all the difficulties. There’s an underlying expectation for a larger company to appear and take the startup in.