Corporate Venture Units: what are they, what you need and an example
Wait, what’s a Corporate Venture Unit?
It’s not corporate venture capital, but Corporate Venture Units can use CVC as one of many tools.
Think Lockheed Martin’s Skunkworks, Corporate Venture Units [CV Units] are the special forces team tasked with bringing to life the radical new new in your organisation. Corporate Venture Units allow mature organisations to become agile between their points of inertia and stress. Between your cash cow operating base and the impending disruption heading your way. They exist to take the pressure off operating management with regards to testing the future growth options. Smalls specialist teams allow for deep focus and quick wins before the wrong growth option becomes a material failure.
What you need [Synthesized from talking to 19 companies]
A burning platform: a reason why this has to happen, NOW — from talking to multiple companies the genesis is often, “R&D isn’t delivering we need to fix this now”, “M&A isn’t delivering we need to fix this now” and so Corporate Venture Units come into existence organically, an amalgamation of specialist projects, “War Rooms” and transformations that are crucial to delivering the company’s next act. Over time the team’s maturity increases and they realise what has formed is a corporate venture unit. Where you can, try to spot this and group urgent strategic projects into one space, prove outcomes and assess if a process driven unit could help.
A coalition of support: senior level sponsors who will support the team through the good times and the bad — Corporate Venture Units require cross-business support to succeed, also they require a great deal of premium financial commitment and can take a lot of time to realise benefits, therefore cannot be subject to the failure of one figurehead in an organisation… they need commitment and political shielding.
Strategic direction: a clear role [CEO sponsored] in the direction the organisation is traveling — CV Units are your pathfinders, key to informing the mobilisation of resources required to win in the market. They are often separate to the strategy team, the strategy team’s focus is governing both the operating business and keeping the CV Unit aligned to the core. Business strategy and corporate venturing must act in symbiosis. Any misalignment between the two creates organisational drag that slow’s down both teams.
Top Talent: disciplined operators who will make things happen — Corporate Venturing requires top execution talent in order to be successful. CV Units will be executing hard ambiguous projects that will be prone to failure. It’s key here that differentiated cultures and practices are adopted [see Samsung example below] to encourage psychological safety and attract fresh talent. Egos must be disciplined and clear goals set to ensure that progress is being made even if benefits are 2/3 years out.
A mission to create value: cash improving outcomes — Growth, investment, and acquisitions all have the potential for short-term growth but at what cost? The unit must be measured by a simple value creation goal[see below] that is clear to both internal and external stakeholders. Embedded in this approach is a higher risk profile than the parent organisation’s. Therefore, CV Units must build their growth strategies to show risk levels evening out as the venture scales to a point that they can be implanted back into the operating business.
Alignment to the parent but proximity to experiment: a strong understanding of the company’s DNA but far enough away to not get caught up in politics — To enable fast execution, attraction of top talent, rapid delivery of strategies and risk/reward value creating initiatives the unit must sit outside the parent’s normal operations. This enables an agile culture of experimentation to develop but kept rooted in improving the parent’s existing and long-term growth. [Includes branding and culture, see the Samsung example below].
Intimacy with the market: a strong and broad network in the external market to bring the best developments back in-house — Corporate Venture units need to be ingrained in the leading edge of the strategic markets it is involved in. This means geographic, social, network and physical immersion to ensure it can capture developing insights. And then feed these back to the parent, creating channels by which the parent can absorb and action insights.
Ring-fenced funding: a pot of money committed for a multi-year period to bring this activity to life — this is not a big bang here’s £100m now go build a bat cave situation. It’s a commitment from the organisation to fund and fully deploy all of the capital to support the unit, subject to the quality and performance of options the CV Unit tables. A KPI should be put in place to penalise the organisation if it does not deploy the capital within a certain period, this is to avoid the capital being used as “cover” for any operational issues that arise in year.
Case Study, bringing it all together + examples of how it’s messaged to Shareholders:
History: Led by President David Eun (a former Google exec). Started in 2013 on a mission to create breakout software and services and foster a start-up culture at Samsung. Started as a small-scale splinter group, grown into a large scale component of Samsung’s strategy delivery. Specifically, this unit grew out of the company’s innovation units that previously existed as separate groups within the organisation.
Team: c38, M&A professionals, Industry Experts, Venture Capital professionals, Operations/Product Specialists, HR, Business Development, Legal function specialists in-house [organised into agile squads to enable fast decision making and execution of projects]. It is important to note here that the unit has been provided with its own back office support. Like in Tushman’s (2004) description of structurally separate organisations. Samsung NEXT does not have to compete with the parent for operational resources to enable it to rapidly execute on projects.
Locations: Korea, San Francisco, Tel Aviv, New York, Silicon Valley [Strategically placed in geographies that are dense in technology innovation increasing the probability of successful innovation]
Offerings:
Start: Incubate start-ups supplying them with Samsung resources, SEED funding, in-residence programmes
Ventures: $150 million venture capital investment fund. Early stage funding to start-ups (Mobility, VR, Security, AI, Mobile Commerce, NextGen UX, B2B Mobile)
Growth Opportunities & Strategic Partnerships: M&A acquisition cases include the acquisition of the U.S. IoT open platform developer SmartThings in August 2014 and LoopPay in February 2015. LoopPay’s magnetic secure transmission (MST) was used as core technology for Samsung Pay, which was released in 2015. SmartThings’ IoT open platform also contributes to Samsung’s securing smart home technology and developing IoT modules
Structure
Legally Samsung NEXT operates as a subsidiary entity of Samsung. The existing organisation remains focused on consistent operational leadership, Sub-unit operates at high speed, exploratory for growth and tolerant to failures. This hybrid (ambidextrous) organisation, allows for a WIN WIN approach — not risking ongoing operations of the parent yet offering potential upside from new high growth, high margin markets.
Notably, in the existing organisation Samsung calls out “thoroughly consistent and organisational”. This is a clear message to shareholders that the existing organisation is focused on shareholder returns. And further that the “small” innovation unit embodies a detached layer of risk that is a value add to organisation as they sum together.
Culture
Samsung NEXT has a specifically different culture to:
Hire the best talent — allowing the organisation to problem solve faster and compete with the market place
Promote fast decisions — given the smaller size of the organisation decisions can be made faster with fewer consultations
Encourage risk in the pursuit of growth — in a quarantined unit risk exposure does not threaten the parent
Highly outcome orientated culture — Risk, Speed and Fast Decisions mean outcomes and performance can be measured much faster
These cultural modifications are necessary for the level of ambiguity and risk associated with the activities performed by the organisation. Also, the level of “Elite” differentiation is designed to entice top talent that may not normally be attracted to a Goliath organisation like Samsung.
KPIs
Success is measured across two dimensions.
Short-term: Completion of Projects & Progress Against Strategic Goals.
Long-term: Revenue Growth and ROIC.
The immediate impact that is strategically called out to investors in the annual report is the ability to complete projects and commercialisation of projects. This sends specific messaging to the shareholders to reinforce a track record of competence and action whilst the value (financially) may not be realised for several years post. On the left of the diagram above, Samsung lays out its core principles for innovation, and this is a clear commitment to innovation, indicating that it is taking a portfolio approach to its innovation.
Notably, in the annual report, financial metrics for innovation are not discussed. Qualitative measures and terms like “securing new driving focus for growth” are used paired with the ethics/governing principles of the organisation.
Thank you for the read! that was a synthesis of 12,000+ words, so feel free to reach out to me if you have any questions on the sections above- there’s lots of backing!
