Best practices in corporate venture capital
Original article reposted with permission from Global Corporate Venturing.
Since 2011, the number of corporate venture capital firms has grown five times globally. Yet with the average lifespan of a CVC falling just under four years, we share the unique challenge of continually demonstrating long-term value to our parent companies.
This statistic was not lost on me as JetBlue Technology Ventures (JTV) passed its five-year anniversary last month. The main lesson learned from our half-decade of operation is to know your purpose. Everything must start with “why”, and from there, the rest will begin to fall into place. We wanted to share what we have learned — our best practices — with the community.
1: Engage with the right stakeholders
Relationships are the key driver to a corporate venture firm’s longevity. Most importantly, the relationship between a CVC and its parent company is foundational to success.
One of the most reliable ways to kickstart successful relationship building is to secure buy-in from the top. An executive champion not only emphasizes the importance of your firm, but also contributes momentum that filters throughout the rest of the company. JTV has support from not only the executive team at JetBlue, but also the board of directors. With that level of endorsement, we are able to build trust internally, further increasing value for both our startups and JetBlue.
2: Structure your team well
To further strengthen the relationship between your CVC firm and parent company, it helps to structure your team with equal parts investments and innovation programming. At JTV, we have an operations team that provides the in-depth industry knowledge needed to give context on many of our startups, while our investments team has the financial expertise to negotiate deals. This configuration allows both parties to work in tandem for the betterment of JetBlue. Both teams combined their efforts last year to run a startup demo day exploring contactless technologies that could help JetBlue.
3: Invest at the right stage
Once your team is established, you will need to choose the right stage to invest. Our model, and what we suggest to other CVCs, is to evaluate startups using three time horizons:
- Near-term (0–2 years): This stage is ideal for trials.
- Mid-term (2–5 years): CVCs can rely on domain expertise to determine that a startup will soon be impactful.
- Long-term (5+ years): These are industry disruptors.
Choose an ideal mix of deals in each horizon according to what your parent company needs. In JTV’s earlier days we focused on pre-seed companies, but through years of experimentation, we discovered that seed, Series A and Series B are better areas of focus for us — not too early, and rarely too late! The rationale being that when a startup is just getting off the ground, it is difficult to provide strategic returns to our parent company, which is an important factor in deciding whether or not to fund it! JTV invested in i6 early last year during its Series A funding round, and the startup’s refueling technology is already being deployed at several JetBlue cities.
4: Add value beyond money
CVCs are most successful when acting as a strategic investor. This includes connecting their portfolio companies with knowledge and resources that increase their odds of success.
At JTV we formalized our support processes for our value-add activities with two core initiatives. Our Platform offers support beyond our initial investment, while our international partnership program increases the speed of adopting innovations in the industry. We recently held our annual Partnership Summit to introduce Air New Zealand, Vantage Airport Group, CAE, and JetBlue to emerging startups focusing on data use cases in the travel space.
5: Pilot everything
The best way to ingest emerging technologies in our business is through trials. These initial pilots offer a first-hand look at the real-world impacts of new products and services on a travel company. Trials are free or low cost and an easy way to test a product’s feasibility at any corporation. If it fails, no sweat; it is better to learn now than later. If it is a success, we move forward with implementation, providing further value to both our parent company and our startups. In 2018 JTV worked with JetBlue to pilot ClimaCell, a weather technology company that generates minute-by-minute weather predictions. Now, the startup is implemented across our network to help improve our ground crew’s ability to make weather-related decisions!
Corporate venture provides a front-row seat to the future of your specific industry. When applied intelligently, this type of knowledge can make the parent company more competitive and nimble in the face of Industry disruption.
Eventually, with enough time, commitment, and follow-through, your stakeholders will view you as an invaluable asset. Invest your time, along with your money, and your impact will move from linear to exponential.