What is corporate venturing?
Diving into the trend that is helping industries of all kinds to achieve self-renewal.
‘In the new world, it is not the big fish that eats the small fish, it’s the fast fish that eats the slow fish’ — Klaus Schwab, Founder and Executive Chairman of the World Economic Forum
There’s no need to convince you that the world is changing faster than ever. The disruption caused by technology is so rampant that it is practically a cliché.
It’s acceleration and its effect on markets, companies and consumer behaviour is mindblowing. Startups are no longer the new kids on the block. They have moved way passed the ‘hype-phase’ and have now paved the way for an entirely new disruptive tech landscape.
Airbnb and Uber are prime examples of how quickly thing can change. They may seem like obvious examples but they’re obvious for a reason. Airbnb completely changed the hospitality industry in just 10 years. Having only started in 2008, they already reached double the market cap of Marriott hotels by 2018, with triple the number of rooms. In just 8 years, Uber reached approximately the same market cap as Volkswagen without even owning a single car.
With this disruption to the tech and consumer landscape, many large organisations are falling behind as a result. Nokia, being the market leader in 1998, dropped 30% in profits in 2009 and continues to fall in 2020. While photo industry giant Kodak, the market leader in 1999, filed for bankruptcy in 2012. Technology is accelerating faster than ever and the need to stay ahead of the game is no longer a suggestion but a requirement.
So how do corporates ensure that they aren’t left behind? Enter: corporate venturing.
So, what exactly is corporate venturing?
Corporate venturing is simply a larger company investing funds into an external smaller company. This is often done through a separate fund that is set up specifically to invest in startup companies, as a venture capital firm traditional would. Almost all industries have been challenged by startups but with corporate venturing, corporations can engage and collaborate with startups for mutual beneficial means.
According to the Forbes Global 500 which ranks their world’s largest public companies, 68% of the top 100 companies from this list were engaging with startups. In the Wall Street Journal under the Billion Dollar Startup Club, 61.7% of the startup unicorns mentioned had raised funds from at least one corporate (not including investment firms and banks).
Why is corporate venturing so important?
Corporate venturing works to not only promote the corporate’s innovation activities but it also prevents them from missing out on important technologies.
While many top businesses may proclaim company vision and philosophy to innovate and disrupt the market, the actual business resource allocation may not exactly reflect this inclination. And although many corporates have an R&D structure in place, they often struggle to validate, build, support and champion these new products and ventures due to lack of resources, agility and ownership.
In this way, corporates can get ahead of their own competition by seeking out brilliant startup unicorns to drive its brand innovation. Not only does this benefit the corporate but it also benefits the entrepreneur as it offers the same exciting startup environment but with the security of a large corporation.
How to know if corporate venturing is for you?
Business strategies don’t become outdated overnight. It’s a long and gradual process that’s difficult to recognise, in many cases until it’s too late. One key indicator that corporate venturing is a good idea for your business is if startups are gaining on you.
If you have an amazing business model, chances are there are startups trying to get in on the action. Startups with fresh ideas and perspectives are finding opportunities to upend entire industries with new technologies. If startups are moving in on your turf and taking away a significant part of your market, then embracing corporate innovation is crucial to the survival of your business.
Venture investing can be a risky move, but not investing at all is even riskier. When innovating, the key for corporates to note is that while their current practices may help sustain their market share in the short term, investing in the startups with their disruptive innovations and agile work ethic will future-proof and deliver significant business growth for corporates in the long term.
Ready to kickstart your venture? It’s our thing!
The Delta has experience working with clients across multiple industries to build ventures and products that matter. If you feel like you are falling behind the curve. Don’t worry, we’ve got your back.
