Corporate Investors Must Answer This Difficult Question

Focus on supporting the core, or preparing for disruption?

Scott Lenet
Risky Business
6 min readMay 19, 2022


Image: Shutterstock

Corporate innovation executives often wrestle with the purpose of their venture capital (“CVC”) programs and how to implement policies to achieve objectives. In addition to the questions that face every new venture capital fund — like what sector, stage, and geographies should be targeted — corporate VCs must also address topics that are unique to strategic investors. Chief among these subjects is whether portfolio investments should be connected to the parent company’s core business.

Academics and innovation professionals use two similar frameworks for analyzing this decision, “horizons of innovation” and “core — adjacent — disruptive” opportunities:

1. Horizons of Innovation

I teach this framework in my corporate innovation class in the MBA program at UCLA. The horizons model is familiar to many innovation teams and classifies innovation efforts by stage, risk, and timing; this allows corporations to balance near-term execution with long-term goals.

Image: Shutterstock (adapted from “Grow From Within” by Wolcott & Lippitz)

Horizon 1: incremental innovation relating to the company’s current products and primary lines of business, often sold through established channels to existing customers

Horizon 2: opportunities in the early stage of development that may have reached the market and could be generating revenue, but have yet to replace the core business in any meaningful way

Horizon 3: pre-market opportunities with potential to disrupt the core business, often via new business models and new approaches to addressing customers’ needs

In this paradigm, corporations evaluate each potential innovation opportunity to assess whether there is a mutually beneficial near-term relationship, or long-term potential to change the overall business approach.

2. Core — Adjacent — Disruptive Opportunities

Analyzing opportunities as core, adjacent, or disruptive directly parallels the three horizons of innovation. Core opportunities correspond to horizon 1, adjacencies equate to horizon 2, and disruptions map to horizon 3.

Image: Scott Lenet & Kevin Jones

While these frameworks are easy to grasp, they don’t dictate what’s right for your corporation. This is where a customized approach may help, especially if you are working with an outside expert that is a registered investment advisor. What horizons you target should depend on your corporation’s individual circumstances.

If you are the market leader, your innovation lens may be focused further out, and disruptive opportunities might make the most sense. But if you are playing catch up or attempting to address weaknesses in the economics of your existing business, then it should be fairly obvious that investments focused on the core provide the greatest potential for near-term impact. Other factors may be equally relevant: for example, investing in the core requires active engagement from business unit professionals, while investing in disruption may engender resistance from those running existing lines of business. You should also consider whether the culture of your firm is conservative — which could favor the core — or experimental — which might favor disruptive opportunities.

A portfolio approach that blends these options may make sense for many corporations. To reinforce this point, I spoke to ten corporate venture capital professionals where I have direct knowledge regarding the strategy and management of each program. Each of these corporations generates revenue of at least $1 billion, although most are considerably larger. More than half the companies are publicly traded. Here are the target allocations for core, adjacent, and disruptive opportunities for each of these programs:

Source: Touchdown Ventures

The average target for these ten CVCs is 45% core, 46.5% adjacent, and 8.5% disruptive. Notice that none of the programs has the exact same target allocation. The fund manager of Corporation 1, for example, indicated that this ratio was set because the parent company is focused on a five-to-ten year time horizon and the establishment of new business lines.

The fund manager from Corporation 3, on the other hand, said:

“[Our fund] is heavily focused on having an immediate commercial relationship and ability to give and get value. This can be with very early stage companies where we are supporting technical development, but still requires a certain “closeness” to core capabilities. While there is a lot of internal messaging about disruptive innovation and “disrupting ourselves,” I have found the bleeding edge to be a tricky place for capturing business unit engagement. Thus, I think core and adjacent innovation categories are where we spend most of our time, and a minority percentage goes towards disruptive innovation.”

This fund manager indicated that business unit leaders are generally very engaged in the venture capital process, partially because of genuine interest and partially due to the support of the CEO and C-suite.

Corporation 7, however, faces pressure from activist investors and strong headwinds from digital disruption, and focuses nearly exclusively on using its venture capital program to bolster and transform its core business. The company may not exist on a stand-alone basis in ten years, so a shorter horizon makes logical sense.

Even if you decide to focus on core and adjacent investments, it does not mean that you cannot evaluate disruptive opportunities. These deals may be potential commercial relationships, target acquisitions for your M&A team, or even future investment opportunities.

Your decisions about “core proximity” will likely have other implications. For example, if you elect to invest predominantly in disruptive opportunities, that decision could correlate with focusing on seed stage companies (although it is possible to identify seed stage startups that address the core, and growth stage startups that are disruptive). In turn, this may affect your portfolio model, average check size, reserve ratios, staffing needs, and other choices. No decision about your CVC strategy should be made in a vacuum.

I’ve observed that novice venture capitalists are often drawn to disruptive startups as a default starting point, especially in a corporate environment. Whether couched as a focus on seed stage technology or Horizon 3, the novelty of these innovations presents a tempting opportunity for learning and hedging against long-term threats. Remember that your goals matter, however. For companies completing a turn-around or entrenched in competition looking up at a market leader, investments in core and adjacent opportunities may be more relevant. Only by considering your context, industry dynamics, and goals, can you design a responsible strategic investing program with a rational portfolio approach to core, adjacent, and disruptive opportunities.

This article originally appeared on Forbes in 2019.

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Scott Lenet is President of Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.

Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by Touchdown or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.



Scott Lenet
Risky Business

Founder of Touchdown Ventures & DFJ Frontier, USC & UCLA adjunct professor, father of twins, Philly sports Phan, Forbes & TechCrunch contributor