How to Secure CEO Support for Corporate Venture
Don’t break the link between strategy & transactions
In under a decade, our firm Touchdown Ventures has accumulated a wealth of practical experience launching and running more than 25 corporate venture capital (CVC) programs.
As a result, my partners and I are frequently asked,
“What are the key ingredients to be a successful CVC?”
There are a handful of tactical and values-oriented answers, such as hard work, financial discipline, consistent follow through, communication, building an extensive network of trusted relationships, attention to the craft of supporting your portfolio of startups, and so on. These are important, but they pale next to what I consider to be the single most important indicator of whether the program will stand the test of time: securing ongoing support from the corporation’s CEO.
In fact, we believe CEO support is so important that we’ve developed a rule that we won’t get involved if the person running the firm isn’t personally informed and considered to be a key stakeholder of the CVC fund.
So how should corporate venture capitalists go about securing that support? It’s pretty simple: pursue investments that support the CEO’s stated objectives. In many ways, the job of the CVC is to ensure that the CEO doesn’t get fired for failing to implement strategic objectives that pay off in the mid-term and the long-term.
One of my favorite tests for corporate innovators and CVCs is to imagine yourself running into your CEO in the halls of the corporate headquarters. You’ve just closed and announced a deal with a startup. The transaction could be an acquisition, a commercial deal, or an investment, all of which can be generated by the deal flow of a corporate venture program.
The CEO stops you and says, “I saw the press for that deal you just closed. Tell me why we did this transaction?”
In my mind, the best possible answer is, “In one of our recent meetings, you said you wanted the corporation to do [x]. We believe that working with this startup puts us in a position to do what you asked.”
[x] could be anything that the CEO and board believe is a strategic priority for the organization. That might be entering a new market, improving margins in an existing line of business, defending the core from a disruptive threat, and even using innovation opportunities to energize the employee base about the corporation’s relevance.
At that point, the CEO may be satisfied or want to follow up to get more details or ask questions. But there are few scenarios in which that person is likely to ask “Wait. Why are you trying to do what I said was important?”
This dynamic reflects the roles of everyone involved. The CEO, board, and the rest of the c-suite are responsible for setting strategy. It’s their job to understand what matters and where the company needs to go. The innovation and ventures team is responsible for sourcing, evaluating, executing, and managing transactions that support these goals. When the tactics (transactions including investments, business development deals, and M&A) support the strategy (board approved objectives), everyone is doing the right job.
Dave Petratis is the former chairman and CEO of the security company Allegion, a publicly traded S&P component that was spun off from Ingersoll Rand and one of Touchdown’s corporate partners. Petratis championed the launch of Allegion’s venture capital program, empowering his team with direct input about the board’s priorities:
“One of the critical roles for CEO and business success is strategic planning for the future, coupled with efficient human and capital deployment. A powerful tool to support this planning is corporate venture investment systems. The CEO’s direct involvement and partnership in corporate venturing is important to ensure continuity and to avoid short term or limited thinking.”
Consider one of the most common alternative approaches in corporate venturing: the innovation team doesn’t want to build a strong connection to the parent company. In fact, not only don’t these teams want to use the strategic investing program to service the organization that’s provided financial sponsorship of the CVC, but they want to get as far away as possible from the bureaucracy and needs of the parent company. These individuals may even want to use the CVC as a stepping stone to what they consider to be a “real” career in venture capital at an institutionally-backed investment firm. While there are examples of successful firms that have evolved from a captive corporate venture capital model to a traditional institutional model, my partners and I have seen few cases where those funds provide meaningful ongoing value to their former parent companies.
In many ways, the desire to escape is understandable, because big companies are beset with a host of frustrating behaviors and red tape. Unfortunately, enduring the hassles of the “corporate beast” is one of the taxes of running a CVC program. This requires patience, dedication, and an ongoing direct line of communication so that the CEO can tell you what’s most important at any point in time. The more your CEO trusts the venture team with what matters, the more effective that CVC team can be. In addition, CEO support can also galvanize internal resources to help CVC portfolio companies succeed.
Early in our experience providing managed venture capital services for corporations, we worked with an organization that embodied this challenge. The key principals in the day-to-day role inside the corporation didn’t want to link the tactical transactions to the broader needs of their company. They just wanted to do deals they personally found interesting. Unfortunately, that’s not the job. Doing deals just because you like them is what angel investors do, not CVCs.
Those employees were smart and motivated and had good intentions, but they weren’t setting themselves up for success in corporate venture capital. At the time, we didn’t have enough experience or gravitas to share our views forcefully enough to make a difference. Unsurprisingly, that program was shut down in relatively short order.
In my experience, the best path to longevity requires ensuring that the CEO understands that he or she is the most important customer of the CVC and feels free to share changing priorities of the corporation. Petratis notes:
“A well thought through CVC can give leadership a major competitive advantage by providing a front row seat to new technology, potentially disruptive partners and new markets that other incumbent product or market leaders without such vision might miss. By exploring the frequently changing radar of potential opportunities and threats, mature businesses can gain unique insights and position themselves for growth as well as avoiding the innovation stagnation that many successful businesses often face. Venturing can provide observation, learning, partnering, and minority ownership positions to help evolve strategic thinking and ultimately guide a business into the future.”
Hardening this link doesn’t mean your CEO needs to serve on the venture fund’s investment committee or become a bottleneck for decisions; the CEO simply needs to be able to keep the CVC team informed on the direction of the corporation so they can focus on what matters and support the direction of the business.
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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.
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