Large corporations have a constant challenge: being able to innovate by creating new products, services and technologies, in order to not be surpassed by their competitors and to not lose space in an increasingly dynamic and competitive market. In addition, cases where they need to develop a local ecosystem to support their growth strategy are common. In the Life Sciences segment, this reality is even more challenging, since the production of innovation involves extensive academic research, testing and consideration of regulatory aspects, which are not always simple and easy to solve. As if that were not enough, all of this must be conciliated with budget constraints, strategic planning and the internal processes of large corporations, which are more bureaucratic and rigid, taking more time to be modified and absorb innovations.
It was in this scenario that Corporates Ventures (CVs) emerged. Corporate Venturing is the expression used to characterize the investment made by large companies in startups and/or nascent ideas that are promising and have great potential to generate new business. For CVs, more important than rewarding the investment is gaining competitive advantage, generating innovations and quickly putting them on the market. Therefore, CVs help with more than capital, bringing qualified professionals, market knowledge, operational structure, distribution channels, consolidated brand and technology. In short, it is the best of both worlds: the agility of a small company with the structure of a large one.
The corporate venturing can be external or internal. The external happens when the company selects a startup or idea created by entrepreneurs without link with its structure, and that can either be an increment to the activities already carried out by the company as a possibility to explore new markets/businesses. In this case, the company investing may incorporate the startup in its structure. The external CV can also be used as a way to develop the ecosystem inherent to the activity of the anchor company.
Reasons to invest in Corporate Ventures
Although widespread in the US and Europe, CVs are still poorly representative in Brazil. Most of the companies that use this path to generate innovation here are multinational companies, which have their investment structures linked to their headquarters. Although they have autonomy in identifying potential investment opportunities, the decisions are made in their home countries. According to a survey conducted by Fundação Dom Cabral (FDC) and the Brazilian Agency for Industrial Development (ABDI), Brazilian companies that invest via corporate venturing do so:
- As a growth strategy;
- As a way to access new markets;
- As a way of extending the value chain;
- To expand the scope of operations and knowledge of the firm;
- As a form of innovation and application of new ideas;
- As a way to develop new capabilities within the corporation;
- To obtain financial gain.
According to the same survey, companies adhere to this type of investment by transforming Research & Development (R&D) activities into new businesses, investing in startups, creating a new autonomous unit that can be incorporated into the company’s operating system, establishing partnerships with smaller companies, licensing technologies and through spin-offs.
As the main practices of corporate venturing adopted in Brazil, we can highlight the autonomy given to the companies receiving the investment to make decisions about the development of the business, the limited autonomy of the Brazilian structure in the decision making of the investment – which is justified by the fact that the projects are conducted mostly by multinational companies – and the formalization of CV projects in the implementation of new business. This formalization is important as a way to minimize the risk of the new business.
There are around 740 companies worldwide using corporate venturing as a tool for generating innovation, with about 220 companies doing it with independent structures. The investments in CV represent 15-20% of the fulfilled deals and 6-9% of the total invested. Among the sectors that receive the most of this type of investment, software stands out with 27% of the total, while cleantech has 22% and biotechnology 15%. Featured players include Intel, Siemens, Basf, Du Pont, Unilever, Johnson & Johnson, Volvo, IBM, GE, among others.
In Brazil, although corporate ventures are not seen by entrepreneurs as an important alternative to innovation, the invested amounts and the players involved have increased. As a comparison, were invested USD 5.6 billion in CVs in 2004 and USD 36.1 billion in 2009, a significant increase. The players that stand out in the Brazilian market are Intel, Natura, Siemens, Dow, Telefonica, Banco Votorantim and IBM.
How to implement
In a simplified way, we can divide the implementation of a corporate venturing model into three steps: planning, model validation and operation. These steps are further subdivided and detailed below:
- Opportunity Validated: this is an opportunity that is worth looking for;
- CV Strategy Defined: the objectives to be achieved are clear;
- Operation Model Defined: The operation model to be tested is defined.
- Pilot of the CV model implemented: the necessary adjustments for the establishment of a definitive model are known.
- CV model implemented: the model is operating as planned;
- Impact analysis: The learning and results of the initiative for the company have been compiled.
Thus, corporate venturing is an important alternative to help companies generate innovations, conquer new markets and develop new business. The investments in this strategy, however, must be made in parallel with internal R&D investments. This double investment is explained mainly by the difference in the innovation potential of the CV. While in an internal department the result of the innovation turns out to be incremental, in the CVs there is a greater chance of the generation of disruptive innovations, due to the differences in the way of thinking.
Rafael Oliveira | Consultancy