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What Corporates Should (Not) Learn from VCs (Part 2)

This article is the second instalment of a two-part series. Read Part 1 here

Leveraging Corporate Advantages in Venture Building

Corporates hold distinctive advantages when building ventures compared to venture capitalists (VCs), stemming from their established market presence, operational capacities, and comprehensive industry expertise. These strengths not only provide a robust foundation for venture success but also offer strategic benefits that can significantly outweigh the agility and risk tolerance typical of VCs. Here we explore three key areas where corporates can leverage their inherent strengths to excel in venture building.

1. Customer Access and Market Insight

One of the most substantial assets a corporate can leverage in venture building is its established customer base and deep market insights. Unlike VCs who must rely on market studies and external research, corporates can draw on extensive data from existing business interactions and customer feedback loops. This direct line to customer insights provides a unique advantage in understanding market needs and refining product offerings to better meet those demands.

• Direct Feedback Channels: Corporates can utilize established relationships to gather real-time feedback on new ventures, allowing for iterative product development that closely aligns with customer needs. This not only enhances the product-market fit but also accelerates the adoption process.
• Cross-Selling Opportunities: With a broad portfolio of products and services, corporates can introduce new ventures to existing customers, providing an immediate market and reducing the cost and effort associated with acquiring initial users.

Strategies for Maximization:

• Develop targeted marketing campaigns using existing customer contacts and data to promote new ventures.
• Implement novel approaches that incentivize current customers to try new products or services from the corporate’s venture portfolio.

2. Operational Scale and Supply Chain Efficiencies

Corporates often benefit from sophisticated operational networks and supply chain efficiencies developed over years of optimization. These can be pivotal in scaling new ventures quickly and cost-effectively.

• Cost Advantages: Leveraging scale in procurement and manufacturing can significantly reduce the costs of launching and scaling new ventures. Corporates can negotiate favorable terms based on larger volumes, benefiting multiple aspects of the business, including the venture units.
• Speed to Market: Established supply chains and distribution networks enable corporates to bring new products to market faster than VC-backed startups that need to build these channels from scratch.

Strategies for Maximization:

• Allow ventures to benefit from existing supply chains to utilize corporate discounts and logistics capabilities (while remaining independent).
• Use corporate R&D facilities to develop and test new venture technologies faster, at a lower cost and with greater resources than available to most startups.

3. Regulatory and Compliance Expertise

Navigating regulatory landscapes can be one of the most daunting aspects of launching new ventures, particularly in industries such as finance, healthcare, and telecommunications. Corporates usually have dedicated teams to handle compliance and regulatory issues, providing a significant head start for new ventures in these complex fields.

• Risk Mitigation: Corporates can deploy their regulatory expertise to ensure new ventures comply with industry standards from the outset, mitigating risks that could lead to legal challenges or market entry delays.
• Competitive Barrier: By efficiently managing regulatory processes, corporates can create barriers to entry for competitors, securing a more defensible position in the market.

Strategies for Maximization:

• Leverage existing relationships with regulators to facilitate smoother and quicker venture approvals where available.
• Utilize in-house expertise to foresee regulatory changes and adapt venture strategies proactively.

What Corporates Can Learn from Venture Capital to Enhance Venture Success

While corporates possess intrinsic advantages in venture building, incorporating certain practices from the venture capital (VC) model can significantly amplify their success. VCs are known for their agility, sharp investment acumen, and ability to rapidly scale businesses. By adopting some of these key strategies, corporates can not only match the innovative pace of startups but also foster a more dynamic, entrepreneurial culture within their ventures. Here are strategic lessons corporates can learn from VCs:

1. Embracing Agility and Flexibility

One of the defining characteristics of VCs is their operational agility — quick decision-making, flexibility in strategy adjustments, and the ability to pivot quickly based on market feedback. Corporates often struggle with bureaucratic inertia that can stifle innovation and slow down response times.

• Adopt Lean Startup Principles: Implementing lean startup methodologies such as build-measure-learn loops can help corporate ventures to iterate faster and more effectively. This approach encourages testing assumptions through minimal viable products (MVPs) and pivoting quickly based on user feedback.
• Decentralize Decision-Making: To infuse agility into their operations, corporates can decentralize decision-making processes, giving more autonomy to venture teams. This empowers teams to make quick decisions on the ground without waiting for approval from higher-ups.

2. Cultivating a Risk-Tolerant Culture

VCs thrive on high-risk, high-return investments, a stark contrast to the typically risk-averse nature of corporates. Embracing a culture that tolerates calculated risks can lead to groundbreaking innovations and can position corporate ventures to capture emerging market opportunities.

• Foster an Entrepreneurial Mindset: Encourage a culture of innovation and risk-taking within the venture teams by aligning rewards with outcomes. Give venture founders significant equity positions and consider rewarding internal venture roles with carry on successful exits.
• Venture Support: Learn from VCs on how to best support venture founders along their journey. Don’t overwhelm them with reporting, but stay closely aligned with their needs and provide resources to propel them forward.

3. Performance Metrics and Milestone-Based Funding

VCs meticulously track performance metrics and often structure funding based on achieving specific milestones. This rigorous focus on results drives startups towards clear, quantifiable goals and ensures efficient use of capital.

• Implement Venture Metrics: Define clear performance indicators for venture success (which is VERY different from core business success!), which can include growth metrics, market penetration rates, and financial targets. Regularly review these metrics to assess progress and make informed decisions about continued funding.
• Milestone-Based Financing: Instead of providing blanket capital, corporates can adopt a milestone-based financing approach, releasing funds as specific objectives are met. This not only ensures that ventures are on track but also instills a strong discipline of accountability and performance.

4. Leveraging External Innovation

VCs excel in building extensive networks that connect startups with industry experts, potential customers, and other entrepreneurs. This networking enhances learning and opens up new opportunities for collaboration.

• Expand Industry Networks: Corporates should actively build and engage with external networks that can provide mentorship, market insights, and potential partnership opportunities for their ventures.
• Collaborative Ecosystems: Invest in creating ecosystems that bring together startups, academia, and industry leaders to collaborate on innovative projects. This not only fuels innovation but also keeps corporate ventures at the cutting edge of industry developments.

Summary and Strategic Imperatives for Corporate Innovation

As we have explored, corporates possess unique strengths that can be effectively leveraged to drive innovation and venture success. These advantages, including deep market insights, established operational infrastructures, and regulatory expertise, provide a solid foundation for building and scaling new ventures. However, to fully capitalize on these strengths and remain competitive in the fast-paced innovation landscape, corporates must also adopt some key practices from the venture capital world.

The integration of agility, risk tolerance, performance-driven funding, and robust external networks can transform traditional corporate venture building into a more dynamic and successful endeavor. By embracing the best of both worlds — corporate robustness and VC agility — corporates can enhance their ability to innovate successfully and sustainably.

Strategic Imperatives for Corporates:

1. Foster Flexibility and Speed: Adopt lean methodologies to speed up the innovation process, enabling faster pivots and responsive scaling strategies.
2. Cultivate a Culture of Innovation: Build a culture that values risk-taking and entrepreneurial thinking, supported by systems that reward successful innovation and intelligent risk management. Skin-in-the-game is key.
3. Implement Venture Metrics and Milestone-Based Financing: Use clear performance metrics and structure financing around specific milestones to drive focus, efficiency, and accountability in venture teams.
4. Build and Utilize Robust Networks: Leverage external networks for insights, collaboration, and innovation opportunities, ensuring that corporate ventures remain at the forefront of industry developments.

In conclusion, as corporates navigate the complexities of modern markets, the ability to innovate — not just internally but also by adopting external best practices — is crucial. By strategically integrating VC tactics into their venture-building models, corporates can ensure they not only match but exceed the innovative pace set by smaller, more agile competitors. This approach will enable them to unlock new growth opportunities, respond adeptly to technological advancements, and secure a lasting competitive edge in their respective industries.

Ultimately, the journey of venture building is continuous and demands a proactive, informed, and adaptable approach. Corporates that recognize this and evolve accordingly will find themselves leading the charge in transforming challenges into successful ventures, driving forward not just their companies but the industries in which they operate.

This article is the second instalment of a two-part series. Read Part 1 here

We are pleased to be an appointed venture studio of EDB’s Corporate Venture Launchpad 2.0. CVL 2.0 is an expanded S$20m programme by EDB New Ventures, designed to enable companies to incubate and launch a new venture from Singapore, supported by venture studios experienced in corporate venture building. You can also find out more on our website.

Interested to learn more about sustainability ventures? Drop us a line: contact@wright.partners

Authors:

Sebastian Mueller, Co-Founder at MING Labs

Ziv Ragowsky, Founding Partner at Wright Partners