Corporate Venture Capital’s Role in Disruptive Innovation Part 2: Will the Big Numbers Result In Big Success this Time? - Enterprise Irregulars

I started writing these posts with the hypothesis that in their effort to innovate, corporations must re-invent the traditional R&D model with one that augments the R&D efforts with venture investments, acquisitions, strategic partnerships and startup incubation. Corporate VCs (CVCs) are expected to play a big role in this innovation quest. With that in mind corporations are establishing such groups in record numbers, including corporations from industries that have not traditionally worked with venture capital. Corporations have been providing their venture organizations with significant size funds to manage, and expect them to invest in companies of various stages and geographies. Today’s CVC prominence can result in many advantages for entrepreneurs and co-investment partners but also carries risks, many of which are due to the way CVCs are set up and operate within the broader corporate structure. In the last blog I examined how the disruption of institutional VCs (IVCs). In this blog I will take an in-depth look of corporate VCs. I will examine the different types of corporate VCs, compare the characteristics of today’s corporate venture groups to the characteristics such groups had in the late ‘90s, and describe the areas where CVCs must focus on in order to succeed. In the next blog I will provide some ideas on how to best set up a CVC organization based on my work with such organizations to date.

A short historical perspective

This is not the first time CVCs have entered the startup ecosystem. According to BCG, the first time was in the mid-60s. The main driver at that time was financial returns rather than innovation even though that period was also characterized by technological advancement and strong corporate performance. The next entry of CVCs into the very small startup ecosystem occurred in the early ‘80s and was again financially motivated. The first institutional VC firms (IVCs), as we know them today, were also being formed at that time. That foray came to an abrupt end with the stock market crash of 1987. Ten years later, during the dot-com era, the technological innovation that was being created and the stock market performance brought CVCs back to the startup ecosystem. For the first time investing in innovation became a motivating factor in addition to the drive for financial returns. The 2001 recession ended the third wave.  The most recent wave of corporate VCs begun around 2006 but CVC group formation has picked up steam around 2009-2010. As I mentioned in my previous post, according to Global Corporate Venturing, today 1100 corporations have active venture funds. The average CVC program is only four years old with most investing members being part of the program for less than 3 years. Based on my conversations with several corporate executives the CVC group formation is now driven by the existential threat most corporations across industries are feeling due to technology- and business model-driven disruptions.

The money CVCs invest always comes from one source whereas institutional VCs have many LPs in each fund. However, even then the structures of a corporate investment vehicle vary widely. They range from a

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