The Unfair Advantage of Corporate Venture Building

In today’s fast-paced and ever-changing business landscape, innovation is more important than ever. Companies must continually adapt and evolve to stay ahead of the competition and remain relevant in the market. One way to drive innovation and stay ahead of the curve is through corporate venturing. (For the Pioneers definition of corporate venturing refer to our recent blogpost.)

Corporate venturing involves creating new ventures within an established company, allowing the company to explore new markets and business models while leveraging its existing resources and capabilities and at the same time benefit from startup advantages, such as agility, speed and access to talent. This approach can provide corporate ventures with a significant advantage over traditional startups and other ventures in a number of ways.

Advantages of Corporate Venturing

Startups face several challenges in comparison to corporations when it comes to venture building. For one, securing funding is a critical hurdle, while corporations have the advantage of significant financial resources, allowing their corporate ventures to gain momentum quickly and concentrate on business development. Although startup funding rounds are frequently highlighted in the media, giving the impression of a substantial investment pool, the amount of VC funding with $415.1 billion in 2022 is considerably smaller than the global R&D investments ($2.47 trillion in 2022). This number suggests that large organizations spend a lot on developing new business. However, CVC-backed funding amounted to only 4% of the total R&D investments ($98.9 billion in 2022), indicating that corporations could allocate a more significant share of their R&D budget towards corporate venturing investments. 

Another advantage of corporate ventures is that established corporations already have customer bases and supply chains, providing a strong basis for new ventures to build upon. This can prove beneficial in the initial stages of product development, providing access to a test market and valuable customer feedback. Furthermore, corporate ventures can benefit from the expertise and knowledge within the corporate organization. Especially, the extensive market knowledge of the corporate can help in defining relevant problems and developing fitting solutions to solve them. Moreover, corporations can leverage their existing talent and expertise to support new ventures, reducing the risk of failure. Corporate ventures might also benefit from utilizing existing administrative structures, such as HR and legal to save time and money at the beginning of their development. Their reputation and brand recognition can provide new ventures with credibility and help them establish themselves in the market and their access to strategic partnerships and collaborations can give new ventures the resources and support they need to succeed.

When done right, corporate ventures do not only profit from the assets and know-how the corporate brings to the table but can also exploit advantages that are usually limited to startups, such as access to talent and agility. While corporations might find it challenging to attract talent and a different type of thinkers, it might be easier to recruit these types of employees for a corporate venture that provides them with enough space and freedom to pursue their own initiatives. Likewise, by granting some degree of independence to their venture, corporations can foster greater agility and accelerate the development and growth of the venture.

Case in Point: Successful Corporate Venturing

One company that has successfully leveraged corporate venturing is VERBUND, the leading energy company in Austria with its corporate startup HalloSonne. The venture was established with the aim of enabling residential customers to generate and store their own solar energy, allowing them to become more self-sufficient and sustainable. The launch of HalloSonne is part of Verbund’s broader strategy to transition towards a more sustainable and customer-focused business model. By leveraging its expertise in energy production and distribution, the company has been able to create a new revenue stream while promoting the use of renewable energy sources. The success of HalloSonne serves as an example of how corporate startups can drive innovation and growth within established companies, while also contributing to broader societal goals such as sustainability and energy transition.

Another example of a company successfully leveraging corporate venturing is Porsche Holding, the leading automotive distribution and retail company in Europe. Its business model is focused on delivering high-quality products and services to its customers through its extensive network of dealerships. This includes not only the distribution of vehicles of the VW group, but also the sale of after-sales products and services, such as maintenance and repairs, as well as financial and mobility services. The addition of MOON POWER as a corporate venture further underscores this commitment, as it provides customers with intelligent and data-driven energy solutions that are designed to meet the growing demand for sustainable mobility. The venture provides charging stations, photovoltaic systems, battery storage, and energy management services, showcasing Porsche Holding’s commitment to sustainability and its drive to bring new and innovative products and services to market.

Risks and Hurdles of Corporate Venturing

While these examples demonstrate the potential success of corporate ventures, it is important to consider the potential risks and challenges associated with establishing and scaling such ventures. One of the biggest risks is the potential for cultural conflict between the parent company and the subsidiary company. The subsidiary company may have a different culture and operating style, which can lead to friction and difficulties in integrating the two companies. 

Another risk is the potential for misalignment between the goals of the parent company and the corporate venture. The parent company may have a different vision for the future of its subsidiary, which can cause conflicts and difficulties in aligning and achieving a desired outcome.

Finally, there is the risk of the new venture not being successful. Corporate venturing involves investing significant resources and capital into a new venture, and there is always the risk that the venture may fail and the investment may be lost.

Therefore, it is essential to define the ideal setup and strategy for the venture, making sure that the right degree of independence and collaboration between the two companies is found. Oftentimes, external support from professional venture building consultants can help, as they serve as a neutral player between the two parties and help to determine the strategy for the corporate venture and the optimal structure for the collaboration. 

In a nutshell

Although startups are commonly viewed as the primary drivers of innovative business models and market disruption, corporate ventures possess significant advantages that give them a head start over their startup counterparts. This unfair advantage stems from the convergence of corporate resources, including access to funding, established customer bases, infrastructure, and processes, with the typical benefits of startups, such as agility and access to talent. As a result, corporate venturing presents a promising avenue for innovation and has the potential to yield successful outcomes in the development of new products, services, and business models.