We expect venture capitalists and entrepreneurs to build new businesses. But should major corporations be expected to do likewise?
A growing number of companies are saying yes. The corporate venturing wave has gained momentum in recent years, driven by the changes in the new economy and inspired by the success of such well-known examples as Intel Capital. The number of corporate venture capital funds in the world grew from 70 in 1997 to 325 in 2000, with US investments totaling nearly $19 billion. Many other corporations have entered the game via joint ventures or internal incubators.
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Indeed, with seemingly everyone from natural resources companies to telecom providers launching ventures of one kind or another, a simple definition of corporate venturing is a challenge. But we know it when we see it—and we’re seeing more and more of it.
Method and Motivation
Approaches and participants vary, as do the reasons companies embark on ventures in the first place. Most common is the desire for growth and value creation—by boosting demand for existing products or by creating new products, a new business unit or even a new core business. Other companies seek to make money by putting underutilized intellectual property to work, using their market channels for additional purposes or otherwise leveraging corporate assets.
Sponsors of business-to-business exchanges want to save money by making their supply chains more efficient. Still others act for competitive reasons: If they don’t offer their customers the newest thing, they reason, somebody else surely will. Rounding out the list of motivations is the quest for heftier returns on free cash.
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All good reasons, to be sure; and, for the most part, these strategies are reasonable. Yet too many corporate ventures disappoint.
Historically there has been a large gap between the strongest and weakest performers. In 1999, for example, the best corporate venturing program returned more than 400 percent while the worst had a negative return exceeding 30 percent. And more than a few internal projects have absorbed tens of millions of dollars only to find that the market has passed them by—or wasn’t really moving their way in the first place.
It turns out that a major, unintended byproduct of the myriad motivations and methods associated with corporate venturing is a large number of ill-considered decisions. Corporations may overfund their new ventures, fail to align the ventures’ objectives with those of the parent company, allow ownership and control issues to get tangled, make the wrong alliances or commit any number of other missteps.
In addition, corporate financial objectives—particularly the desire to minimize the initial impact of the venture on the parent’s P&L—may lead to decisions that are completely wrong for the new business, ultimately hurting both the venture and the P&L. Throw in rapidly changing marketplaces, and the hurdles can be pretty formidable.
These challenges are difficult, but not insurmountable. In the course of helping to launch some 350 ventures at Accenture Business Launch Centres around the world, we have encountered most of these difficulties firsthand. And we have something (in addition to a few scars) to show for it: a thoughtful framework for managing the corporate venturing program (see chart).
Staged, Disciplined and Speedy
The framework brings the staged, disciplined yet speedy approach of the venture capitalist to the corporate setting. It offers specific guidelines on what to do when—from testing an idea with potential customers to forging alliances to hiring full-time managers and building and scaling the new entity. Within this framework, fresh rounds of funding are committed only as new ventures reach clear milestones; an important part of the approach is efficiently testing and filtering out the ideas that don’t work—letting them “fail fast and fail cheap.”
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Based on experiences with companies as diverse as a major UK financial organization, a global consumer products manufacturer and a US technology company, we have found the framework to be broadly applicable, either as a template for setting up a new corporate venturing program or as a model for assessing an existing one. Since the framework’s usefulness has much to do with its specificity, it’s too detailed to present in its entirety here. But an overview can capture its spirit.
The corporate venturing framework is divided into two distinct stages. In the first stage, the corporate venturing program itself is set up. The second stage is an iterative process for identifying ideas and then building, launching and scaling the best ones. These two stages, in turn, are subdivided into a total of seven phases, each with specific entry and exit criteria.
Why the two-staged approach? A corporation may or may not want to venture on a large scale; one chemicals company we have worked with generated hundreds of ideas, winnowed those down to a dozen, and then moved a handful into development. But whether the goal is to build a large venture factory or a much smaller operation, the place to begin is with some fundamental principles.
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A growing number of companies are saying yes. The corporate venturing wave has gained momentum in recent years, driven by the changes in the new economy and inspired by the success of such well-known examples as Intel Capital. The number of corporate venture capital funds in the world grew from 70 in 1997 to 325 in 2000, with US investments totaling nearly $19 billion. Many other corporations have entered the game via joint ventures or internal incubators.
Also read financial advisor in chennai
Indeed, with seemingly everyone from natural resources companies to telecom providers launching ventures of one kind or another, a simple definition of corporate venturing is a challenge. But we know it when we see it—and we’re seeing more and more of it.
Method and Motivation
Approaches and participants vary, as do the reasons companies embark on ventures in the first place. Most common is the desire for growth and value creation—by boosting demand for existing products or by creating new products, a new business unit or even a new core business. Other companies seek to make money by putting underutilized intellectual property to work, using their market channels for additional purposes or otherwise leveraging corporate assets.
Sponsors of business-to-business exchanges want to save money by making their supply chains more efficient. Still others act for competitive reasons: If they don’t offer their customers the newest thing, they reason, somebody else surely will. Rounding out the list of motivations is the quest for heftier returns on free cash.
Also read finance minister of india
All good reasons, to be sure; and, for the most part, these strategies are reasonable. Yet too many corporate ventures disappoint.
Historically there has been a large gap between the strongest and weakest performers. In 1999, for example, the best corporate venturing program returned more than 400 percent while the worst had a negative return exceeding 30 percent. And more than a few internal projects have absorbed tens of millions of dollars only to find that the market has passed them by—or wasn’t really moving their way in the first place.
It turns out that a major, unintended byproduct of the myriad motivations and methods associated with corporate venturing is a large number of ill-considered decisions. Corporations may overfund their new ventures, fail to align the ventures’ objectives with those of the parent company, allow ownership and control issues to get tangled, make the wrong alliances or commit any number of other missteps.
In addition, corporate financial objectives—particularly the desire to minimize the initial impact of the venture on the parent’s P&L—may lead to decisions that are completely wrong for the new business, ultimately hurting both the venture and the P&L. Throw in rapidly changing marketplaces, and the hurdles can be pretty formidable.
These challenges are difficult, but not insurmountable. In the course of helping to launch some 350 ventures at Accenture Business Launch Centres around the world, we have encountered most of these difficulties firsthand. And we have something (in addition to a few scars) to show for it: a thoughtful framework for managing the corporate venturing program (see chart).
Staged, Disciplined and Speedy
The framework brings the staged, disciplined yet speedy approach of the venture capitalist to the corporate setting. It offers specific guidelines on what to do when—from testing an idea with potential customers to forging alliances to hiring full-time managers and building and scaling the new entity. Within this framework, fresh rounds of funding are committed only as new ventures reach clear milestones; an important part of the approach is efficiently testing and filtering out the ideas that don’t work—letting them “fail fast and fail cheap.”
Also read Same day loans – When you need cash in 24 hours
Based on experiences with companies as diverse as a major UK financial organization, a global consumer products manufacturer and a US technology company, we have found the framework to be broadly applicable, either as a template for setting up a new corporate venturing program or as a model for assessing an existing one. Since the framework’s usefulness has much to do with its specificity, it’s too detailed to present in its entirety here. But an overview can capture its spirit.
The corporate venturing framework is divided into two distinct stages. In the first stage, the corporate venturing program itself is set up. The second stage is an iterative process for identifying ideas and then building, launching and scaling the best ones. These two stages, in turn, are subdivided into a total of seven phases, each with specific entry and exit criteria.
Why the two-staged approach? A corporation may or may not want to venture on a large scale; one chemicals company we have worked with generated hundreds of ideas, winnowed those down to a dozen, and then moved a handful into development. But whether the goal is to build a large venture factory or a much smaller operation, the place to begin is with some fundamental principles.
Personal Financial Planning in a life cycle
Related post :
A Method Out For Much better Way Of Life
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