Title: Masters of Corporate Venture Capital

Author: Andrew Romans

Categories: Business Model Innovation

“Masters of Corporate Venture Capital” by Andrew Romans delves into the strategies, structures, and successes of corporate venture capital (CVC) programs. Romans compiles insights from a range of seasoned CVC professionals, providing a thorough overview of how large corporations innovate through venture investments. The book serves as a guide for both corporates looking to establish or improve their CVC programs and startups seeking investment.

Major Points:
– Strategic versus Financial Objectives: Romans elucidates the dual goals of CVC: strategic alignment with corporate goals and financial returns.
– Integration with Corporate Strategy: Effective CVC initiatives align closely with the company’s overall strategy and innovation agenda.

Actionable Steps:
– Identify Strategic Objectives: Corporations should clearly define what they aim to achieve with their CVC efforts, be it acquiring new technologies, entering new markets, or complementing existing business lines.
– Example: Boeing HorizonX, which focuses on startups that can enhance Boeing’s future products and services, exemplifies strategic alignment by investing in aerospace and related technologies.
– Set Clear Metrics: Develop key performance indicators (KPIs) to measure the success of CVC activities, ensuring they reflect both strategic and financial goals.

Major Points:
– Investment Structures: Romans discusses various CVC structures, including direct investment, dedicated CVC funds, and partnership models.
– Autonomy vs. Integration: Balancing the independence of the CVC unit with integration into the broader corporation is crucial for success.

Actionable Steps:
– Choose the Right Structure: Depending on corporate goals, choose between a fully integrated model, a semi-autonomous unit, or an independent VC-style operation.
– Example: GE Ventures operates with considerable autonomy, allowing swift decision-making while still aligning with GE’s strategic priorities.
– Establish Governance Framework: Set up a robust governance framework to ensure strategic alignment and accountability.
– Example: Qualcomm Ventures uses a combination of internal reviews and external advisory boards to guide investment decisions.

Major Points:
– Leveraging Networks: Successful CVC units tap into extensive networks, including internal R&D teams, external VCs, and industry connections.
– Combining Internal and External Sources: Balancing sources of deal flow can maximize opportunities and strategically diversify investments.

Actionable Steps:
– Build Strong Relationships: Forge alliances with other VCs and industry players to boost access to high-quality deal flow.
– Example: Intel Capital has long-standing relationships with top-tier VCs, giving it access to prime investment opportunities.
– Utilize Internal Resources: Encourage internal teams to identify potential startups that could be strategic fits.
– Example: Cisco’s CVC program frequently sources deals from its engineering and business development units.

Major Points:
– Selection Criteria: CVC units must develop robust criteria to assess potential investments.
– Active Portfolio Management: Beyond making investments, effective portfolio management includes providing strategic value and operational support to portfolio companies.

Actionable Steps:
– Develop Rigorous Evaluation Criteria: Establish clear criteria encompassing both financial metrics and strategic alignment.
– Example: SAP Ventures (now Sapphire Ventures) evaluates startups based on their potential to drive innovation within SAP’s ecosystem.
– Provide Value-Add Services: Assist portfolio companies with resources, mentorship, and access to corporate assets.
– Example: Google Ventures offers extensive support from its design, marketing, and engineering teams.

Major Points:
– Balanced Scorecard Approach: Romans advocates for a balanced approach that incorporates both financial returns and strategic benefits.
– Long-Term Horizon: Recognize that the benefits of CVC investments often materialize over a long-term horizon rather than immediate returns.

Actionable Steps:
– Implement Dual Metrics: Measure both the financial performance and strategic contributions of investments.
– Example: Merck Ventures tracks the adoption of invested technologies within Merck alongside financial returns.
– Be Patient: Cultivate a long-term perspective, understanding that strategic benefits can take years to manifest.
– Example: Microsoft’s investment in Facebook provided long-term strategic insight into social media trends and younger demographics.

Major Points:
– Internal Resistance: CVC programs often face resistance from internal stakeholders wary of change or perceived threats.
– Market Dynamics: The rapidly changing market can complicate investment decisions and valuations.

Actionable Steps:
– Foster Internal Buy-In: Engage internal stakeholders and demonstrate the value of CVC to gain support and mitigate resistance.
– Example: Autodesk pioneers internal workshops showcasing how investments align with and bolster company objectives.
– Stay Agile: Develop the capacity to quickly adapt and reposition the CVC strategy in response to market shifts.
– Example: Johnson & Johnson’s JLABS fosters an agile environment by maintaining flexibility in investment and partnership structures.

“Masters of Corporate Venture Capital” by Andrew Romans provides a comprehensive roadmap for navigating the complex landscape of CVC. By intertwining strategic objectives with venture investments, corporations can drive growth, innovation, and competitive advantage. The book is rich with real-world examples and actionable insights, making it an essential read for anyone involved in corporate investing or startup ecosystems.

By adhering to the principles and strategies outlined in Romans’ book, corporations can not only achieve significant financial returns but also catalyze innovation and create lasting strategic value.