Corporate Venture Building: Powering innovation and growth

Madrid, 7 de junio de 2023

Have you ever asked yourself what startups and the corporate innovation model, corporate venture building, have in common? The underlying premise of this question is the fact that companies no longer live forever. This is demonstrated by the process of change that the Spanish business network is undergoing: startups are gaining ground in the market and disruptive ideas are no longer the exclusive competence of the technological giants. Emerging companies are born with a strong innovative component and are more efficient at adapting their businesses to rapidly changing customer needs.

However, issues as important as limited resources, lack of experience, and market validation cause 90% of startups to die. In addition, lack of access to financial muscle to achieve product-market fit means that they run out of cash in that famous “valley of death”.

In the case of large corporations, it is very difficult to generate innovation from within, as the hierarchy, processes, culture, and inflexibility of the brand are factors that affect and hinder the innovation process, which must be agile and low-risk averse. This contrasts with the objective of CEOs, who are increasingly focused on diversifying the business so that 20-30% of their income statement comes from new areas in the medium term.

 

Igniting business growth by unleashing the power of corporate venture building

In a scenario like this, corporate venture building is an interesting solution. This model consists of creating new businesses hand in hand with large companies thanks to the joint work and mentoring of the corporation. Currently, traditional or highly concentrated industries in which there are underserved customers, excluded targets, or a stagnation in the income statement with a significant churn rate, need to find other diversified revenue streams leveraged on their traditional assets. Some sectors facing this reality are banking, insurance, telco, retail, or deep tech.

In this way, this system combines the best of both environments: the experience, resources, customers, and trust that large companies provide; with the speed, methodology, talent, and culture of a startup. The innovation generated through these synergies creates companies that transform industries. In addition, corporate venture building has the advantage of aligning itself with the company’s strategy and creating something that is truly different in the market.

 

What does it mean to innovate like a startup?

It means focusing on the user and getting to know their problems in a close, honest, and transparent way, going out and experimenting with the customer, making mistakes to learn and improve as quickly as possible, as well as validating and improving the product or service constantly. It also means working without large investments, attracting talent that makes the business scale, and giving it the importance it deserves, making it a priority.

 

A solution to startup challenges and corporate resources

Turning to the Corporate Venture Building model, its numerous advantages in terms of launching new businesses from outside the corporation as an independent vehicle stand out. On the one hand, this is a way of eliminating the risks and limits of the parent company, which allows experimentation with total independence. This model also allows the business to diversify, ensuring new sources of income that can be easily disposed of if they do not work and, if they do work, they can be converted into a spin-in that can be absorbed by the parent company as an additional business unit. On the other hand, this type of corporate innovation makes it easier to increase the offer to customers and even to use the new venture as an element of cross-selling.

Another remarkable benefit of the model is that it allows the business to scale much faster thanks to the assets it has because although it was built and born as a startup, it has the advantages of a large corporation (customer base, sector knowledge, intellectual and technological property, etc.). This is not only very useful for facilitating better performance and return, but also allows the project to start from a pole position compared to other startups that are born without corporate backing.

In short, corporate venture building allows the corporate strategy to be aligned with the new venture and to create it to suit it, but with the timing, culture, and validation of a small fish. Who wants to do M&A when you can have this?