How to overcome the challenges of corporate venturing

Written by
Alexander van Os
Table of Contents

Venture Capital investment is difficult enough as it is, but Corporate VCs face a host of additional operational, organizational and strategic challenges. This impacts their effectiveness, chances of success, as well as their value to both investee companies and the corporate they’re part of. Recent research from Stanford Professor Ilya Strebulaev showed that ca. 30% of the CVCs they monitored over a three year period became inactive. This points to the challenges CVCs face and highlights a missed opportunity to harness the potential CVCs possess in helping bring innovations to market.

Best practices to run a successful Corporate VC

Venture IQ published a white paper in which we address the main pitfalls of a CVC and ways to navigate these. Drawing from our extensive investment experience spanning over 20 years, during which we have collaborated closely with and worked for various CVCs, we have compiled a set of best practices. We like to think that our report can help those in the process of setting up or running a CVC to increase their success rate, which is important given the challenges we all face today and the impact that corporates can make. 

To get a full picture we recommend you download the report, but for now we’d like to share the key takeaways:

Defining your objective

CVCs often have multiple objectives, from accelerating innovation at the parent company, chasing financial returns, or fulfilling a lighthouse function. But you can’t be everything to everyone, so we suggest CVC teams clearly set out what they aim to achieve so that internal and external stakeholders know what to expect and that results can be measured against fair KPIs.

Having a clear mandate and proper alignment

The stereotypical view of CVCs is that they are slow in decision-making, can’t take the lead in workout situations and are unpredictable. Unfortunately some stereotypes are rooted in reality, and this can make CVCs a difficult investor to work with. For the CVC this also limits their access to the most interesting deals. The cause of these issues is often the lack of a clear decision-making mandate and proper financial/career alignment for the team. Investing the initial amount is the easy bit, it’s how you act post-investment that will make or break your reputation.

Taking the long view

Rome wasn’t built in a day, and neither are the most successful VCs. To be successful as a CVC you need to take the long view in terms of recruitment, remuneration, risk appetite, institutional knowledge creation, building trust and rapport with internal and external stakeholders and realistic measures of success. CVCs are not quick fixes or silver bullets. Their financial returns will always be a blip on a corporate P&L. But chopping and changing strategy, staffing or objectives similar to how business teams are run is a sure way to destroy value and handicap the effectiveness of a CVC team. If you’re susceptible to corporate mood swings, the CVC becomes nothing but an executive toy and we suggest there are much better ways of realising strategic or innovation goals.

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Article written by
Alexander van Os