Corporate Venturing: Management Fad or Lasting Trend? FT Dynamo Summary and Commentary

Corporate venturing has increased dramatically in recent years as companies seek to grab ever more profitable growth. This has raised two important questions. First, is it a management fad or a lasting trend? And second, is it for everyone or only a select group? In other words, are some companies better positioned than others to create shareholder value through corporate venturing?

The answer to the first question is that corporate venturing is here to stay. But equally important is this caveat: it should serve as just one element in a management tool kit for profitable growth. It is a tool that companies with strong core businesses should apply selectively to exploit opportunities related to that core.


Changing Faces of the Cloud


Private Equity

There are two types of venturing. The first is corporate venture capital, which involves passive investment in companies outside the corporation. This approach became increasingly popular during recent years as the NASDAQ reached higher and higher levels. But a company that loses sight of corporate venture capitalÆs strategic objective and focuses only on maximizing investor return risks siphoning precious resources from its core business.

The second form of corporate venturing, and the main thrust of this paper, entails investing in ideas that spring from within a company.

Two circumstances in particular are increasing attempts at such business building. The first is likely to endure - the ongoing threat of successful start-ups. Many start-ups today spring from new technologies and business models that are fundamentally restructuring industries.

The second force behind business building is likely to be more ephemeral. The high valuations that many start-ups, particularly in the e-commerce area, initially received stepped up interest in business building. Not wanting to miss out, established firms have started businesses with the intention of later spinning them off and reaping the rewards. The NASDAQ's plunge has dampened some of the enthusiasm for spinouts. It has cooled the fad.

Nevertheless, the fundamental value of corporate venturing remains - it's an appropriate tool to explore new business models and harness new technologies. Corporate venturing, while not for everyone, is one of a number of useful growth tools for the right companies.

FTdynamo commentary

This survey-based and example-packed paper from consultants Bain &Co gives some comfort to observers of the corporate venturing craze that accompanied the dot-com bubble of the late 1990s. It tells us that, yes, corporate venturing is a reasonable tool of company growth - if you do it right.

The authors, all Bain consultants, make a useful distinction between corporate venture capital, which is essentially investing corporate cash in a high-tech IPO in the hope of making a killing, just like any day trader, and true corporate venturing, which is about building businesses. The latter, of course, is the more virtuous course.

But the paper is not without its caveats (lots of them, in fact). Launching a new business to achieve profitable growth can be a bit like launching a rocket into orbit, it says. Too little propulsion and the rocket will fall back to earth; too much and it will fly off into outer space, uncontrolled and useless to its makers. You need a robust analysis of that window of opportunity and a careful plan to get there.

Building on this idea in its conclusion, the Bain paper arrives at its most useful analysis. In the years to come, it says, corporate venturing may prove the most enduring legacy of the dot-com era. But, unlike the dot-coms, it will require managers with a clear strategy and vision for expanding their businesses and clear plans for how to get there.

Today, it says, managers need to get both the ôwhyö (rationale) and ôhowö (execution) right to successfully launch a new business and keep it in orbit.

A careful, down-to-earth assessment of an extraordinary trend that in the future will have a lot to offer whatever the economic environment.