Succeeding with corporate venturing

Managing a corporate venture portfolio is a complex yet rewarding endeavor. How does one make sure to combine the strategic priorities of the parent corporation, while still tending to a healthy portfolio development?

Here are some key success factors to consider:

First, ensure that the venture portfolio’s goals align with the broader corporate strategy. If the venture capital portfolio exists solely for return on invested capital, one might be better off allocating said capital to a third-party venture fund. This alignment is not only the reason for the portfolio to exist but also helps in securing executive support and resources. Make sure to involve critical stakeholders in the evaluation process to make sure that there is a fit between the companies that are being considered and stakeholder invectives and motivations.

Allow the venture department to operate with a degree of autonomy. This flexibility enables quicker decision-making and adaptation to market changes. Develop processes that are suited to the unique needs of startups, rather than imposing corporate procedures that may stifle innovation.

Build a team with diverse skills, including venture capital experience, industry expertise, and entrepreneurial backgrounds to support and grow the portfolio based on various perspectives.

Implement thorough due diligence processes to evaluate potential investments as well as corporate governance to follow up on the portfolio. A common mistake is to overfocus on the due diligence process and treat the process of managing the portfolio and each asset casually. An early-stage portfolio requires close attention and active involvement. Provide portfolio companies with access to corporate resources, mentorship, and networking opportunities. This support can be crucial for their growth and success.

Get rid of ambiguity and potential deadlock situations through water-tight legal agreements. Are there any specific considerations or rights that are required, make sure it is included in the hierarchy of legal agreements in such a way that it cannot be overturned without your consent.

Develop metrics that reflect both financial returns and strategic value. This dual focus ensures that the venture department contributes to the corporation’s long-term goals. To maintain this duality, the responsibility should never be appointed to the same person.

While the initial reason to enter the corporate venture game often is based on strategic considerations, the moment a company becomes a part of the venture portfolio, it is crucial for whoever is in charge of the venture portfolio to manage based on financial returns. In almost every single case, there will be a time when you as a portfolio manager will have to make a decision that will either:

A: Give your parent corporation some advantage (often short-term), but will erode potential future value in the portfolio company

B: Turn down said advantage in favor of long-term value creation

Needless to say, the answer should always be B.

However, in most cases, these decisions are rarely black and white. Balancing the parent corporation’s needs with portfolio companies’ success is a delicate act. Make sure to identify and leverage synergies between the corporation and portfolio companies. This can include technology sharing, market access, and joint ventures. Strive for scenarios where both the corporation and the portfolio companies benefit. This approach fosters a collaborative rather than a competitive relationship.

Communicate expectations to portfolio companies regarding performance, reporting, and strategic alignment. Establish feedback mechanisms to ensure that both the corporation and portfolio companies can voice concerns and suggestions.

Understand that startups may take time to achieve profitability. A long-term perspective is essential for nurturing innovation and growth. Balance short-term corporate pressures with the long-term potential of portfolio companies. At the same time, communicate clearly to the portfolio companies that corporations move slowly, and things often take time. Having a mutual understanding of the fundamental difference in pacing is integral to success.

In conclusion, managing a corporate venture portfolio requires an approach that balances corporate priorities with the growth and success of portfolio companies. By focusing on clear strategic alignment, operational flexibility, strong leadership, robust evaluation mechanisms, and balanced metrics, corporations can create a thriving venture ecosystem. Transparency, mutual value creation, a long-term perspective, and a cultural fit are key to achieving this balance and driving innovation.