One the biggest knocks against corporate venture capital initiatives is that they are often a by-product of a booming economy and a pet project of the CEO. They’re here today, gone tomorrow.
This reputation, unfortunately, is grounded in some truth, but it doesn’t have to be that way. In fact, a corporate venture capital team can and should be a strategic arm of the larger corporation, helping to evaluate new market trends, advising on new business ventures, striking partnerships, and serving as the de facto innovation group. It’s not an easy task, since each organization has its own intricacies and politics, but there are steps that can be taken to make your corporate VC program lasts — and helps the organization grow.
Below are some of the strategies we have employed at dunnhumby Ventures and are still employing. Dunnhumby is a data science and loyalty company; it is ultimately part of Tesco, one of the world’s biggest retailers, and we invest in innovations in retail.
Fight for independence. I have spoken to far too many corporate VCs who need endless buy-in in order to make an investment. This process not only makes investing in the most competitive deals near impossible (since you often need to decide in a few days after meeting the company), but it hurts the long-term viability of the group. The ideal scenario is to report to a small investment committee, comprised of the CEO and CFO, who hold all the power necessary to approve and quickly act on the investment.
By fighting for independence, you are establishing yourself as the expert on evaluating investment opportunities (as you should be) and more significantly, the expert on new technologies and trends within your given industry. This last part is significant because if done correctly, it can be used to help guide the direction of the business. Without this independence, you’ll be simply investing in the one company per year that you somehow get past every political hurdle and objection in the company before eventually departing out of frustration.
Get political buy in. Wait, didn’t I just say that you wanted to be independent from internal politics? Yes, but this does not mean you don’t need to play the game. You need a strong foundation of supporters within the organization. Without it, the house you are building is doomed to collapse.
One of the first steps we took after launching our fund was to create the “Strategic Sponsor” program. For each investment we made, we would seek out a director within the organization to help mentor the company, and to be the point person for helping that company navigate Tesco internally. Traditionally, we have chosen sponsors who have expressed interest in the company and will help us advocate for the investment. But if the deal is moving quickly, we sometimes assign the sponsor post-investment.
If done correctly, this should and can be a coveted role within the organization, providing many with a seat at the table and in some cases, a seat on the board, of an exciting young startup with tremendous potential. It’s a role many corporate executives rarely get an opportunity to play. It’s also a channel that allows them to pass on some of the knowledge and industry expertise they have accumulated.
We also regularly include internal experts on our diligence calls with startups who may be interesting to their department or product. By including others in the decision-making process, you are building a political base of support and more importantly, a sounding board to help you make smart investments.
Raise your hand. Volunteer your insights to the larger organization. Even with plenty of money and the greatest independence, you are only going to invest in one to two percent of the companies you meet. Sharing the lessons from the other 98 percent is incredibly important. At dunnhumby, we have approached this in a number of ways, taking a multi-channel approach to spreading the message internally.
First, we work very hard to remain transparent. We give many people within the organization access to the web-based software we used to track the deals we’re considering, DealScout. (Full disclosure: I am also the founder of DealScout, which is a separate entity from dunnhumby Ventures.) We also create a monthly newsletter that goes out to client leads, executives, and directors at dunnhumby, discussing the companies we spoke to, as well as updates from our current portfolio. Our internal social network, Yammer, has also been tremendously useful, helping us maintain a more consistent dialogue with the organization. If at all possible, we seek expertise and insights via Yammer as opposed to e-mail because of its public nature and ability to be easily shared. We also work very closely with each arm of the organization, volunteering our insights and helping them identify market trends and understand how the competitive landscape is changing.
Another reality is that you will meet many companies who may not fit your investment criteria but could be great partners. Sharing these insights will enable you to work hand in hand with your partnership group, or alternatively, act as the partnership group if you don’t have one.
In many cases, the corporate ventures team will be the only group internally whose sole purpose is to identify market disruptors. Sharing those insights not only adds value to your group, but adds tremendous value to the organization.
Working in a bubble, separate from the rest of the company, increases the likelihood that your corporate VC initiative will have a short lifespan — even if your portfolio companies are doing great. But if you can become the go-to resource for market intelligence, innovation, and links to the startup world, you will position yourself for success.
Kyle Fugere is Founder, DealScout and formerly Principal, dunnhumby Ventures.