The well-known dictum “I know that half of my budget is wasted, but I’m not sure which half” was attributed – depending on the side of the Atlantic – to Lord Leverhulme (Unilever’s founder) or John Wanamaker (father of the department store) as they pondered the challenge posed by their advertising budget. Advancements in Ad Tech have alleviated such concerns from the Chief Marketing Officer agenda. Yet, they remain front and centre in today’s C-suite. CEOs and senior executives face a similar dilemma; How can my firm successfully pursue innovation? And specifically, where and how should I allocate my innovation budget?
A new strategy, corporate venturing, offers a way forward. Increasingly, large corporations balance entrepreneurship and strategy by turning to innovative start-ups. Why start-ups? Simply put, entrepreneurial ventures contribute a growing fraction of current day innovation. This can be attributed to a number of trends. Highly creative and/or technically sophisticated individuals are seeking the entrepreneurial career path. It is an attractive first job for the millennium generation, and a viable second career to more experienced talent. Also, the cost of starting a business is falling due to favourable technological and regulatory environment. Together, these trends lead to a growth in the number of start-ups, and importantly, the innovative potential they afford.
Which begs the question; How can an established firm harness innovative start-ups? There are at least three approaches to corporate venturing. First, consider the BBC Worldwide investment in Viki.com, a Singapore-based venture which, by crowd-sourcing a community of passionate fans, offers a variety of the world’s TV and movies translated into multiple languages. The BBC Worldwide, along with its 2011 investment, licensed 270 hours of programmes to Viki. Within a few weeks it was translated by thousands of enthusiasts into several major Asian languages. The outcome not only brought down the language barriers, but also resulted in winning distributors’ attention and opening up new markets faster and more efficiently.
Biotech startups increasingly turn to Corporate VC arms for capital, rather than financially-oriented VCs. The innovation implications for these startups remain unexplored. A recent Nature Biotechnology study, titled ‘Publications and patents in corporate venture–backed biotech’ tackles the issue. In the study, my co-author Dr. Alvarez-Garrido and I, find that the shift in funding patterns is associated with greater academic publications as well as patenting output.
Biotechnology companies have traditionally been an important source of innovation in life sciences. Yet, over the past decade, science-based biotech startups find it difficult to attract much needed capital from venture capitalists (VCs). It is not surprising, therefore, that startups are encouraged to “Just get out there and raise money… You’ve got to flip over every rock that’s out there”, as Robert Coughlin, President of Massachusetts Biotechnology Council, noted in 2009.[ii]
Increasingly, the solution comes in the form of Corporate VC arms. Corporate investors are steadily on the rise, with large pharmaceuticals sliding into the space created by VCs’ flight.[iii] Biotechnology companies are all well aware of the changing landscape of entrepreneurial finance. The PWC 2012 CEO survey of California Biomedical Industry concludes that “Corporate venture funding, the investment of corporate funds into external endeavors, is expected to become a much more crucial source of funding to the industry.”
Already, the 2011 investment patterns reflect the shift in investment sources, with two corporate VC arms (GSK’s SR One and Novo Nordisk’s Nova A/S) ranked among the top five early-stage investors by number of financing rounds.[iv] More and[…]
What do you do if you are an individual, or a small business, that is in need of a loan? Turning to your bank is the common answer. Well, Google’s recent investments suggest a different route; crowd and online funding platforms.
Late last week, Google Ventures participated in a $17M funding tranche in On Deck Capital (Businessweek), an online platform offering almost instantaneous loans to small businesses. The investment supplemented a February round D of $42M. That same week, Google’s VP of Corporate Development, David Lawee, led a $125M investment in LendingCLub, a prominent peer-to-peer crowdfunding platform (New York Times). The deal included purchase of shares form existing shareholders, placing the crowdfunder value at over $1.5B.
The news caught my attention immediately. It brought together two of my main areas of research; corporate venture capital (think Google Ventures, Intel Capital, Siemens Venture Capital, Unilever Ventures, GSK’s SR One, and others), and online funding platforms (e.g., LendingClub, On Deck, Prosper, Zopa, as well as numerous recent upstarts).
The practice of Corporate Venture Capital (CVC) is on the rise, with more and more corporations pursuing equity investment in innovative startups (background). The investments are often managed by a dedicated CVC unit as a way to secure a balance of financial and strategic gains. My decade long research suggests that the exact balance varies across industries and corporations (see article). Over the past few years Google Ventures has built a reputation of an independent, sophisticated, financially-orientated, investor. A first glance at last week’s activity seems to resonate with many of the common[…]
Earlier this week, The Business of Fashion (BoF) – a leading fashion blog – announced a $2.1m seed funding led by Index Ventures and including the French luxury goods group LVMH. Other investors are Novel TMT Ventures, Samos Investments, and Advancit Capital. It is yet another sign that investment in entrepreneurial ventures is a becoming a prevalent innovation strategy across a wide number of continents and sectors. The practice of corporate venturing is no longer limited to telecommunication, software, and pharmaceutical corporations. Apparel and food companies as well as financial institutions are increasingly pursuing corporate venture capital as an integral part of their innovation toolkit.