Corporations like the idea of being disruptors, rather than being disrupted, and to generate new ideas, corporate venture capital (CVC) has grown as an important complement to internal innovation. During this pandemic, CVC investment activity has been resilient, with CVCs participating in over half of the venture capital deal value in the first half of 2020. This indicates a maturing of the industry since the economic crisis of 2008 and that corporations are looking at CVCs to propel their innovation capabilities through and beyond the pandemic.
While most CVCs have sought to drive both financial returns and strategic value from the investments, considerable heterogeneity exists in how they operate. Gil Beyda, a partner at Comcast Ventures, part of cable and media giant Comcast, observed that while CVCs fall into two broad categories (strategically focused and financially focused), financially focused ones are not mere carbon copies of institutional venture capital firms. A corporation's strategic goals for its CVC efforts are often about accessing new technologies to accelerate the capabilities of its business divisions, investigating market trends, forging new partnerships or building a pipeline of acquisition targets.
During this pandemic, the rationale for continuing to invest in venture capital, which is a long-term and risky bet, is sure to come into focus in many corporate boardroom discussions. Early stage ventures are often unproven and yet enhance the ability for corporations to implement cutting-edge technologies. CVC initiatives are not usually designed to deliver value between 0-2 years. However, given the business uncertainty during this pandemic, it may be imperative for CVCs to refocus their strategies to continue to add value to the corporation and the startup ecosystem.
Here are three approaches for how corporations can continue to use their CVC initiatives to bridge the path to innovation during these unprecedented times:
1. Revisit the CVC mandate. Covid-19 has presented corporations with new sets of challenges to deal with in regards to employees, operations and customers. Just like startup pivots, CVCs should revisit their investment themes and realign their focus to bring pioneering solutions relevant for the new normal. Given corporations' need for speed in adapting to recent changes, startup ideas for accelerating digital adoption could make interesting new investments. Startup solutions, technologies and tools in areas such as remote work, remote sales and customer management could help corporations in the near and longer term.
2. Define measurable strategic outcomes. Designing a balanced mandate that focuses on near-term impact (defined as zero to 18 months) and medium-term impact (two to five years) couldn't be more crucial than it is now. As digital acceleration becomes the new norm, corporations need to understand the impact of CVC investments through metrics such as cost, revenue, service, diversity and safety. Having measurable outcomes linked to CVC initiatives can align them with the corporation's goals, providing better survivability during these times.
3. Use CVCs to make new technology choices. CVCs can bring forth early stage startup technologies through the venture capital network. Rather than outsourcing the understanding of new technology to division heads, the CVC could become a center of excellence that gains a deep understanding of new technological options before choosing the right technology. Corporations often struggle with startup technology adoption, so this internal engagement through the CVC could help in testing new technologies via proof-of-concepts and showing how those solutions fit with the corporation's needs.
To conclude, corporate leaders should think about how their CVC could become a potent tool during this recession and redesign these initiatives to help the corporation meet the new capabilities required. Leaders should encourage deep involvement of different management layers with the CVC teams and develop a value capture framework to help onboard new technologies from startups to corporations.