Simplifying Corporate Venture Capital

Corporations with venture units and corporations planning to start a venture unit frequently debate about the benefits of venture investments and how external innovation should be effectively utilized. So, here is a simple story to understand the first part — why CVC?

We as humans rely on our five senses to perceive the environment and use our brain to process the information and make decisions. Imagine you are traveling through a jungle and let’s say your eyes got super powers and now you are able to look clearly at objects much farther away. This new capability enables you to identify food, water, animals and dangers in advance and allows you to adjust your trajectory to reach your goal.

Now imagine a corporation as a human body and the super vision as venture capital. A venture unit allows a corporation to learn about technological trends and market changes proactively and make adjustments to its growth plans. When a CVC unit finds a shiny new technology, invests in it and introduces it to the corporation, the corporation should do some basic testing to see if the new technology delivers what it claims. This is the Proof of Concept/PoC stage. This is similar to you finding a colorful fruit when walking in the jungle. You do not want to put anything new in your mouth without testing it. It could be edible or poisonous.

If the corporation likes the taste/results of the PoC, then it could invite a few of its customers to also taste the new technology. This is the Commercial Agreement stage. This is what all startups look for when they take money form corporations — more customers for their offerings but startups have to realize that they need to demonstrate the capabilities of their technology in a PoC setting to both a Corporations’ internal and external stakeholders.

If the corporation goes ecstatic with the taste of the PoC and Commercial Relationship, it may decide to buy the tree i.e. the startup. This is the M&A Stage. If the corporation doesn’t have the money to buy the tree, then it has to be content with licensing the fruits from the tress. This is the Preferred Vendor stage or white labeling stage.