What Is Corporate Venturing?
Corporate Venturing is an expression used to characterize the involvement of large companies with startups in the search for innovation and entrepreneurial initiatives .
This market is also known as Corporate Venture Capital (CVC) and has been growing more and more in the country, due to the interest of corporations in extracting innovative ideas from the startups and scale-ups ecosystem.
There are several types of partnerships that can be framed in this type of operation, but the most common are between large companies and startups that collaborate mutually to develop new products, services and technologies .
In this case, corporations invest in the business, acquire it or sponsor its activities to incorporate innovation internally and, at the same time, encourage the growth of creative entrepreneurs .
Therefore, Corporate Venturing is a new form of collaboration between businesses that is needed in a rapidly changing and disruptive market .
Traditional companies that want to keep up with the pace of the new economy must look to startups as a source of inspiration and unprecedented solutions .
How Does Corporate Venturing Work?
The most classic form of Corporate Venturing involves a large company investing resources in a startup or scale-up , in order to aggregate its innovative solutions and have access to ideas with high potential for transformation.
However, it is also possible to have shares of this type that do not involve the purchase or investment of money directly in companies, but only collaboration with other mutual gains.
Generally, Corporate Venturing takes place within a specific segment.
For example, a large pharmaceutical company may acquire so-called healthtechs (startups specializing in healthcare technologies) in order to extract value from the innovations developed .
Large companies can also promote events , participate in accelerator and incubator programs, or even create innovation hubs in partnership with startups and scale-ups.
In short, any form of collaboration between established businesses and innovative ventures is considered a Corporate Venturing activity.
Types Of Corporate Venturing
There are a few different types of Corporate Venturing that can be identified in the market.
Discover the main ones:
Pre-acceleration encompasses Corporate Venturing programs that target early-stage startups , which are still developing ideas to reach an MVP (Minimum Viable Product).
In this case, the MVP is an initial version of a product or service built with minimal effort and resources, but in a way that is sufficient to test the feasibility of the solution in practice.
Generally, startups develop their MVP, which can be a prototype or even a video about the solution, and test the acceptance of the product or service with a selected group of potential consumers (preferably, opinion leaders).
Therefore, pre-acceleration Corporate Venturing is aimed at startups that are in this initial phase.
Interested large companies can invest resources and support the development of the MVP in exchange for stakes in the startup , for example, if they see that the idea has great potential in the market.
Acceleration is a step beyond MVP in Corporate Venturing and also the most common form of investment in startups and scale-ups.
These are investment programs promoted by accelerators in which companies can make their contributions in exchange for equity (stock options) in startups.
In general, accelerators offer financial support, training and mentoring for startups to develop their ideas and achieve their goals.
In this way, companies can enter this process as investors and bet on high-potential innovations.
Incubation Or Co-Working
Incubation differs from acceleration because it is a more embryonic process, in which a company or incubator offers a physical space and support for the first steps of a nascent startup .
In this case, Corporate Venturing occurs through this initial support in exchange for a stake in the company, similar to pre-acceleration.
For startups and scale-ups that are already established in the market, it is possible to establish Corporate Venture partnerships with large companies in the segment.
In this case, the startup must be in operation, regardless of its degree of maturity.
Then, interested companies can propose partnerships for information sharing , sponsorship of launches, acquisition of brands , among other partnerships.
Hackathons started in the tech industry and are basically events where participants are challenged to develop an innovative solution to specific problems in exchange for a prize.
Generally, they bring together professionals such as developers , designers and engineers.
Therefore, companies can organize hackathons with attractive challenges and prizes to create their Corporate Venturing partnerships, adopt innovations and discover new talent .
The hiring of services in Corporate Venturing works as an incentive for the growth of startups and scale-ups.
In this case, large companies hire startups in the role of “angel customers”, so that the nascent company can provide its products and services on an experimental basis to arrive at a profitable business model .
For an entrepreneur at the beginning of his career, being able to serve a large corporation is quite an opportunity to develop the product, reach a higher level of quality and grow in the market.
The contracting company, on the other hand, has access to innovative solutions at more affordable prices and can contribute to the scalability of the business .
Corporate Venture Capital (CVC)
Corporate Venture Capital (CVC) is basically a portfolio of investments in startups that allows for financial returns.
In this case, the predominant format of support is contributions, as in the common logic of the financial market .
Large companies can invest in startups with their own capital or through investment funds .
Today, there are several funds specializing in startups and innovative businesses, which are available to both companies and individual investors.
Discover The Advantages Of Corporate Venturing
Corporate Venturing is a “win-win” relationship for the companies involved.
For Big Companies
For large companies, Corporate Venturing is the most promising way to access innovative ideas and deal with rapid market changes.
This is because, in recent years, we have seen numerous industries go through disruptive processes , which change the rules of the segment and extinguish large corporations in a few years.
A classic example is the end of Blockbuster decreed by the innovative business model of Netflix, which ended up with the rental companies with its subscription streaming platform with thousands of movies and series available online.
This is proof that companies that do not update and do not keep up with changes in consumption habits are doomed to failure , no matter how big and solid they are.
Therefore, Corporate Venture emerges as an opportunity to drink from the greatest source of innovation of our times – the startups and scale-ups ecosystem – through funding and support for new businesses.
Thus, large corporations adopt this strategy to keep up with the pace of innovation, adopt new technologies and add value to the business with high potential investments for the future.
In addition, it is an effective tactic to expand the company’s target audience and target younger people.
For startups, nothing better than receiving contributions, resources and sponsorship from large companies interested in the potential of their ideas and solutions.
Creative entrepreneurs often have valuable insights and clear strategic plans, but lack the capital to put it all into practice and go-to-market.
This is where consolidated companies with financial resources come in to make startup businesses viable.
In addition to money, collaboration also takes the form of mentoring, training and mentoring from experienced managers, who have a lot to share about the challenges of entrepreneurship .
In general, startups and scale-ups involved in Corporate Venturing programs are more likely to survive crises, make great partnerships, grow and prosper in the market.
An Overview Of The Corporate Venturing Market
Corporate Venturing projects are already consolidated in the global market.
According to the Corporate Venturing Latam report , there are already more than 460 cooperation initiatives between large companies and startups in the country.
Another study, carried out by the BR Angels investor association and published in Exame , shows that the Corporate Venturing market already moves more than US$ 57 billion a year and has tripled since 2014.
The amounts contributed in these partnerships have risen dramatically in recent years and show signs of having gained strength with the pandemic .
From just under US$1 million in 2016, the sector generated US$158 million three years later.
This growth was mainly driven by large banks, telephone companies and retailers.
Step By Step To Start Investing In Corporate Venturing
If you are interested in entering the Corporate Venture market, we have some important tips for this journey to be successful.
Establish Investment Goals
Every investment in Corporate Venturing must have a clear objective for the company.
These are some examples of purposes with this type of partnership:
- Innovate in products and services currently offered by the company
- Access the latest technologies on the market
- Expand target audience and enter new untapped markets
- Improve the image and reputation of the business
- Attracting new talent and promoting an image of a good employer
- Increase profit margin through innovation
- Build competitive advantage over the competition.
With this clear objective, you will be more likely to find a partnership compatible with the organization’s goals.
Find The Most Promising Entrepreneurs
Searching for entrepreneurs with the greatest potential for innovation for your business is the biggest challenge for Corporate Venture.
After all, the company needs to develop a solution aligned with its core business, be within the selection criteria and still have synergy with its organizational culture .
Fortunately, today, you have several channels to look for these partnerships, such as innovation hubs, investment and crowdsourcing platforms, coworking spaces, accelerators, incubators, etc.
A tip is to subscribe to the Inside Venture Capital Brasil newsletter , which brings news about the most important market movements and opportunities for investors.
Define What The Company Selection Process Will Be
Naturally, you will need a selective process to choose the startups that best fit your Corporate Venturing expectations and needs.
You must define criteria such as:
- The startup or scale-up area of activity
- The type of product, service or technology sought
- The startup maturity phase (ideation, validation, traction, scale-up, etc.)
- The financial, structural and operational requirements for the validation of the partnership
- The expected return from the partnership (financial and intellectual)
- The procedures for integration with the company, depending on the Corporate Venturing program.
Offer Incentives To Attract Startups
When you create a Corporate Venturing program, you need to attract the best startups and scale-ups to increase your chances of success.
Therefore, it is not enough to create an extensive list of requirements: it is necessary to offer incentives that convince creative entrepreneurs.
You can offer, for example:
- Workspaces within your organization
- Access to company tools and technologies (such as software licenses, equipment)
- Mentoring with experienced managers
- Guidance for preparing documents and making strategic planning
- Assistance with financial, accounting and legal matters
- Assistance in solving bureaucratic issues
- Guidance for registration and protection of trademarks and patents
- Access to the company’s networking for new partnerships.
Corporate Venturing: Examples
A striking example of Corporate Venturing is the Microsoft initiative , which has an arm focused on partnerships with startups and joined Sebrae and the M8 Partners fund to promote female entrepreneurship.
The program is called Women Entrepreneurship (WE) and aims to support companies with female leaders with resources totaling more than US$ 100 million.
Startups from the areas of ESG , open banking , open finance, cyber security, legaltech , taxtech, martech, rhtech and edtech can participate in the program .
During the pandemic, the health area also had its Corporate Venturing initiatives to beat the coronavirus.
In August 2021, already under the effects of the health crisis, both invested in the startup Prontmed, owner of electronic medical record systems.
In November, they created Kortex Ventures, a R$200 million fund aimed at investing in up to 18 startups with healthcare innovations over the next four years.
Another example of Corporate Venturing is Inovabra Ventures – the venture capital investment team that is part of Bradesco’s innovation ecosystem, inovabra.
The program focuses on companies with a well -defined value proposition and assists in building value, structuring, developing and expanding the company’s business with entrepreneurs.
The main segments served are insurtech, healthtech, data analytics, big data , digital connectivity and cyber security, and the three pillars used for investment are algorithms, digital platforms and infrastructure.