Corporate Venturing Toolbox- Venture Client Model

To keep up with the ever-faster spinning pace of innovation, established companies - regardless of whether they are medium-sized enterprises or large corporations - need to develop themselves further. The need to do so in a targeted and substantial manner. Three core competencies are important to be sustainable and successful in the future: They need to adapt their established product portfolio and underlying business models to the new customer needs.They must acquire the ability not only to recognize future-oriented business areas but also to develop them consistently and in timely fashion.They need to trim their organization for agility and speed to remain adaptable in the long term.

Startups - at least the successful ones - are traditionally good in all these disciplines. Thus, cooperating with them can become part of the solution for established companies. Indeed, over the last decade, structured collaboration with startups has increasingly been used by some of the most innovative companies as a means to generate further strategic competitive advantage. Some of the companies at the forefront of this movement are Deutsche Telekom, BMW, and Lufthansa. They keep using it to benefit from the innovative power and market proximity of the best founders and their companies. There are many different forms of collaboration. Which of these ultimately makes sense, and to what extent, depends on the respective conditions. Successful collaboration can only succeed if the necessary interfaces are built in such a way that they can efficiently provide the complex translation service between the different worlds and cultures of established companies and agile startups.

1) Informal Cooperation

Many companies approach the topic by putting out feelers in thedirection of the startup world without institutionalizing a collaboration inthe first place. For example, individual employees participate in events,the company becomes a sponsor of a startup event, or the companycontacts startups on a non-binding and sporadic basis.This is predominantly about inspiration, learning, and, at best, sharing experiences.

2) Corporate Venture Building

Corporate Venture Building (CVB) includes initiatives that attempt to develop new promising business areas from the ground up. As this often demands domain experience in a new field as well as a set of entrepreneurial skill profiles that are usually not broadly available in well established companies, this tends to be done with the external support of either a specialized service provider or individual entrepreneurs from outside the company. To increase time-to-market and the overall likelihood of success, projects are often freed from part of the bureaucratic corset of the parent company. The aim here is to emulate the framework conditions of a startup as closely as possible. To this end, such projects are often spun off as independent limited liability companies, but typically remain fully or majority owned by the parent company, while the external entrepreneurs acquired receive a share of the profits, sometimes also in the form of shares. The aim here is to build up a promising new line of business.

3) Corporate Venture Capital

Corporate Venture Capital (CVC) is a discipline that has existed in theUSA since the 1970s. In Germany, the first significant CVCs were initiatedabout 20 years ago. In this case, corporate investors acquire a minorityshare in a growth company often in the single-digit or lower double-digitpercentage range.The hope is to gain good insight into the development of the companyand the relevant market and / or technology. At the same time, investorsoften vie for the opportunity to acquire a larger stake of the startup if itdevelops in a strategically beneficial way or realize a significant increasein value of the shares, for example in the course of an IPO.

To keep up with the ever-faster spinning pace of innovation, established companies - regardless of whether they are medium-sized enterprises or large corporations - need to develop themselves further. The need to do so in a targeted and substantial manner. Three core competencies are important to be sustainable and successful in the future: They need to adapt their established product portfolio and underlying business models to the new customer needs.They must acquire the ability not only to recognize future-oriented business areas but also to develop them consistently and in timely fashion.They need to trim their organization for agility and speed to remain adaptable in the long term.

4) Corporate Startup Partnering / Venture Clienting

In contrast to CVC, Corporate Startup Partnering (CSP) or Venture Clienting focuses on intensive, active collaboration between startup and corporation. In turn, two general alternatives can be distinguished: Variant A is a productivity or efficiency orientation. Variant B is a product or growth orientation. Another way to view it is to say that variant A is rather transactional, while variant B tends to be more transformational for the parties involved.

A. Productivity, efficiency: In this case, startups or their services are essentially used to optimize the established company’s own operations, i.e., to increase productivity. One example would be the use of a new technology that helps reduce scrap during a production process. Another example would be using a software in the HR department that helps to achieve a more efficient way of processing applications. Yet another example could be the implementation of a highly innovative AI-based solution for hyper personalizing every customer touch point of an insurance company. By exploiting such optimization potential in all areas of operations, competitive advantages can be achieved step by step. Here, startups are more like suppliers and the partnership is essentially a supply/service relationship. Accordingly, most of the startups have already outgrown the infancy phase.

B. Product innovation, growth: In this area, the focus is more on increasing the attractiveness or performance of the company's own products. This can then be offered at a higher price, for example, or via upgrades of the quality of the company's own offering compared to inferior competitor products. One example would be the integration of machine vision in a robotic lawn mower, so that it no longer needs to rely on the laborious laying of a wire around the mowing area.

The technology and the implementation of computer vision will not typically be at the core of the competencies of a manufacturer for lawn mowers. Such differentiating product components can often be found more quickly and in better quality on the market, more often at startups, compared to if they were developed in-house. Here, too, the startup is a supplier, but to achieve the goal there tends to be more intensive exchange and collaboration, for example by working together on product development or integration.

Of course, both variants also apply to a possible partnership in the context of a CVC investment as well as in Venture Building.

Which combination of the above instruments ultimately is the right one, and to what extent, depends on a number of conditions and must be assessed on a case-by-case basis. To help companies choose the right strategy, they may refer to the matrix above and the underlying decision tree. The decision criteria include the nature of the company's own processes, its business models and the mindset towards innovation as well as collaboration. It asks whether these are compatible with those of the startups found on the market (axis Compatibility). The other axis is the prevalence of a technology or of an innovative business model in the market (Market Availability). Corporate Venture Building (CVB) makes particular sense if no promising cluster of startups has emerged yet around a technology or a business model, but one is confident in its successful implementation and market placement. CVC, i.e. risk hedging, is more likely to be used when promising startups have already begun to establish themselves on the market, and their growth can have a strong positive or negative influence on the company's own business in the medium term. Often, their processes and business models will be too small or incompatible with the corporation’s, and therefore not suitable for short-term partnering. Venture Clienting or Startup Partnering (CSP) makes sense particularly when the processes, business models, and cultures are similar or build on each other - and when the technology is already available in the market.

‍Startup Partnering / Venture Clienting is a great start for many companies, Venture Clienting or Corporate Startup Partnering (CSP) in all its varieties is a great way to start into collaborating with startups, allowing them to tap into the innovation power and market proximity of leading startups. Compared with Venture Capital (CVB) and Venture Building CVB), partnering with startups not only allows for a relatively quick and inexpensive start but typically also yields tangible results early. Establishing a successful partnering unit requires creating an efficient interface between internal and external operations. This will ensure that corporate units can accurately identify innovation opportunities, that the partnering unit can easily link to appropriate startups, and furthermore, that the cooperation process can run smoothly and efficiently.