Cooperation to Create a Competitive Advantage (CVC Series, Part 3)
Clean tech is a popular investment target because it represents an “industry over-arching technology” that can trigger disruptive change in a broad span of industries.’
Leveraging Cross Industry Networks
With the exception of health care and clean technology industries, companies are choosing investment targets outside of their own industry. Companies from many industries are banding together to invest in promising startups. They bring different skills and areas of expertise to bear on targets of common interest. This type of collaboration rarely occurs among companies in the same sector. Rather CVC investors build networks across industry boundaries with other players where development and commercialization plans of the targets’ innovations complement their own objectives. ‘Platform technologies’ like clean technology and IT are preferred targets because they have the potential to transform a wider business landscape.
Clean technology is particularly fascinating because it draws a lot of investment from other industries. Clean tech is a popular investment target because it represents an “industry over-arching technology” that can trigger disruptive change in a broad span of industries. As seen in the chart above, clean technology draws significant investment from across sectors that include (in descending order) energy, industrial, chemical, consumer, and information technology.
Other notable trends that suggest an unprecedented aggressiveness in CVC units include geographic diversification and entering deals increasingly at earlier stages in the funding cycle. Corporate investors have grown more sophisticated in their investment screening, due diligence, and risk assessment for funding younger startups. Also, companies in very competitive industries like pharmaceuticals and telecommunications are increasingly eager to capture new ideas and therefore are willing to take on the risk in investing in the shrinking number of startups in their own sectors.
Multiple Benefits of Corporate Venturing
‘When the venture succeeds, one must honor the IPO exit intent with a fair market-based exit price.’
There are several business benefits to a structured and principled approach to corporate venturing, only some of which are illustrated in the recent BCG report on Corporate Venture Capital. These may include a rich source of technological advantage and information about emerging trends in venturing companies’ core businesses. Venturing also enables corporations to closely monitor new technologies and needs-based market opportunities in adjacent and even more distant industries. In some cases, venturing provided vital information to facilitate entry into new businesses – particularly those particularly high potential opportunities arising from the convergence of more established industries.
Furthermore, corporate venturing provides nearly unmatched lateral broadening and strengthening experience for corporate personnel – a key HR trend. As many cross-industry ventures actually form new business units to reinvigorate business areas that might be growing stale, venturing gives the company and the managers the chance to re-invent themselves. Interestingly, greater exposure of executives and manager to other industries and contacts can actually improve personnel retention of the more desirable creative and driving employees. They have already proven themselves within the parent company and are comfortable with its culture, but seek new challenges and rewards for recognition higher risk ventures can provide without having to change jobs.
In some industries, corporate venturing targets are increasingly coming from emerging global markets, which instills globalization with purpose and passion. Besides the increasingly important global perspective to business strategy, there are other personal, concrete, and immediate benefits. Working cooperatively with people from other geographic, corporate, functional, and industry cultures increases personal flexibility, cultural sensitivity, and emotional intelligence. These particular interpersonal traits have proven to be among the most critical to career success as one advances to higher levels of corporate responsibility. People who actively develop these traits report increased leadership effectiveness and enjoyment in work and social settings.