The Corporate Venture Capital Strategy

There are different ways to create and grow a business: build up from scratch, acquire another company, or gain strategic alignment with other companies through partnerships. Through a partnership, a business can leverage someone else's technology for faster growth.

In this article, Larry Forman, Senior Manager and Head of the Ecosystem for Deloitte's New Venture Accelerator, discusses corporate venture capital strategy.

"Don't try to be a venture capitalist unless you’re going to hire a team of VCs to run the fund for you or you may be disappointed." - Larry Forman

What is corporate venture strategy?

Corporate venturing is when corporations create relationships with single or multiple venture funds. Corporations use corporate venture strategy to access different ecosystems and technology, without having to rely on internal building or acquisitions. There are various ways to approach this strategy.

1. Arms Length Approach - An agreement or an alliance with a company, like a handshake agreement with a venture fund, towards a particular goal. In this approach, a venture fund will introduce a company to a larger organization and gain strategic alignment. 

2. Sponsorship Approach - The sponsorship approach is much like the arms-length approach, but making a financial commitment to sponsor or work with the fund. In this case, they’d dedicate more resources and more attention to the company compared to an arms-length agreement.     

3. Investment Approach - The company can just invest in a venture fund without strategic alignment with its portfolio companies. Another alternative is to set up a venture capital fund within the company.

To manage a venture capital fund, do it like how venture capitalists manage their separate funds. It means staffing it with professionals that know how to do venture capital investing, work with portfolio companies, work with investors, and find investors.

Benefits of the corporate venture strategy

Regardless of what approach a company takes, there are many reasons why organizations should look into corporate venture capital strategy. Here are the significant benefits:

1. Market Intel - Large companies will see the market from a venture capitalist's perspective. VCs typically see products or technologies way ahead of time before anyone else. 

2. Increase Presence - By affiliating with newer companies with advanced technologies, larger companies can build their brand and increase their presence in the more recent-generation market.

3. Building Relationships - Corporate venture strategy is an excellent opportunity to build relationships with portfolio companies that may have the technologies needed by larger companies. 

4. Potential Ecosystem - Sometimes, investors can leverage a portfolio company's existing relationship with other businesses. 

5. Potential M&A - Partnerships with a portfolio company will provide insights into their operation and culture, which is a great way to assess potential acquisitions. 

6. Potential ROI - Aside from the other benefits, corporate venturing also has the potential of earning the invested money back. 

Advice for the corporations looking to venture

While corporate venture strategy is highly beneficial, Larry doesn't recommend companies becoming venture capitalists, especially first-timers. It's not easy to be a venture capitalist, although it might sound simple. They look at a lot of companies before they make an investment decision. They also have a lot of experience on how to grow a company.