We sat down with Mark Kaiser, who has consulted on innovation and corporate venturing for companies like Coca-Cola, Nestle, and Cigna, to get his advice on starting a CVC.
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Part 3: Avoid Pitfalls and Find Success
In the last post, we talked about how to manage a corporate venturing. There’s a saying among entrepreneurs: the longer you’re able to avoid failure, the more likely you are to find success. If you’re going to consider a new business unit focused on working with entrepreneurs, you might as well learn from the people you plan to work with.
Oftentimes, a company has a mindset that if they are going to invest any amount of money into something, it needs to be something that will move the needle in a big way. It would be folly, the idea goes, for a company with $100 million in revenue to spin up a business unit that costs just $300,000. There is no way that small of an investment can make a big difference.
When you’re thinking about launching a corporate venture arm, your goal shouldn’t be to spend big amounts of money, make headlines, and become a global investor. Instead, it should be to lay the groundwork of a successful CVC program that will last for many years. Below, we’ll dive into a few ways to avoid failure, and a few metrics by which to measure the success of your CVC program. How to Avoid Pitfalls
1. Start small. Once you start digging into CVC, you might hear stories with numbers that make you feel like you can’t keep up. UPS invests $26M into a delivery startup. Frozen food giant invests $55M into up and coming brand, Strong Roots. Do not feel like you need to keep up, to stay relevant. Instead of investing millions into individual companies, you should invest small checks (we mean very small, like less than $100,000) into earlier stage startups. This will help you figure out the process and put wins on the board. Once you’ve done this a few times and you’ve built the brand and confidence, you can begin to invest more if needed.
2. Choose wisely. Everyone has heard that most startups fail. But as time goes on and the company hits more milestones, they become de-risked. As you get started, avoid the urge to invest into the proverbial “two founders in a garage”. Only invest into companies that have also hit certain milestones - a product in market, existing customers, decent production. This will de-risk your capital and help your capital go further.
3. Outsource. If you read about the best CVC programs, you’ll read about the dozen investors running Google Ventures, or Dell Technologies Capital. Don’t fall into the trap of thinking you need to build this fully in-house. Instead, you can work with a company like our’s to help make connections with startups, build your brand as a legitimate startup investor, do due diligence, and manage follow up with the startups. You can focus on setting the strategy and learning from the startups you’ve invested into.
How to Measure Success
1. Learn. Part of the reason to invest in startups is to see around the corner of where your industry is going. When your program is running well, the startups you invest in are forcing challenging conversations and decisions in all parts of your business. Use what you learn from the startup and push your teams to understand how new technologies and business models might impact your company. Bring those learnings to your customers, and you’ll be seen as an industry thought leader.
2. Pilot. Your goal is to learn, and the best way to learn is to bring the startup’s technology into your business. Your CVC program is working smoothly when you’re making investments in technologies that are directly related to your business. If you can move from investment to pilot in under 12 months, you’re seeing a lot of success.
3. Grow. Unlike traditional investments, it can take years to see a direct financial return from your investments into startups. (Even Facebook took 8 years to go public and return capital to early investors!) Instead, you’ll know if your investments have been good based on follow up funding and revenue growth. If other investors want to come in and support the startup, you know that things are going well. If the startup is growing revenue and customers (hopefully with your help!) you know things are going well.
Are you ready to explore CVC? We can help you evaluate the market and determine the best next steps. If you are interested in learning more , Contact us today!
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