Corporate ventures

It is well known in the world of independent ventures that there often comes a point at which the founding team needs to be replaced by managers with different qualities. Indeed, one of the ways in which venture capitalists claim they add value is in provoking these transitions and helping locate relevant managerial talent. The same applies to many key people working within a corporate venture those with the right skills to function well when the task is discovery and creation are not necessarily able to make the transition to the tasks of enhancement and operational excellence. Moore (1991) terms this transition the transition from pioneers to settlers. As he describes (1991, p. 199) ... 

Block, Z. MacMillan, 1. C. 1993. Corporate Venturing Creating New Businesses Within the Firm. Boston Harvard Business School Press. 

McGrath, R. G., MacMillan, I. C., Venkataraman, S. 1992. Measuring outcomes in corporate venturing an alternative perspective. Paper presented at the Academy of Management Best Paper Proceedings. 

Organic growth through internal corporate ventures... 

Internal corporate ventures contrasted with start-ups... 

In many ways, the challenge of allocating resources to and creating new lines of business internally is similar to the challenge of fostering innovation through R D (see Bower, 1970 Helfat, 1988). However, the purpose of R D is to sponsor innovations the purpose of a corporate venture is to create a new business inside the firm (Block MacMillan, 1993). Most new business units are innovative, but... 

New businesses inside existing companies start off with many advantages compared to newly founded independent enterprises. The biggest problem many new ventures face initially is getting stakeholders to believe in them they constantly must address the question, Why should I do business with you if you might not be around tomorrow In contrast, ventures inside established firms gain an umbrella benefit from the legitimacy, social capital, reputation, and brands of their parents. Typically, corporate ventures also inherit systems, routines, trusted relationships between employees, and financial stability from the enterprises that created them. 

The stories of July Systems and Valista illustrate how severely domain restrictions can impact corporate ventures. Could a new business inside a large company ever have survived so many twists and turns Could it ever have strayed so far from the strategic concept that won it the initial blessing of senior management ... 

Faced with pressures to behave reliably and challenges to their legitimacy should they stray too far from their original charters, corporate ventures may face severe competitive disadvantages vis-a-vis start-ups that enjoy more liberty to explore. One way to address such difficulties... 

Corporate centers are better positioned than business units to initiate and drive selected cross-business themes or initiatives such as procurement, e-commerce or innovation/venturing. They can pool the necessary skills and build competence in areas where BUs do not have critical mass (e.g., business development in China, leveraging biotechnology in chemicals, e-commerce). They can also provide incubators for growth options or build up corporate venture funds, dedicating intellectual and financial resources to selected projects that can help individual businesses secure their long term growth. 

In the agrochemicals sector, where the application of biotechnology in chemical businesses is most advanced, the leading players have already demonstrated successful transformations along these lines that have led to a string of new ideas and new businesses key agrochemical players, for example, have set up corporate venture capital funds and created strong cooperations with startups. 

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