This post originally appeared in Innovation Leader
One the biggest knocks against Corporate VC is that they are often a byproduct of a strong economy and viewed as a toy of the CEO… Here today, gone tomorrow. This reputation, unfortunately, is grounded in some truth, but it doesn’t have to be that way. In fact the VC team can and should be a strategic arm of the larger corporation, helping to evaluate new market trends, advising on new business ventures, striking partnerships, and the de facto Innovation group. It’s not an easy task, with each organization having their own intricacies and politics but there are steps that can be taken to make your corporate VC stickier. Below are some of the strategies we have employed and are still employing.
Fight for independence: I have spoken to far too many corporate VC’s who need endless buy-in in order to push for an investment. This process not only makes investing in the most competitive deals near impossible, it hurts the long term viability of the group. The ideal scenario is to report to a singular investment committee, comprised of the CEO and CFO, who hold all the power necessary to approve and quickly act on the investment.
By fighting for independence you are establishing yourself as the expert on evaluating investment opportunities (as you should be) and more significantly the expert on new technologies and trends within your given industry. This last part is significant because if done correctly, can be used to help guide the direction of the business. Without this independence you are simply investing in the one company per year that you somehow get past every political hurdle in the company before eventually departing out of frustration.
Get political buy in: Wait, didn’t you just say that you wanted to be independent from internal politics? Yes, but this does not mean you don’t need to play the game. Independence will only get you so far. You need a strong foundation of supporters within the organization. Without it, the house you are building is doomed to collapse.
One of the first steps we took once launching the fund was to create the “Strategic Sponsor” program. For each investment we made, we would seek out a director within the org to help mentor the company and to be the point person for helping that company navigate internally. Traditionally we have chosen sponsors who have expressed interest in the company and will help us advocate for the investment, or, if the deal is moving quickly, assign the sponsor post investment.
If done correctly, this should and can be a coveted role within the organization, providing many with a seat at the table and in some cases, a seat at the board, of an exciting young startup with tremendous potential; a role many corporate executives rarely get an opportunity to experience and just as importantly, a channel to pass on some of the knowledge they have accumulated.
We also regularly include internal experts on diligence calls with startups who may be interesting to their department or product. By including others in the decision making process you are building a political base of support and more importantly, a sounding board to help you make smart investments!
Raise your Hand: Volunteer your insights to the greater organization. Even with the greatest independence you are only going to invest in 1-2% of the companies you meet. Sharing the lessons from the other 98% is incredibly important. At dunnhumby we have approached this in a number of ways and using some marketing lingo, have taken a multichannel approach to spreading the message internally.
First, we work very hard to remain transparent and provide access to our deal flow tracking platform DealScout (Disclaimer: I am also the founder of DealScout), to many within the organization as well as provide a monthly newsletter that goes out to client leads, executives, and directors, discussing the companies we spoke to as well as updates from our current portfolio. Our internal social network, Yammer, has also been tremendously useful, helping us maintain a more consistent dialogue with the organization. If at all possible we seek expertise and insights via Yammer as opposed to email because of its public nature and ability to be easily shared. We also work very closely with each arm of the organization, volunteering our insights and helping them identify market trends and the competitive landscape.
Another reality is that you will meet many companies who may not fit your investment criteria but could be great partners. Sharing these insights will enable you to work hand in hand with your partnership group, or alternatively act as the partnership group.
In many cases you will be the only group internally whose sole purpose is to identify market disruptors. Sharing those insights not only adds value to your group but adds tremendous value to the org.
If you can position yourself, through role or reputation, as the go to resource for market intelligence and innovation, you will position yourself for success. Working in a bubble, no matter how great your companies are performing, will ensure you won’t be around to see the final results.