Why Corporations Need a Venture Fund

Innovation has always been around; from the development of the wheel to the automobile, the airplane to the spaceship, the world around us is constantly changing. According to the law of accelerating returns, advanced societies develop faster than less advanced societies. For your business to remain relevant and profitable, it will need to embrace innovation and adapt in order to meet these new realities. This is especially true in today's world, where any entrepreneur with an idea and a computer can potentially disrupt industry titans.

Fifty years ago, Fortune 500 companies had access to resources that most entrepreneurs could only dream of. But the advent of the personal computer brought power to the individual. You can see the effect of this shift by looking at the average lifespan of a company in the S&P 500. In 1968, the average was 61 years; today that number sits at 18 years.

Startups, with their small, nimble team of talented developers and engineers, can outmaneuver and pivot faster than Fortune 500 companies. Startups are better able to test new markets, develop new products, and understand the needs of their customers. Corporations run into problems due to their rigid thinking structures, and those who are unable to adapt or innovate in a changing market fall behind.

Corporate venturing offers a convenient solution and has been growing in popularity in recent years. Corporate venture capital has increased by 820% in the last 15 years. When you look at Fortune 100 companies, over half have a dedicated corporate venture team, and 77% invest through corporate ventures.

Corporate venture enables businesses to partner with innovative startups rather than try to compete with them. Blockbuster is a prime example of a company that failed to adapt to changing market conditions. Netflix tried to partner with Blockbuster in 2000, but Blockbuster declined, choosing instead to compete. Everyone knows what happened to Blockbuster due to their unfortunate decision; “adapt or die”, they always say.

Another example is Dollar Shave Club and Gillette. Dollar Shave Club was founded in 2011 and soon accumulated a million dollars in venture funding. Unilever bought them out for $1 billion just four years later. P&G, on the other hand, paid $57 billion for Gillette in 2005, and they had the option of purchasing Dollar Shave Club as well. They easily could have acquired Dollar Shave Club for $100 million in 2012 or $200 million in 2014. Instead of acquiring Dollar Shave Club or adjusting to consumer demands, Gillette was later forced to play the price game, and the company has subsequently lost half of its market share.

Venture capital is extremely beneficial for scouting ahead so that companies may better grasp where an industry is headed. It also provides businesses with a possible path to ownership. Corporate R&D tends to have a narrow focus, so they aren’t as adept at scouting new markets or discovering new competition. Corporate ventures, on the other hand, can assist companies in gathering intelligence on both competitive threats and industry disruptors.

Quality tech talent is notoriously difficult to come by. According to an annual poll conducted by Indeed, 900 out of 1,000 IT hiring managers found it difficult to find and hire workers. Millennials value freedom and opportunity above a base salary, which is why technology companies are so popular to work for today. Corporate ventures can make non-tech companies appear more innovative to potential talent, and acquisitions can also bring a talent team.

Corporate ventures are no doubt here to stay and will only continue to grow in popularity. If you’re interested in further developing your company's venture branch or discussing a possible partnership with one of our portfolio companies, please reach out right away. We would love to have an in-depth discussion with you.


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