By Line Eriksen, Associate Partner, Bain & Company and Truc Mai Dupont Vohong, EMEA Vice President of Digital Partnerships and Business Development, Bain & Company.
Corporate venturing is an umbrella term for the ways companies can explore innovation opportunities. It encompasses building new ventures, deploying venture capital through various investment models, and forging strategic partnerships. In our experience working with companies using these approaches, there is no single formula for finding the right balance. Multiple bets must be laid.
That’s partly because it’s not easy to launch a new business. The great majority of corporate start-ups die at the minimum viable product stage, when key features of a new product or service are ready to test with customers.
While global corporate venture capital activity slowed throughout 2022, with CVC-backed funding ultimately falling 43% from 2021’s record high, according to CB Insights, this hasn’t stopped an increasing number of regional companies from tapping into venturing for growth and as a way to address the constant risk of disruption they face from business, societal, political uncertainty, and technical innovation.
Through our work at Bain’s Venture Ecosystem with corporate innovation leaders, venture capitalists, and start-ups, we have identified five insights to consider when approaching corporate venturing in the Middle East this year.
Innovative CEOs are ambidextrous:
To nurture new growth engines, venture leaders advocate creating a completely new culture, lateral to the parent company’s, that breaks down silos and pushes decision making as close to the front line as possible in order to avoid senior leadership bottlenecks.
Creating such a culture calls for developing an ambidextrous organizational paradigm that finds chemistry between the evolution of the original business and the revolution of new ones, between scale and speed, between productivity and creativity.
Steer multiple innovation vehicles mapped to smart, investable themes:
C-suites need to move their operational model away from a focus on building a linear, structured, and well-oiled machine. Instead, they should move toward a flexible model enabled by systems thinking (meaning a holistic analysis of the broader impact that one innovation decision can have internally and externally). This helps ensure that various innovation activities—both internal efforts, such as building digital infrastructure, and external ones focused, for example, on customers or exploring VC trends—are interconnected.
The new operating model should dictate how innovation vehicles are chosen, and that choice should not be made without considering the venture ecosystem or consumer insights. The precursor to this is aligning on specific “investable themes” to ensure that teams diligently and succinctly explore business-model or technology innovations that unlock the right opportunities for the company.
Inspiration from the venture world can vary, from democratization of ideation to deal-flow augmentation:
Employees, clients, and other stakeholders all can be valuable sources of innovation ideas. Such democratized innovation can help ensure that new growth engines are relevant for employees; it also fosters their involvement, while capitalizing on in-house experts’ understanding of specific markets and technologies. Company leaders can identify specific challenges for which they would like to hear employee feedback.
Corporate venturing teams also can learn from the data revolution when investing in a venture. However, in light of pervasive, imperfect information and algorithmic biases, they will still need to lean on empathetic relationship building and qualitative consumer insights.
Hire unbiasedly and think systemically about venture talent:
Unpacking and understanding what a venture’s business, societal, environmental, and political outcomes may be is now an ethical responsibility—and a nonnegotiable element of the business-design skill set.
Hiring the right mix of internal and external talent for venturing work is paramount to capitalize on what the parent company’s internal candidates bring and on the external venturing experience that those outside the company can add.
Set a triple bottom line: evaluating success through the lens of sustainability:
In addition to investing in or building impact businesses, corporate venturing can embed environmental, social, and governance (ESG) considerations in its decision making. Whatever innovation vehicle is chosen, the environmental and social outcome should always be considered to ensure the maximum balanced, positive ESG impact.
ESG in corporate venturing helps the parent company increase its competitiveness, transfer ESG knowledge and lessons learned, and achieve long-term sustainability goals.
Corporate venturing is not a short story, but it can create long-term value:
There is no one-size-fits-all model for corporate venturing. Companies need to concurrently steer various innovation vehicles and lay multiple bets. When choosing specific investable themes, companies should consider where they want to be on the innovation continuum. C-suite executives need to take a systemic and intentional approach to venturing, but they also must accept that not all bets will land. An appetite for risk, potentially in exchange for transforming your industry, is necessary in the world of venture.
Venturing can be messy, uncertain, and a corporate character-building process. It balances science and art, drawing inspiration from both consumer insights and our impact on the planet. With the right talent, mindset, and nuanced understanding of both the core and new business opportunities, companies can pivot toward their best model, in which they pursue venturing with intent and impact.