One of the best ways to avoid being disrupted in your industry is to become the disrupter. That’s why so many companies are setting up corporate venture capital arms — nearly 800 were active in 2018, up from about 220 only five years earlier. Executive teams feel the pressure brought on by innovative disrupters who, backed by venture capital, are attacking their markets. They know they need to reach further out than their business-development and R&D teams can take them, and the best way to do this is by becoming an active participant in the VC ecosystem. For many, this means setting up their own funds and innovation teams, often in Silicon Valley.
But this is a difficult pivot for most corporations. VC firms operate with a higher risk-reward profile than most companies do. The economics of venture capital dictate that most investments will fail to deliver their promised returns, and those that pay off-take many years to do so. Plus, by definition, venture capital operates in unproven territory, investing in technologies years before the arrival of a product, let alone revenues. Neither of these factors are an easy sell in a culture that measures profit and loss on a quarterly basis, and where sponsoring a failure can be a career-limiting move.
Despite these risks, more and more corporations are deciding they need to play in this arena, hoping to gain insight on what’s coming next and avoid being disrupted.
When done right, corporate