Corporate Venture is meaningless
France is a renowned provider of talents for tech startups. You can find many of the French brains at the top levels of many of the Unicorns, those so-called startups that have made their ways to the worldwide stage. But when it comes to Corporate Venture, French companies are at the bottom of the well. Numbers are telling so according to Cécile Brosset (BPI Director of Development): USA has invested 24 times the amount of France in 2015. Though numbers don’t mean much since it doesn’t identify the value generation of those investments, it still shows that France based Corporate venture units are lagging behind. Explanations provided are that French traditional top companies are risk averse and tend to use their Corporate ventures as communication levers. I would beg to differ, it is because they are lost in a new world where industry matters less than technology.
The current trend for Corporate venture, or more precisely the current visible trend, is highlighting startups focused on software and sharing economy. Not really a business line where traditional companies are relevant since that has nothing to do directly with their industries or markets. So why invest in startups that are out of their comfort zone? Why compete with global leaders, such as Google, Amazon, Facebook, and Apple?
Because technology matters. Because the technology powering those startups are the added value that should be acquired by traditional companies instead of the software leaders. If the leaders of the CAC40 and SBF120 don’t want to understand and leverage technology, they will fall and move from the customer seat to the supplier seat. That is what has happened:
– to the Media industry, now begging the Digital Advertising industry for some leftovers
– to the hospitality industry, now sending margins to the Digital Comparison engines industry to stay visible
– to the real estate industry, now paying to access databases to the Digital Real Estate industry to be able to work
– to the States, now struggling with global digital players that are faster than their borders and regulations
– to any companies, now forced into standardized processes coming from Software companies
The top management doesn’t get what the new technologies are. They can’t lead properly the Consulting firms they are paying a fortune. They can’t lead their M&A units and Corporate ventures stay full of cash for years and end up being €10M to €100M communication stunts. We are in such a situation because all the value chain players are focused on generating deals. They don’t have the relevant level of understanding of the technologies. That is how concepts like “reverse mentoring” and “open innovation” have become reality: “let’s not drive and wait for the serendipity to light the path to growth.” Seriously?! You know better. At least you have not fallen into the “let’s fail fast” trap. But you should revise your way of working the corporate venture since (1) it can positively impact your bottom line and (2) help you identify new monopolistic markets (at least for a few years).
Cécile Brosset highlighted in her column some initiatives from Corporate ventures as relevant examples. I would strongly suggest not going down that path. I agree it would provide knowledge and information about new business fields. But that is about all it can provide unless you are leveraging your Corporate Venture for communication purpose through minority shares or concealed partnerships. If so, you are burning cash and enabling value generation for your competition: you facilitate growth for the startups but you won’t receive any benefits from it. What you should envision is more standard and yet more efficient, business-wise and strategy-wise.
Global digital natives can be bypassed and are middlemen you don’t need:
– Startups are looking for business and credentials
– Corporates are looking for cost efficiency and capabilities to generate more willingness to pay
– Global digital native companies are willing to acquire the startups to increase their offering and willingness to pay vis-à-vis corporates
Corporates need to engage startups with opportunities they are looking for: industry expertise. A differentiator Google or any of the GAFA can’t provide. Industry expertise would open the path to an investment for your Corporate Venture at an early stage and in a good position for an acquisition that would generate value. But that means you need to change your way of managing your Corporate Venture. You turn from being a passive investor to being an active partner for growth. That is how you create value out of it.