#14: Touching on Corporate Incubators
Hi, I'm Jeppe and welcome to my weekly newsletter on Corporate Venturing, released every Tuesday. My aim is to provide a comprehensive perspective on the latest developments in the field and its related topics, drawing from the insights of top management, venture capitalists, founders, LPs, and family offices. I aim to offer valuable information and thought-provoking content that will aid in understanding the importance of Corporate Venturing in business strategy.
Today's topic is corporate incubation. I was inspired to write this week's newsletter by Linda Yates's recent visit to Denmark, during which she was interviewed by Niels Lunde from the Danish business media outlet Børsen. In my Newsletter 7 "Corporate-Startup Collaboration Opportunities through CVC," I briefly touched upon collaboration between corporates and startups. In my view, innovation in a corporate strategy setting can be best understood through the figure below. It's essential to differentiate between the topics being discussed in order to fully grasp the subject matter. Today we will look at Incubators.
Linda Yates's book, "The Unicorn Within," is an amazing read that all senior leaders should become acquainted with. It contains important insights, and given Yates's years of experience as a leader and working in the area, the knowledge is particularly valuable.
Many corporates have the potential to do what venture capitalists do, especially now, with the cost of capital rising due to increasing inflation and interest rates. As Yates mentioned in her podcast with Niels Lunde, corporates have many of the necessary components to compete with startups, including and very important an existing customer base, knowledge of customer pain points, and a talent base. Corporate HR departments should identify individuals in their workforce who would be interested in venturing, and this information should be used if a corporate incubation unit is established. There are many risks that can lead to the failure of ventures. However, corporates should be able to avoid many of the pitfalls in incubation as they possess several key assets that can contribute to success. The failures, as identified by CBInsight.com, are listed below:
However, my biggest concern regarding the method proposed in "The Unicorn Within" is the cultural difference between US and European companies. To be successful in incubation, you need to have patience and be willing to take risks. With the lifetime of corporate venture capital firms being below four years, as mentioned by Global Corporate Venturing's James Mawson, it's evident that something is done wrong both in Europe and the US. And European companies are normally not that risk willing compared to it’s US counterparts and have not been exposed to corporate venturing in a successful matter.
If you are creating an incubation entity, ensure that you understand what Yates (and many others, such as BCG Digital Ventures) propose, and allocate a budget so that you can make mistakes since it's almost certain that you won't be successful on your first attempt. It's also worth considering making a budget allocation in a separate legal entity to ensure that you can continue with the incubation model should you experience a change in CEO or a downturn in the business cycle.
I hope you enjoyed this week's newsletter. If you have any suggestions or contributions that you would like to share with me, please do not hesitate to reach out. I would be delighted to hear from you.
/Jeppe