#45: Rethinking Corporate Venture Strategy: Sustaining Innovation in Economic Downturns
Hi, I'm Jeppe, and welcome to my weekly newsletter on Corporate Venturing. My goal is to provide a comprehensive view of the latest developments in the field, drawing insights from top management, venture capitalists, founders, LPs, and family offices. This newsletter aims to offer valuable information and thought-provoking content to understand the importance of Corporate Venturing in business strategy.
Introduction
According to multiple studies, the average lifespan of Corporate Venture Capitals (CVCs) has dwindled to below 4 years. This trend underscores a cautious, if not counterproductive, approach by corporations towards their venture arms, especially during economic downturns. This newsletter argues for a paradigm shift, advocating for a more robust engagement in innovation through CVCs as a strategic survival tool during challenging times, illustrated through the transformative journey of the automotive industry towards electrification.
The Short-Lived Journey of CVCs
The revelation that CVCs tend to have a brief existence points to a broader corporate tendency to retract innovation investments when facing economic uncertainty. This knee-jerk reaction not only stymies potential growth avenues but also sidelines the corporation from potential market-defining innovations. The current economic climate, filled with rapid technological advancements and shifting consumer preferences, demands a reevaluation of this approach.
Case Study: Automotive Industry's Electrification Drive
In an era where electric vehicles (EVs) are becoming the standard, the automotive industry stands at a critical juncture, necessitating a strategic reevaluation of its business models. With the inevitable decline of the combustion engine's dominance, automotive giants are compelled to look beyond just the manufacture and sale of vehicles. The shift towards EVs, driven by advances in battery technology and increasing environmental consciousness, underscores the urgency for these companies to innovate in their business approaches.
As EVs gain prominence, the traditional revenue streams anchored in the complexities of combustion engines are becoming less viable. The simplicity of electric powertrains means that the future cars will increasingly hinge on battery technology, significantly altering the value chain. In response, the automotive industry is exploring diverse avenues to ensure sustainable growth and profitability.
One such avenue is the development of mobility services, transforming automotive manufacturers from mere vehicle producers to comprehensive mobility solution providers. This includes investments in ride-sharing platforms, subscription models for vehicle usage, and other service-oriented offerings that cater to the evolving consumer preferences towards access over ownership.
Moreover, the data generated by connected vehicles presents a goldmine for automotive companies. Harnessing this data through innovative business models can unlock new revenue streams, from personalized in-car services to advanced analytics for urban planning and traffic management.
The industry is also delving into energy solutions, leveraging the battery capabilities of EVs for energy storage and grid services. This not only diversifies their business models but also positions automotive companies as key players in the sustainable energy ecosystem.
In summary, as the automotive industry transitions towards electrification, the focus is expanding beyond the vehicle itself to a broader spectrum of innovative business models. These strategies are crucial for automotive giants to navigate the shift from combustion engines to electric powertrains, ensuring their resilience and continued relevance in a rapidly changing market landscape.
Strategies for Longevity and Impact
Corporations must cultivate a visionary mindset that transcends the immediacy of financial returns, anchoring their CVC endeavors in a framework that is attuned to the long-term strategic objectives of innovation and market leadership. This entails a commitment to nurturing startups that align with the corporation's future aspirations, even if the immediate financial outcomes are not overtly lucrative. The focus should be on potential market disruptions and transformative technologies that promise sustainable growth and competitive advantage in the evolving marketplace.
Expanding the Horizon with Building Resilient Ecosystems
The creation of robust ecosystems that amalgamate the dynamic capabilities of startups with the established prowess of corporates is paramount. This synergy not only amplifies agility and adaptability but also establishes a multifaceted platform for innovation that can withstand the vicissitudes of economic cycles. Corporations should endeavor to curate these ecosystems meticulously, ensuring they encompass a diverse array of players from various sectors and innovation stages. This will enhance the cross-pollination of ideas, foster collaborative problem-solving, and facilitate a more holistic approach to innovation that can pivot and adapt to market demands and technological advancements.
Embracing Counter-Cyclical Investment Philosophy: A Deeper Dive
In times of economic downturn, while the instinctive corporate reaction might be to retract investment in innovation, adopting a counter-cyclical investment stance can serve as a strategic differentiator. This approach involves ramping up CVC activities precisely when the market retracts, seizing the opportunity to invest in startups that may be undervalued or overlooked. This strategy not only enables corporations to tap into groundbreaking innovations at a lower entry point but also positions them as industry vanguards ready to capitalize on the market upswing. Moreover, it sends a strong signal to the market and internal stakeholders about the corporation's commitment to innovation and resilience, bolstering confidence and attracting top talent and partnerships.
Conclusion
The tendency to scale back Corporate Venture Capital (CVC) initiatives during economic downturns overlooks the critical role of innovation in ensuring corporate longevity and market leadership. The automotive industry's strategic shift towards electrification exemplifies how continuous innovation investment can redefine market norms and drive sector-wide transformation.
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