Corporate venturing has some similarities to what R&D is in many industries. Not much used in insurance, but something that could bode well for larger companies if considered consistently and strategically.
Corporate venturing has some similarities also with Venture Capital (VC). As you would expect. There is certainly shared territory here even though some venture capital units do not like so much newbies corporate venture capital units. Venture Capitalists (VCs) are experts at the money side of things where they focus on the financial objectives, whereas the corporate venturing team draws expertise from strategy, finance, and the industry, with their fingers on the pulse of emerging trends, opportunities, and risks. The two can actually benefit each other enormously when working in tandem as we have seen with many emerging corporate funds signing up established corporate players as Limited partners.
Corporate venturing and the entrepreneur’s journey
Engaging with a corporate venture capital unit could be an excellent path to success for the entrepreneur and the startup founder. Indeed, young startup businesses can benefit tremendously from accessing the distribution, assets, and resources of the big guns.
80% of startups fail. B2B insurance engagement can be a long and strenuous process at times. And it often takes 7 to 10 years for investments to yield returns. So, large companies can decide to be the custodians of the startup’s trust and growth journey as they have the time, patience, and capital needed to wait for success to yield.
Why is there an increased drive towards corporate venturing today?
Over the last few decades, corporate venturing has gained ground in terms of importance, interest, and strength. The likes of Amazon, Apple, Facebook, Google, Intel Capital, and Microsoft wouldn’t have succeeded in the early days if it wasn’t for the capital, resources, and coaching that came from their venture capital arms.
InsurTech is a new sector that represents 10% of FinTech investment. $50 billion has been invested in InsurTech since 2015. $13 billion have been invested in InsurTech startups up to October 2021.
So why is this?
There are a number of market trends that are driving more interest in corporate venturing in general and Tech focused on insurance in particular, including:
- Sustainability and climate change (COP 26)
- Emerging risks
- Required resilience
The best strategies to deploy corporate venturing programs
When it comes to corporate venturing, there are two main pillars:
- Scouting for ventures
- Building ventures
Central to any decision, it is important to understand the benefits that will come to the corporate entity by making the investment. We can look at this in terms of two overriding metrics:
- Strategic returns
- Financial returns
During our recent CVC research, we discovered that, while the majority of corporate venture capital funds adhere to strategic investment thesis, a growing number of corporate investors are also increasingly focused on financial returns.
This is attributable to a number of variables, including:
- Investors learn where, when, how, and why to invest as the number of investments grows. As previously noted, approximately 65-80% of enterprises fail.
- Investors recognize where there are strategic values and where they are likely to have financial returns as the learning insight evolves, including successes and failures.
The four types of investment
There are four types of investment that have been shown as strategies. This study is based on a research piece called Making Sense of Corporate Venture Capital conducted by Henry W. Chesbrough and published by Harvard Business Review. A model I very much like because it is easy to understand.
- Driving investment
- Enabling investment
- Emerging investment
- Passive investment
Who is winning the corporate venturing game?
In Corporate Venturing: A Survival Guide by Heidi Mason, Elizabeth Arrington, and James Mawson, we can see some clear case studies of ‘High Performer Corporate Venture Capital Profiles’ in the three phases of corporate venturing:
- Startup Phase (0-3 years)
- Expansion Phase (4-6 years)
- Resiliency Phase (7-9 years+)
The golden age of corporate venturing is yet to come
Innovations are creating seismic scale changes to our business landscape across multiple big industries, and that is being made possible through corporate venturing.