In periods of low growth and high strategic uncertainty, CVC can serve four distinct and valuable business objectives.
First, it can be a rich source of technological advantage and information about potential transformations in companies’ core businesses. By investing in broadly disruptive technologies such as biotechnology, for example, pharmaceutical giants such as GlaxoSmithKline, Novartis, and Pfizer have spotted emerging trends that are reshaping their industry. In financial services, for example, Visa has invested in Square, a mobile-payment start-up whose technology transforms smartphones and tablets into credit card readers.
Venturing also enables corporations to keep a close eye on new developments and potential new markets in adjacent industries. Intel Capital’s investments in downstream start-ups in video and telecommunications, for example, have allowed it to get the jump on the competition in designing application-specific chip sets for those markets. Since 1991, Intel has invested in more than 1,100 companies, 189 of which have gone public. An additional 258 were acquired or participated in a merger. Deutsche Telekom’s T-Venture unit, meanwhile, has concentrated much of its firepower on Internet investments, with a three-year goal of doubling the parent company’s online revenue.
In addition, venturing gives corporations a means to learn more about emerging trends in more-distant industries. Through their investments, they can gain valuable insights into novel technologies and the markets for them and identify new and often unanticipated areas of future growth. For example, Dow Venture Capital, the venture arm of the global chemical company, is focusing on agriculture, consumer and lifestyle, energy, and infrastructure and transportation, where Dow believes it can generate significant revenue growth in the future.
Finally, venturing can yield important information that companies can use to prepare for or facilitate their entry into new businesses. This added capability can be especially valuable to companies that seek to create novel applications for new industries arising from the convergence of two or more established industries. Samsung Venture Investment is following this path to gain early insight into trends that could reshape value chains in its various business lines, for example. Its investments in clean-technology and medical-technology start-ups help it identify novel technologies that it believes will drive its corporate parent’s growth in coming years.
Considering the benefits that venture investing offers when best practices are employed, the real question is whether corporations can afford not to join the game. In an economy where innovation spells the difference between success and failure, corporate venturing can spur tomorrow’s innovations while it helps build an organization in which innovation is business as usual. Some of the world’s most respected and successful corporations are already reaping the benefits of their venture investments, generating profits and growth, and opening up new markets with innovations originally developed by their portfolio companies. They recognize that as competition intensifies and uncertainty increases, CVC opens new strategic avenues. There is no denying that corporate venturing, like any other form of innovation, is a risky activity. But considering its game-changing potential, we believe the greater risk is not to engage in it at all.