CVC: How to attract innovation and possibilities

Nowadays every company has an existing business model and technical capabilities that has developed over the years. Walmart, for example, began in 1950 in Arkansas and was born as a chain in 1962, expanding in Bentonville. Throughout these years it established a business model with a physical territorial presence, buying directly from large producers and selling directly to the consumer. This activity allows Walmart to have a commercial intermediation margin, which is strengthened by the purchasing power it has with suppliers and its great logistical capacity. Today Walmart is the world’s largest retailer with more than 11,000 stores in 27 countries and a market capitalization value of nearly $400bn.

However, new companies with new business models and technical capabilities have threatened Walmart’s position as market leader. Amazon was founded in 1994 as a technology-based company with retail capabilities. Its first business was selling books online. In just 27 years it has reached a market capitalization value of USD$1.7tn, i.e. 4 times the value of Walmart.

Amazon’s dominance has pushed Walmart to look to Corporate Venturing as an element to generate innovation. In a broad sense, Corporate Venturing does not necessarily mean capital investment in startups by corporations. It also includes different tools that corporations have at their disposal, such as acceleration programs, incubators, intrapreneurship programs, venture builders, M&A and CVC’s (Corporate Venture Capital). Google is a clear example of how the use of all these tools can be leveraged to accelerate innovation, and in the case of Walmart an example of how these tools are applied is with Store №8, the company’s internal incubator.

Walmart, like many other corporations, is also investing in startups through corporate Venture Capital funds (CVCs) with the objective of responding to technological and business model changes in a fast, flexible and cheaper way than traditional R&D.

Corporate Innovation Tools

Graphic by ACV

CVCs through investment in startups have the potential to generate different types of innovation impacting processes, products and services, and business models.

  • Processes: Are those operational or administrative systems that are designed to fulfill the purpose of the organization and generate value for shareholders.

The CVC impact has different effects on the innovation that is generated within the organization.

  • Disruptive: Generates internal resistance at the beginning, produces permanent change and brings long-term benefits.

The leadership and culture of the organization impacts the DNA of the CVC, the strategies it pursues and the way it invests. This definition will lead to whether the organization has access to more or less innovation and whether the benefits gained by the organization actually have a significant and lasting effect.

Corporate Venturing is a tool to attract external innovation. From a broad point of view, the organization does not need to invest capital to carry out this activity. All companies should determine under which circumstances it is convenient to invest capital and in which others simply use some of the tools in the Corporate Venturing portfolio to generate innovation.

Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.

Gonzalo Soriano. VC Investor at ACV.

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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ACV

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.