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CORPORATE VENTURING 2.0Successful implementation of corporate venturing in order to boost innovativeness

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Source: goetzpartners analysis

Corporate venturing programmes: Improve potential and boost innovativeness

As a component of innovation management, corporate venturing (CV) aims to develop opportunities in non-core business segments and is a key lever for enhancing innovativeness.

Unfortunately, more than 90% of CV programmes miss their targets due to

CORPORATIONS

START-UPS

1 LACK OF STRATEGIC INTEGRATION and LONG-TERM DEFINITION OF OBJECTIVES

2 DEFICIENT SET-UP of CV programmes and SUPPORT STRUCTURES in the core business

3 INADEQUATE VENTURING PROCESSES (Investment and management processes at portfolio companies)

CORPORATEVENTURING

ChapterMarketing

Technologies

Talents ...

Know-how

Network

New markets

Resources ...

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Corporate venturing is gaining importance as a vehicle for innovation

[1] Internal Corporate Venturing: Start-up initiatives as a semi-autonomous unit within the existing corporate structure[2] External Corporate Venturing: Involvement in start-ups outside of the existing organisational structure, for instance through an independent

corporate venture capital fundSource: goetzpartners analysis

EXECUTIVE SUMMARY OUR UNDERSTANDING

CV represents entrepreneurial endeavours by established companies both within (INTERNAL CV)[1] and outside of (EXTERNAL CV)[2] company boundaries

This merging of POTENTIAL in corporations and start-ups makes it possible for businesses to ...

… develop BUSINESS MODELS IN NON-CORE SEGMENTS

… benefit from ENTREPRENEURSHIP and promote ventures with their own strengths

… monitor strategically relevant INNOVATIONS which are not currently part of the CORE BUSINESS

… develop new business opportunities while maintaining a MANAGEABLE LEVEL OF RISK

Authors:Dr Florian Mes, Senior ManagerDr Frank-Benjamin Heim, Manager

1 As a vehicle for innovation, CV is used to identify and realise opportunities in non-core business segments while keeping risk and expenses manageable. Companies implementing CV can expect to merge the STRENGTHS OF START-UPS with their OWN COMPETENCIES in a synergistic way. This is also known as POTENTIAL MERGING.

4 The importance of corporate venturing has grown significantly in recent years. In this connection, CV is also readily used as a possible VEHICLE FOR DIGITAL TRANSFORMATION. For instance, in Germany alone the number of corporate venture capital funds more than doubled from 15 to 37 between 2005 and 2013.

2 As a component of INNOVATION MANAGEMENTCV programmes supplement classic research activities: While new paths in technology are being ventured with CV programmes, INCREMENTAL IMPROVEMENTS are more the focus of traditional R&D activities.

5 However, there are numerous STUMBLING BLOCKSthat often prevent full realisation of CV potential –and can even lead to early failure. Examples of these are a lack of strategic integration of the business segments, inadequate talent management and an investment process that is not in sync with venture units.

3 In practice, such vehicles can be used to simultaneously carry out different INNOVATION MANAGEMENT MODES (revolutionary and evolutionary). In this scenario, different vehicles can be readily used in combination with one another, e.g. ACCELERATOR/INCUBATOR APPROACHES with CV programmes.

6 As an advisory firm led by entrepreneurs, goetzpartners offers the SERVICE PORTFOLIO REQUIRED FOR CV FROM A SINGLE SOURCE. Support services range from the conceptual development of CV programmes through to assistance with classic, operational matters during CV programmes.

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Source: goetzpartners analysis

In practice, CV programs often fail due to INTERNAL STUMBLING BLOCKS and less due to external obstacles

Errors often occur when the programmes are set up and there is a lack of COMMITMENT FROM TOP MANAGEMENT

Once programmes are set up, there is often a lack of INVESTMENT LOGIC aimed at new venture units, as well as insufficient INVOLVEMENT OF BUSINESS SEGMENTS and ENTREPRENEURIAL TALENTS. In addition, programmes are often quickly evaluated in terms of PERFORMANCE REQUIREMENTS OF THE CORE BUSINESS

Once CV programmes are successful, the main challenge becomes INTEGRATION OF THE VENTURES IN THE CORE BUSINESS

COMMENTS

Major stumbling blocks often prevent the full exploitation of potential

INTERNAL STUMBLING BLOCKS EXTERNAL STUMBLING BLOCKS

Lack of sustained COMMITMENT FROM TOP MANAGEMENT

Insufficient INTEGRATION of CV programmes in the CORPORATE STRATEGY

MANAGEMENT LOGIC is oriented on PARAMETERS FROM CORE BUSINESS

Inadequate INTEGRATION OF OPERATIONAL BUSINESS SEGMENTS

2 ORGANISATION AND MANAGEMENT 5 DEAL FLOW

Insufficient TALENT MANAGEMENT in terms of entrepreneurial qualities

Poor INCENTIVE SYSTEM Deficient START-UP CULTURE

Lack of FINANCING STABILITY for the CV programme and uncertain statements from top management

Insufficiently structuredINVESTMENT LOGIC

4 INVESTMENT AND FINANCING 6 VENTURE CAPITAL3 HR AND CULTURE

1 STRATEGY AND LEADERSHIP

STRONG INFLUENCE on exploitation of potential WEAK INFLUENCE on exploitation of potential

Insufficient access tohigher quality BUSINESS PLANS

Frequently restrictedview due to "OPERATIONAL BLINDNESS"

Stiff competition for good start-ups from INDEPENDENT, experienced VC FIRMS who have established themselves as solid venture capitalists

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CORPORATE VENTURING

Corporate venturing as a vehicle for innovation in the development of new technological paths

COMMENTS

Many established companies rely on SEVERAL VEHICLES OF INNOVATION at the same time

R&D efforts continue to tread FAMILIAR TECHNOLOGICAL PATHS and realise incremental improvements. On the other hand, accelerator/incubator approaches and CV programmes can identify and realise non-core business opportunities on UNFAMILIAR TECHNOLOGICAL PATHS with little risk and expense

Different INNOVATION MANAGEMENT MODES are thereby used simultaneously to both develop new technologies and further maximize existing successful technologies

INN

OVA

TIO

N M

ANAG

EMEN

T M

OD

E

Identification and realisation of earlier non-core business opportunities

Pursuing new, UNFAMILIAR TECHNOLOGICAL PATHS

Effective and efficient realisation of incremental innovation projects

Expansion of FAMILIAR TECHNOLOGICAL PATHS

[1] Accelerators/incubators support new start-up initiatives with a wide range of products such as infrastructure, services and resources. Incubators frequently become involved from the pre-seed stage and continue support for a period of 2 to 5 years. Accelerators generally begin after development of the initial concept and continue support for a defined period of 3 to 6 monthsSource: goetzpartners analysis

Revo

lutio

nary

in

nova

tion

man

agem

ent

Evol

utio

nary

in

nova

tion

man

agem

ent

BUSINESS STAGE

Start-upSeed

INCUBATOR[1]

R&D

ACCELERATOR[1]

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CORPORATE VENTURING

Source: goetzpartners analysis

Use of the appropriate vehicle depends on the stage of the technology lifecycle

Accelerator/incubator initiatives are appropriate when initially venturing onto NEW TECHNOLOGICAL PATHS; once a business plan has been drawn up, more structured CV programmes are implemented.

In practice the two vehicles are often used together. CORPORATE VENTURING and ACCELERATOR/INCUBATOR APPROACHES are frequently used in combination

If an innovation project has proven itself in the market and the TECHNOLOGICAL PATH IS FAMILIAR, the focus turns to INCREMENTAL IMPROVEMENTSand evolutionary innovation management can be implemented

CORPORATE VENTURING ALONG THE TECHNOLOGY LIFECYCLECOMMENTS

Corporate venturing allows opportunities to be identified at an early lifecycle stage

Incremental improvements and expansion of product portfolio

Enhanced efficiency, expanded market position and replacement of outdated technologies

DECISION ON CONTINUATION

Link technological know-how with market opportunities

Determine business model

Testing (trialand error) and prototype development

Final definition of product functions and design

Market launch and assessment of acceptance by recipient (probe and learning)

Preparation of transition to core business or segregation/exit

Revolutionary innovation management

Evolutionary innovation management

INCU

BATO

R ACCELERATOR R&DTE

CHN

OLO

GIC

AL A

DVA

NCE

S

TECHNOLOGY LIFECYCLE

TIME

Preparebusiness plan

Determinearchitecture

Successfulmarket launch

Improveincrementally

CORE

ACT

IVIT

IES

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Importance of corporate venturing is steadily growing, particularly with regard to digitalisation

COMMENTS

The relevance of CV has grown significantly. Between 2010 and 2014 the number of corporate venture capital funds world-wide ALMOST DOUBLED TO 1,100

This is a result of the increased use of CV as a means to JOIN THE DIGITALISATION MOVEMENT

Digitalisation topics are a focus of CV activities in the telecommunications and media industry and trade segment in particular. Other industries are joining this movement as well

The RANGE OF CV FORMS can vary from internal CV programmes combined with independent incubators through to investments in external start-ups with independent venture capital funds

[1] Internal Corporate Venturing: Start-up initiatives as a semi-autonomous unit within the existing corporate structure[2] External Corporate Venturing: Involvement in start-ups outside of the existing organisational structure, for instance through an independent

corporate venture capital fundSource: goetzpartners analysis

CORPORATE VENTURING PROGRAMMES AS ENABLERS OF DIGITALISATION

Consumer goods & retail

Banks & insurance

Industrial goods

Automotive

Chemicals

Telco & media

Energy

CV programmes are realised externally[2]

CURR

ENT

FOCU

S O

F CV

ACT

IVIT

IES

Mai

n fo

cus

on d

igita

lisat

ion

No

focu

s on

di

gita

lisat

ion

WHERE CV ACTIVITIES ARE REALISED

CV programmes are realised internally[1]

=size of circles indicate the number of companies with CV units according to industry

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In practice, there are numerous forms of corporate venturing programmes

CASE STUDIES FROM PRACTICAL EXPERIENCE WITH OUR CUSTOMERS

Source: goetzpartners analysis

INDUSTRY

INTERNAL CORPORATE VENTURING EXTERNAL CORPORATE VENTURING

ENERGYOIL & GAS AEROSPACE

12 employees € 65 m investment 10 active venture

units

70 employees € 55 m investment 9 active venture units

Further development of 1,700 ideas that will change the future of the energy industry in the fields of Residual heat

recovery Measurement of

marine-seismic sources

Natural gas compression

Hydrocarbon recovery

Further development of ideas for innovations in non-core business segments of Aircraft & helicopters Satellites & drones Security Navigation

20 employees € 350 m fund volume

14 employees >€ 100 m fund

volume

Investments in more than 170 companies and 40 venture capital funds in the area of Energy (incl.

production of solar energy)

Industry (incl. logistics solutions)

Infrastructure (incl. electric mobility)

Healthcare (incl. MRT)

Management of7 active venture units in the portfolio, incl. the areas of Organic solar films Bio fuels

from biomass Wind and solar

energy forecasts Innovative heat

exchangers Smart grid solutions

BEST PRACTICE

Strong COMMITMENT FROM TOP MANAGEMENT and modificationof CORPORATE STRATEGY based on innovation plans

Management based on LONG-TERM COMPANY OBJECTIVES

Adequate PROFIT SHARING for employees

High ERROR TOLERANCE and detailed FAILURE ANALYSIS

Ex-ante CAPITAL COMMITMENTS(quasi funds) from various company segments

Payment of capital resources according to STAGE FINANCING

BUSINESS PLAN COMPETITIONS in early stage financing

Continuous evaluationof strategic RELEVANCE

Structured INTEGRATION/ EXIT of commitments

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DEFINESET-UP

FORMULATESTRATEGICOBJECTIVE

goetzpartners offers all-round corporate venturing expertise from a single source

WHAT WE OFFER

Source: goetzpartners analysis

GOETZPARTNERS SERVICE PORTFOLIO SPANNING CV PHASES

GOETZPARTNERS SUPPORTStrategic objectives | Organisation & Processes | Investment & Financing

Identify "White spots"

EnhanceDEAL FLOW

EVALUATION AND SELECTIONof ventures

Full TRANSACTION SUPPORT

CONTINUOUS TRACKING

ASSESSMENT of strategic relevance

VENTURING PROCESS

DECISIONon continuation (INTEGRATION, SPIN-OFF OR EXIT)

1 2

3 Ideal and one-of-a-kind COMBINATION of Corporate Finance and Management Consulting

NUMEROUS TOOLKITS, BEST PRACTICE CASES and BENCHMARKS to clarify the SET-UP and VENTURING PROCESS

To formulate the STRATEGIC OBJECTIVE1

2

3

We offer a WORKSHOP:

To DEFINE THE SET-UP (organisation, processes, etc.)

To identify stumbling blocks in the VENTURING PROCESS

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ADVISERS FOR STRATEGY, M&A AND TRANSFORMATIONgoetzpartners is an independent advisory firm for all key issues of entrepreneurial activity: strategy, M&A and transformation. This unique approach makes clients measurably more successful. The combination of corporate finance and management consulting creates sustainable added value when determining valid courses of action, reaching decisions and implementing them. Boasting a vast wealth of business experience, goetzpartners advises clients in all key industries world-wide: Business Services, Energy, Financial Institutions, Healthcare, Industrials & Automotive, Retail & FMCG and TMT.

CHALLENGERS WITH PERSONALITYFor the key business issues of strategy, M&A and transformation, standard solutions are rarely the right answer. On every project, goetzpartners ensures that there is always sufficient scope for proven methods to be combined with individual and client-specific approaches.Our consultants lay the foundations for excellent results by trusting their own opinions and experience and taking a strong stance on the entrepreneurial challenges to be resolved.

NETWORKERS AT THE HIGHEST LEVELOur far-reaching network of contacts, grown over decades, involves top decision makers in business and politics, and produces extraordinary advisory outcomes. Our close working relationship with prominent members of society opens up wide-ranging new perspectives. goetzpartners thinks beyond borders and connects the right people with the right ideas. That way, goetzpartners creates valuable synergies for all involved.

EXPERTS ON COURSE FOR SUCCESSFounded in 1991 by Dr Stephan Goetz and Stefan Sanktjohanser, goetzpartners today ranks among the 10 best-performing advisory firms in Germany (Lünendonk®). In WirtschaftsWochemagazine's "Best of Consulting" awards, goetzpartners took first place in the "Project Excellence" (2014) category and received an award in the "M&A, Finance and Risk Management" category (2015). Internationally, the company operates out of 9 countries with 12 offices and a total of 300 professionals.

About goetzpartners

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Disclaimer

April 2016

This document is copyright-protected. Its reproduction, rental or any other form of distribution or publication – including in extract form – is subject to the consent of goetzpartners.The analyses and assumptions on which this publication is based were undertaken by the authors to the best of their knowledge and judgment. goetzpartners accept no liabilitywhatsoever for the accurateness of these analyses or assumptions. Where information was taken from public sources its accuracy and completeness was assumed without any furtherchecking. By its very nature, this publication does not take into account the specific circumstances of individual cases. This document can therefore not replace individual expert adviceor extensive research which should be undertaken by the third party.

www.goetzpartners.com

CONTACTPUBLISHERDr Wolfram RömhildManaging Director

wolfram.roemhild@goetzpartners.comT +49-89-290725-504

AUTHORDr Florian MesSenior Manager

florian.mes@goetzpartners.comT +49-89-290725-504

AUTHORDr Frank-Benjamin HeimManager

frank-benjamin.heim@goetzpartners.comT +49-89-290725-504

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