Cencosud Ventures: Why corporate VCs should be customers of startups

The problem with venture clienting, according to José “Pepe” Pascual, head of Cencosud Ventures – the corporate VC arm of Chilean retailer Cencosud – has always been that the collaborations between the startup and the corporate too often don’t end up scaling, and are focused more on the number of pilots being carried out rather than having a real impact.

“ From the side of the startup, there was this big pitfall that they were kind of tired, that they have pilot fatigue; saying, look, I’ve been piloting with many corporations, and everything stops there – what’s next? I don’t care about the pilot, I just want to scale in your corporation,” says Pascual on the CVC Unplugged podcast.

Venture clienting, as it’s traditionally known, involves the corporate becoming a customer of the startup, giving it immediate revenue. While the corporate does not make a direct investment in the startup, it still benefits from its technology.

Last year, Pascual wrote a Linkedin post detailing the new approach the team was taking, one in which the CVC unit itself would become a startup’s customer to help bridge the gap to working with the corporation.

Typically, anything series B or above would be ready for venture clienting, says Pascual, but efforts to scale in a corporate after a pilot can often be hamstrung by a range of factors, including agreeing on the right price for the solution, getting internal champions to see them through, getting budget, prioritising startup integration amid other corporate objectives and more.

Venture clienting is what Pascual calls “hipster procurement”, like a regular procurement process but cooler – and what the future of corporate procurement should look like.

Taking on the risk

Cencosud Ventures’ solution to the problem was to insert itself as the middleman. Where there was space between a startup and the corporate, the team would act as a bridge that tries to understand where both sides misunderstood the other. Crucially, the unit itself would not only link startup and corporate – as venture clienting models typically do – but directly become a customer for the startup, thereby providing it with revenue during its piloting phase while also acting as an active design partner for its offering.

“We started to be the bridge between both of them and we say, okay, you are not corporation, you are not comfortable with the pricing model. Let’s use the service, and in the meantime we’re going to develop a new business model together.”

The aim is to have a space for the startup to develop its business model in a way that doesn’t have the corporate itself assuming any risk, which is taken by the venture unit instead.  For a few months, it will be the investment unit paying the price for the pilot and the expenditures for the technology’s integration into the corporate.

“ We start understanding that those two worlds have different incentives. The startup wants big tickets after the pilot –  they want to have big revenue from this corporation, hopefully in a contract for 10 years,” he says “And in our case, our corporation, our business units wanted the lowest price possible, hopefully paying at the end of the year and maybe for a contract of few months, right? It’s completely the opposite.”

Up until last year, the unit had a dedicated part of its budget – somewhere north of a half-million dollars – to support its venture clienting efforts. Now, with the venture unit having been put at the forefront of decision-making for innovation at the corporate level, each business unit gets a line of budget to try out new pilots, which the venturing team can choose to approve.   

For Cencosud Ventures, the process is typically split into two parts – three months for the pilot itself, after which there is an assessment of the learnings, and if the determination is made that the corporate wants to bring the solution in, another three months start for onboarding.

“ We have done this process a lot, and it’s really hard for the startup to understand that the better you design the onboarding and you execute the onboarding, the less problems you will have in the future,” says Pascual.

“And that means procurement teams introduction, evangelisation of the opportunity and the product that you are sponsoring to the whole company, introducing the key stakeholders to the founders.”

The extent to which the model can serve as a blueprint for other corporates depends on a number of things, including the extent to which business unit leaders are able to innovate in a corporate. Many of them, says Pascual, will say they can innovate, but then they might say they can’t innovate alongside a startup. 

“ I do believe that if you don’t have a corporate venturing unit, this is going to be really difficult,” he says.