The seven unpleasant truths in corporate venture building

Corporate venture building is a strategic approach wherein large organisations create and develop new businesses or ventures internally. This method combines the stability and resources of a corporation with the agility and innovation typically found in startups.

By leveraging the best of both worlds, corporate venture building aims to rapidly generate new revenue streams, enter new markets, and drive significant growth. The main advantage of this approach is that it uses the corporation’s existing assets, including capital, customer base, and market knowledge, to provide an “unfair advantage” over traditional startups.

However, despite its potential benefits, corporate venture building is fraught with challenges and complexities. It requires a careful balance of strategic vision, operational execution, and cultural alignment. Through our experience supporting numerous organisations globally in setting up and executing their venture building initiatives, we have learned valuable lessons.

Here are seven key truths and challenges that organisations must face head-on to succeed.

1. Is this a tactical exploration or a strategic commitment?

One of the first and most crucial decisions companies need to make is whether to approach venture building strategically or tactically.

Tactical exploration, on the other hand, involves experimenting with a few ventures without a comprehensive long-term strategy. While this can yield quick insights, it lacks the depth and potential impact of a strategic commitment.

A strategic commitment involves developing a portfolio of ventures, acknowledging that around 40% will fail, 40% will perform moderately, and 20% will hopefully return the total investment multiple times. This approach requires a clear long-term vision and recognition that some ventures might eventually outperform the core business. Companies must be prepared for this possibility and plan their objectives and strategies accordingly.

2. There are no rapid miracles

The journey to success in venture building is arduous and often slower than expected. Corporates frequently anticipate short-term results in revenue and profit, which is typically unrealistic for new ventures. Managing expectations is key. It is essential to communicate that venture building is a long-term investment that requires patience, resilience, and a willingness to navigate through periods of slow progress and setbacks before achieving significant milestones.

3. Unicorns are expensive to build

Once a strategic commitment is made, companies must be realistic about the operational and investment budgets required to build and grow ventures from scratch. Building a unicorn—a startup valued at over $1 billion—is an expensive endeavour. Global statistics indicate that the average funding size for unicorns is at least $100-300m, underscoring the need for deep financial resources. Companies must be prepared to allocate sufficient funds to support the growth and scalability of their ventures, understanding that this investment is necessary to achieve extraordinary returns.

4. You will need to let go of equity and control

Corporates often struggle with equity distribution, both for the founding team and the corporate venture building team within the organisation. It is crucial to closely align these teams’ incentives with the success of the ventures. This alignment often requires sharing equity and control, as well as bringing in other investors. Companies need to be willing to let go of some equity to attract top talent and external funding, or alternatively, be prepared to finance the growth entirely from their own resources. We typically recommend to reserve at least between 15-30% for the founding team and every external funding round will dilute the equity by another 15-25%. Sharing equity fosters a sense of ownership and commitment, driving the venture’s success.

5. It is better for the venture to be outside the corporation — but it still needs C-level buy-in

A common mistake corporates make is keeping venture building activities as an internal department within the organisation. This approach stifles the entrepreneurial spirit necessary for venture success. We recommend establishing venture building activities in a separate, external organisation to foster creativity and agility.

However, alignment with the corporate strategy must be maintained through strong governance and ideally a strong executive sponsor at the C-level or even board level. In fact, getting buy-in and taking the board on the journey could be a standalone bullet point.

There are very few corporate studios that have the full support of the board. But it’s a common theme of all the successful ones we can think of. The lack of board support is also a theme of many of the failures we have seen. This structure ensures that ventures benefit from both entrepreneurial freedom and strategic alignment.

6. You need a team with both internal employees and external entrepreneurs

Corporates often promote their good employees to lead venture building efforts, which can be beneficial but is not always sufficient. A strong mix of internal employees, who provide a link to internal resources, and experienced entrepreneurs, who bring the necessary skills and startup mindset, is essential. This blend of talent ensures that ventures have the operational support from within the organisation while benefiting from the agility and innovative thinking of seasoned entrepreneurs. Creating a balanced team increases the likelihood of venture success.

7. You will need to embrace failure

Corporates tend to fear failure, but in the world of venture building, failure is an integral part of the process. Some ventures will fail completely and should be terminated. Others might need to pivot to survive. The critical aspect is not to drag along a failing venture out of fear of failure. Accepting and learning from failures is crucial. It is better to fail fast and allocate resources to more promising ventures than to prolong the inevitable. Embracing failure as a learning opportunity is essential for long-term success in venture building.

Corporate venture building presents numerous challenges, but by understanding and addressing these seven unpleasant truths, companies can navigate this complex landscape more effectively. A strategic commitment, realistic expectations, adequate funding, equitable incentives, an external organisational setup, a balanced team, and a healthy acceptance of failure are all critical components of a successful venture building strategy. By embracing these principles, corporates can unlock the full potential of their ventures, driving innovation and growth in a sustainable manner.

Goran Buvac is head of venture building and a partner at Silicon Foundry, where he accelerates innovation for corporate partners and government entities.