Four critical failure points in venture building (and how to avoid them)

Corporate venture building — creating startups inside a company — is becoming an increasingly popular innovation tool alongside VC investment. But corporates embarking on these projects often struggle to find a successful methodology.

Companies often sow the seeds of their failure at the very beginning of the process, by not appropriately defining what their goal is, says Elliot Parker, CEO at venture co-creation firm Alloy Partners. A clear understanding of whether the startup is best suited to be spun out of the company or remain within the group as a new business unit is a key decision, which goes on to determine structure, staffing, governance and funding.

Parker joined Paul Myer, CEO of Athian, an agritech software startup that originated inside animal health company Elanco, and Tom Schneider, lead venture artictect at logistics company DSV, on the latest webinar in GCV’s The Next Wave series to discuss common failure points in venture building and how to fix them.

Here are 4 lessons from the discussion:

1. Decide if the venture is addressing a learning or an execution challenge

Most corporate venture building is aimed at building business ideas that will stay within the parent organisation. According to GCV’s recent survey on corporate venture building, only 25% of corporate-built startups are expected to spin out with only minority ownership retained by the parent company.

Alloy’s Parker focuses exclusively on helping companies build those startups that are destined to be independent entities. He has a good way of determining which ventures should be run externally to the corporate structure: ask if it is addressing a an execution challenge or a learning challenge.

“Corporations are optimised for execution. They’re really good at executing in a capital-efficient way. If you’ve got a problem where you know what the problem is, you know what you need to do, you just need to go do it, a corporation is going to beat a startup all day long,” he says

“On the other hand, if it’s a learning problem, where you know what the problem is, you’re not quite sure how to proceed, it’s ambiguous, you’re not quite sure what the solution is going to be, it’s going to require trying things and learning and likely making mistakes that are capital inefficient – a startup is going to beat the big corporation at those types of problems every day.”

The feeling was echoed by Paul Meyer, CEO of Athian, a startup providing a carbon marketplace for the livestock industry. “If you’re trying to do something that hasn’t been done before, you’re trying to create a new category. Sometimes that’s something that’s best left to an external venture. Traditionally, a lot of the large corporates that I’ve worked for historically, they don’t necessarily have the incentive structure in place to effectively build a spin out,” says Meyer.

Tom Schneider, lead venture architect at DSV, pointed out that one of the challenges here lies in  how corporates tend to not be great at validating ideas before throwing a lot of money at them. Too often they have been impressed by startup success stories they read in the news and want to build an internal venture to complement the core business, rather than change the way the core does things.

“[Corporates] are scared of addressing other customers with new products because they are scared that the core business could suffer. They are scared of using new technology, because they are scared that their IT infrastructure could be infected by a bad player from the outside,” he says.  

2. Bring in external people, even for internally-focused venture

“We had a great idea when we started this company, but it was truly bringing in the right team to execute against that original vision,” says Myer, pointing to the example of figuring out early on that they would need to bring in fintech expertise, something that was not obvious from the very beginning.

Hiring externally was the preferred route, as it tends to be harder to find within the corporate people with the profile to work in a startup.

Schneider describes how, during his time at Schenker Ventures before it was acquired by DSV, they found that bringing in people from within the company was good when you needed subject matter experts, but they didn’t always end up being good executors in a startup environment. In the absence of startup-like incentive structures, internal hires would not tend to be the type of people who will stay up late on a Friday working their way through a cold-call list because they needed to close a deal.

When they were told the compensation was uncertain, and based on the value of shares that may one day be valuable, many would jump ship, he say. He would end up scouting a lot of talent from the corporate training programmes that had a lot of hungry junior people, and feed them straight into the entrepreneurship track so as to bypass the higher paying, “golden cage” corporate roles.

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3. Corporate ownership must be capped at 20% when spinning out a venture

Building a multi-billion-dollar revenue company might need a billion dollars in investment over the next few years, and a single corporate is unlikely to be willing to put in that much money. Co-investors will need to be brought in, and they will not be willing to invest if the parent corporation owns too large a stake.

“If a corporation owns more than 15 to 20% in these companies [at the seed or first round of capital], other investors aren’t going to come in,” says Parker.

While that may be a tough pill to swallow for a corporate that feels entitled to more of something it created, wanting too much can suffocate it.

“The greed is always bigger than the commitment,” says Schneider, describing a scenario where the corporate may get bullish and want more once it sees that a venture could hit it big, but then backs off when it realises the scale of the required commitment, at which point the cap table is already unattractive for future investors.

For Myer, having a player like Alloy as a go-between with its parent company Elanco was a big boon in this aspect.

“Having a third party that is advocating for both sides was incredibly valuable, especially in the legal structure that we set up initially. We’re three-and-a-half years into that structure today, and I’m able to raise capital because of that structure and in previous ventures, by the time I got to series A, I no longer had a capital structure that would enable me to attract additional investors,” he says.

4. Make sure there is a genuine corporate advantage

Having a built-in advantage is so crucial for a corporate-built venture, that if one can’t be articulated, Parker says they will not launch it. Whether it’s having the corporate be it’s first customer, or have some other agreement in place, having that first step head-start is paramount to de-risking the company and have it hit the ground running.

The panellists also agreed that while direct returns are, of course, great, it is in the indirect returns – the new markets opened up, new efficiencies or new revenue streams –  that the real value lies.

Watch the full webinar session:

Q&A

Below are some of the audience questions answered by panellists via the Q&A function during the webinar:

Q: Surely markets can be validated and products enhanced by data sheet engineering? 

Elliot Parker:

For sure. But at the same time, for things no one has done before, nothing beats action. There is no data about the future. The only way to get data about the future is to create it, and you create it by taking action. Action creates data. 

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Q: For big corporations, the hardest thing is changing the mindset of the people and the company culture, to move faster and be “OK” with making mistakes, taking risks, etc. How would resolve challenges like these? 

Tom Schneider:

Good question. We mainly do two things: Keep the early-stage investments low and generate as much knowledge as possible. Knowledge cannot be wrong, so there cannot be punishment for creating important knowledge for the company. Then we try to get as fast as possible to first revenue and building our first customer base. As soon as you can show traction & revenue (even if it’s small) people start listening or (in the worst case) just let you do things. 

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Q: I led our last corporate venture build (wholly-owned subsidiary). We had a board member on the corporate board (including comp committee) who suggested the loss of morale from having some employees on a startup with different incentive structure compared to everyday learning wasn’t worth setting up those structures. 

Elliot Parker:

Depends on what you’re optimising for! 

It’s important to get the incentives right on both ends of the spectrum. If the venture works, the team should be handsomely rewarded. But if the venture fails, it should fail…no “give this a shot and if it doesn’t work you still have a job here.” The neutering of incentives at both ends of the spectrum also neuters the variability of results. In a venture portfolio you want wild results. Magnitude of correctness matters more than frequency of correctness. Incentivise for magnitude of correctness—meaning there’s no safety net for failure. That is appealing to the right kind of talent. 

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Q: Looking across your portfolios, which sectors or technologies are showing genuine venture-building traction right now — not just funding noise? And what does that tell you about where corporate venturing is heading in 2026? 

Elliot Parker:

We’re particularly excited right now about energy, healthcare, and industrials, but we’re building startups across many sectors. There is opportunity everywhere. No better time in history to start companies than now! 

Tom Schneider:

Agree with Elliott. What I see is that companies that own a lot of “textified” knowledge are trying to leverage LLM-based technologies to find new revenue streams or other ways of delivering their knowledge to the markets.  

I would add supply chain to the mix 😉 

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Q: We are running into a challenge in raising a Series A with a external venture from two corporates (50/50) on the cap table. $10M in revenue, getting good logos, but set up as LLC. The US venture community is afraid of the non-traditional-founder-based startup. 

Elliot Parker:

Yeah, that’s rough. To raise outside capital, the venture’s going to likely require a significant reset of the cap table, and likely the valuation too. 

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Q: What are the advantages and disadvantages of having internal employees vs. external talent built a startup with a certain corporate?

Elliot Parker:

We’ve had success with both. Depends on the nature of the startup and the required experience for the founding team. But we highly value entrepreneurs who have “done it before.” Our average CEO is a multiple-time founder with a proven ability to raise capital, lead a team, sell, run through walls, etc. They view our collaborative model as a way to go faster. The risk with internal employees is that they don’t have a proven track record for the things a startup requires, even if they’ve built new things inside a company. It’s so different, so having them run the venture requires a leap of faith. 

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Q: One of the key lessons learnt from VC and finance 101, is that doing 1-2 ventures can easily fail, but creating a portfolio actually diversifies risk and also ensures actual outcomes. How many corporates, in your view, are truly open to building 15-25 ventures over 4-5 years ? 

Tom Schneider:

I only worked for corporates that were willing to go with 10-12 ventures in three years. It is a little bit the issue with the portfolio approach. If you are not fully committed and cannot prove with your first 10 ideas that you can gain significant traction, most of the corporates will decommission the venture approach quite fast. 

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This webinar is part of GCV’s The Next Wave series of webinars. We run a webinar every month, alternating between advice for CVC practitioners and deep dives into specific investment areas.

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