Corporate venture building is growing up. Now the difficult questions begin

For decades, large companies have built new businesses from within. Some became household names — Toyota’s car business initially started as a sideline to its original weaving loom activities, AWS began as an internal initiative to solve Amazon’s own infrastructure problems, and PlayStation was an internal project that took Sony from an audio and video hardware maker into a games sector giant.

Many other internally built ventures and venture building programmes disappeared before ever becoming publicly known. Over the past few years, however, venture building has evolved from an ad hoc activity into a recognised corporate discipline, complete with dedicated teams, methodologies and growing executive support.

But creating a venture builder is easier than making one successful.

Many organisations now have corporate venture capital funds, incubators, venture studios and innovation labs sitting alongside one another, sometimes pursuing similar objectives without much coordination. During the years when capital was plentiful, that fragmentation was easier to tolerate. Boards were willing to invest in experimentation simply for learnings and to keep up with market trends.

Today, there is more of an expectation of results. Chief executives face slower growth, higher financing costs and mounting pressure to deliver measurable returns on every strategic investment. Innovation has not become less important—if anything, technologies such as artificial intelligence have made it more urgent—but it is expected to produce tangible commercial value rather than simply generate activity.

That means corporate venture building is shifting. The question is no longer whether companies should build new businesses, but how to do it systematically, efficiently and in a way that is tightly connected to the strategic priorities of the wider organisation.

That shift raises a series of questions that the industry has yet to answer.

1. Has AI fundamentally changed the economics of venture building?

Testing an idea for its commercial potential was previously an exercise that required multidisciplinary teams and a substantial length of time. Generative AI may be changing that.

Founders increasingly talk about building products with teams a fraction of the size that would have been required only two years ago. Coding assistants, AI-powered design tools, customer research agents and automated testing have compressed product development cycles dramatically.

For corporate venture builders this raises obvious questions. If validating ideas becomes significantly quicker and cheaper, should venture building teams become leaner? Or should the company experiment with far more concepts, killing the unsuccessful ones earlier?

A venture building study last year by McKinsey suggested that AI is becoming embedded in the venture building process, although it was most commonly used in enhancing workflow efficiency and improving product development, rather than in ideation and validation. A report by BCG X, the tech build and design unit of Boston Consulting Group, last year, describes using AI to speed up the creation of visual mock-ups and prototypes for a new product for financial advisors in days rather than weeks, reducing the time to market.

Our own venture building survey last year suggested most corporate venture builders work on just one or two ventures per year and are prepared to support these for two years or more, suggesting that there is room for AI to help companies take more bets, faster.

AI is undoubtedly already creating changes in the venture building model, but what remains unclear is to what extent corporate venture builders are redesigning their operations in response.

2. What does success actually look like?

Last year’s survey contained one finding that deserved more attention.

Rather than planning to spin ventures out as independent companies, many respondents expected successful ventures eventually to be absorbed back into the parent organisation.

Some corporate venture builders, such Bosch Business Innovation, which recently committed an additional €200m to a venture building fund, are explicitly looking to launch independent ventures.   

But these are the minority, with our survey suggesting that only 25% of companies build ventures to spin out.

The example of ADP Ventures, the company builder of human capital management solutions company ADP, is far more typical. The team creates new businesses that can be offered as part of ADP’s suite of services, rather than for scaling out, and leverages considerable internal development resources to achieve a fast pace of building.

Success in venture building, therefore, is not measured so much by external money raised or IPOs, but by new business revenues generated, new product launches and new strategic options created. Venture building is less about following a Silicon Valley narrative of unicorn creation and more like a nimbler R&D department — or a partnership with this team.

Venture building, therefore, should borrow less from Silicon Valley and startups for its success vocabulary and develop its own.

3. Are venture builders and CVCs learning to work together?

Corporations have used multiple innovation tools over the year — accelerators, innovation labs, venture studios, incubators and corporate venture capital. Sometimes these efforts have been sequential, an attempt to find the right innovation tool. Sometimes these innovation capacities have all run at the same time but reporting to different people with little co-ordination.

The more interesting companies are beginning to treat venture building and venture investing as complementary rather than competing approaches. Siemens New Energy Ventures, for example, under Kendra Rauschenberger coordinates venture building work run by Enrique Gonzalez Zanetich closely with the investment side. There is a similar set-up with TDK Ventures.

Investment scouting often identifies market gaps and helps bring a more informed approach to venture building opportunities. The corporate investment arm also brings a market discipline to internally built ventures. When TechEnergy Ventures embarked on building methane pyrolysis startup Tulum Energy, the team came from an investment background and vetted the project at every stage against an alternative of simply investing in an external startup in the same sector.    

Getting synergies between venture building and venture investment feels like one of the big shifts in the industry right now and understanding how to create and maximise these relationships is critical for getting better results.

To explore this synergy further GCV will run a webinar on August 19 — How venture builders and CVCs can collaborate to maximise impact —  with an expert panel including Axel Deniz, CEO at Bosch Business Innovations, Jim Adler, founder and general partner at Toyota Ventures and Ralph Wilson, global ventures lead at Arup. Sign up here to join the webinar live or receive the free replay.

4. Can the industry finally agree on what “good” looks like?

Corporate venture capital has developed benchmarks over the past decade, but venture building has yet to develop the same kind of share knowledge base.

Executives still struggle to answer basic questions around team and programme size, investment commitment, timings and how many failures are within the boundaries of acceptability.

A venture builder proposing a new programme would still struggle to suggest realistic key performance indicators, especially as metrics vary considerably between different industries.

Overall, our survey found that a majority (65%) of corporate venture building programmes intend to spend less than $1m supporting each internal venture over its lifetime, but this number varied hugely across industries. In hardware-heavy sectors like energy a majority of respondents were spending this amount or more, while financial services sector ventures were much cheaper to build, with a majority spending under $500,000. Operating model and staffing structure add further nuance to the cost-benefit analysis.

Yet corporate CEOs are becoming more insistent that innovation programmes deliver measurable impact, which makes benchmarking far more valuable than it was even two years ago.

Corporate venture building is entering a more demanding phase, moving away from simple experimentation. There is a need to understand which operating models consistently produce commercial results.

Last year’s Global Venture Building survey provided one of the sector’s first comprehensive benchmarks. This year’s survey aims to build on that work by tracking how programmes are evolving, what strategic outcomes they are delivering and how the relationship between venture builders and corporate venture capital is changing. If your company has a venture building programme, please take a moment to take part in this effort. These answers matter not only to individual organisations but also to the maturation of the wider ecosystem.