Large industrial firms are forming corporate venture units to fund and gain access to promising technologies from startup firms. According to research by Boston College management professor Thomas A. Chemmanur, such corporate venture capital (CVC) activity now accounts for 15% of overall venture capital investment.
A CV model gives a company a leg-up against the "not-invented-here" (NIH) syndrome -- the tendency to reject innovations coming from outside the firm. Even so, the transfer of intelligence and knowledge from the startup that's in the organizational fold to the mother enterprise is challenging.
Funded startups are often physically remote from the parent company's R&D and business units. Cultural differences between the startup and parent can be an obstacle to technology transfer. And even a corporate-funded new product can provoke the natural "immune response" against NIH technologies.
The best corporate venture units form organizational structures for engaging the parent company's business and R&D units, educating them about the new technologies and products being developed by their startups.
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A management consultant who worked within industrial giant 3M described in an interview how the company used him to build synergies across business units and expedite technology transfer and innovation initiatives:
"3M starts with a culture or a set of principles that says the business units own the market but says the company owns the technology."
"So the company might ask me to determine their overall capabilities in fire-retarding polymers. So I'd travel around the company to find people who are working on this and give the company an assessment of the capabilities."
"But at the same time, I've started building a network across the company around that technology and what the company is doing with it. Then you link these folks up electronically so they can work together on this stuff. If you're really good at that networking, then the technology really follows with the network."
Some organizations have even set up dedicated units and carefully designed organizational processes just to scout new technologies and integrate them into the fold.
The Central Intelligence Agency's venture unit, In-Q-Tel, includes a technology team made up of intelligence executives who understand the agency's workings and can foster technology adoption. For example, the unit has helped the CIA acquire technologies that were originally developed for detecting card-counters at casinos and adapt them to identify terrorists by their behavior.
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The British telecommunications giant BT Group plc has a team of Innovation Scouts who operate globally, meeting with technology companies, venture capital firms, and BT suppliers. Each year, the Innovation Scouts team reviews hundreds of new technologies and narrows its focus down to some 50 of the most promising startups. Then, it makes presentations to BT's R&D and product development units for evaluation.
To test out the most promising technologies, an Advanced Technology Center (ATC) works with internal development groups, prototyping and validating the new technologies and then moving them from "blue-sky" status to commercialization -- or killing them if they do not prove to be viable.
Do corporate venture units at big companies do a better job than traditional independent VCs (IVCs) at bringing new technologies and products to life? Chemmanur says yes, based on his research that found that, before their IPOs, CVC-backed startup firms produced 25% more patents than those backed by IVCs and 45% more post-IPO patents.
Al Bredenberg is a writer, analyst, consultant, and communicator. He writes about technology, design, innovation, management, and sustainable business, and specializes in investigating and explaining complex topics. He holds a master's degree in organization and management from Antioch University New England. He has served as an editor for print and online content and currently serves as senior analyst at the Institute for Innovation in Large Organizations.