Corporate innovators who reject venture capital methods cripple themselves. Traditional project funding one-by-one creates extreme volatility and wastes money on failed bets that kill future innovation spending. Corporations need VC's portfolio approach to smooth risk and allocate resources across different risk profiles.
Chapters
I think the challenge for most corporate innovators is that when they talk about venture capital, especially in an enterprise setting, most execs greet it with a bit of an eye roll and talk about how that style of investing just doesn't work for corporates. But we've already seen the critical role that VC plays in helping early-stage new ideas to transform markets. And it's the continual interplay between the startup side and the capital side that effectively drives all of this growth. And great ideas don't get to market without VC. VC doesn't make money without great ideas getting to market. And so in short, without venture capital, the whole innovation system collapses. And in corporate innovation, if you don't have a team playing the role of investor, then unfortunately you're destined for failure. And for clients that haven't figured this out and are still fighting for funding in the traditional way, you know, idea by idea, business case by business case, what we tend to see is that there are 3 things going on. So you tend to see extremely large variations in terms of outcomes. You know, more innovation projects fail than succeed, right? You know, that is the nature of what we do. Our job as corporate innovators is to decrease the amount of risk that's involved in searching for those maybe 1 in 10, 1 in 100 winners. But it's exactly this variability that makes our outcomes just really difficult to predict. And what we see is that Without venture-style investing, too few projects are funded to smooth that volatility. We also see quite poor average results in these companies. So we hear time and time again about clients who, in their words, have had their fingers burned by an innovation project before where they've probably overinvested, you know, sometimes to the tune of multi-millions of dollars over years and years. And for organisations that have made that mistake, that's usually the only investment that they make, right? And that really negatively impacts the average outcome because they just don't invest in corporate innovation again. And the final thing that we see, which is kind of related, is really poor and quite inefficient resource allocation. So innovation projects have very different risk profiles, very different time horizons, very different success criteria from BAU projects. So they can't and shouldn't be funded in the same way. And if they are, then what we see is that this inefficient resource allocation just further exacerbates both the volatility issue and the outcomes issue. And for all of these reasons, I think that, you know, discarding the skills, the methodologies, the learnings of 80-odd years worth of venture investing is a huge mistake for corporates to make. Venture capital is way more than just a way of investing in other people's companies. It is an approach to asset allocation, to value creation that you need to embrace if you're going to win at corporate innovation.
