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Venturing to succeed

Corporate venturing reached a peak of popularity at the height of the dot-com boom. But that was only the latest in a series of ...

By Julian Birkinshaw , Rob van Basten Batenburg and Gordon Murray 01 December 2002

Corporate venturing reached a peak of popularity at the height of the dot-com boom. But that was only the latest in a series of popularity peaks for an idea that has been around for 40 years.
BusinessstrategyreviewIn spite of slipping out of corporate fashion, corporate venturing will return once again. The question is whether organisations will have learned the lessons in making the idea work.

Corporate venturing is the process of actively investing in small start-up businesses by large firms. Typically, corporate venturing is managed through a separate entity – a venture unit – which is given the responsibility of identifying suitable start-ups to invest in, adding value to those businesses, and deciding whether and when to exit them. There are many different types of venture units and often they end up performing several different functions. The common element, however, is that they all make active investments in start-up businesses.

Over the last two years we have spoken to executives in 50 venture units in eight different countries and gathered questionnaire data from a further 50. While many companies got out of corporate venturing altogether in the last couple of years, many others have persevered and a few have thrived. This article highlights the key factors that appear to separate the winners from the losers.

Before describing the results of our research, it is useful to provide some context on the phenomenon of corporate venturing.

Since the 1960s, corporate venturing has gone through three cycles. The first ended in 1973 with the oil price shock and the ensuing recession. The second began in the early 1980s and was fuelled by the growth of the computer and electronics sectors. It came to an end in the late 1980s (again because of recession). The third wave began during the great 1990s technology boom, and it peaked in 2000 before falling steeply. This latest wave was driven by a combination of new technologies (the Internet, microprocessors, telecommunications, biotechnology and so on) and also a bubble economy that made it seemingly possible to make very quick returns by investing in exciting new technologies.

In 2001 the total number of firms investing in corporate venture capital fell by about a quarter (with a further fall in 2002) but even during this downturn a number of new investing firms have also emerged. The total invested amounts have been estimated to be $7.6bn, based on 2001 investment figures gathered by Venture One. (See Figure 1)

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