Corporate Venture Capitalism!

BMW recently increased the size of its venture capital fund, BMW i Ventures, to 500 million euros ($530 million) from 100 million and also decided to move its location to Silicon Valley from New York. Given that the car industry, which was technologically more or less stagnant for several decades, is now buzzing with innovation with AI  integration, It is not surprising to see BMW put additional emphasis on exploration.

Large corporations often struggle to keep up with their constantly innovating and evolving Eco-system. That is a result of an inadvertent flaw that creeps in as building regorous internal checks & controls slows down their response time and kills the enthusiasm for innovation. 

A few years back, I supported a program in a large cap US-based defense contractor to encourage  innovation. I got an opportunity to work with a few of their brightest engineering brains. These engineers were encouraged to leverage some of the company’s cutting edge defense-oriented technology to create innovative “civilian” business models. It was my client’s hope that such an innovation-driven approach can build a hedge against its revenue dependence of Government’s defense budget. Indeed, most of the large corporations sit on idle Intellectual Property assets worth billions of dollars. Encouraging innovation around these IP assets through an internal venture capital program was almost a no-brainer.

There is another reason for large corporations to piggyback on “portfolio” businesses funded through a venture capital fund to explore innovative business ideas. Game theory teaches us that a resourceful leader (like a winner of a 10,000 meters race) does not have to lead from the gate go. Ideally, a market leader can closely follow the “interim leaders” and sprint to catch up and win at an opportune time. Following a venture capital route can help leaders to closely follow the innovative ideas without creating an undue dent to their profitability or reputation in case these innovations fail.

The key question relating to success or failure of any of these program revolves around the culture of the corporate venture capital leaders and their ability to recognize that their risk-averse bureaucracy-driven board room strategies do not work well in innovative ventures’ war rooms!