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!

Entrepreneurs, compute your odds of getting funded!

Light at the end of tunnel

A great read: Homebrew’s 1%: The VC Metrics Behind Investing in One of Every 100 Companies We Meet

This article gives a valuable under-the-hood look at typical investor’s “propensity to invest”. 3 key take-aways from this rare inside view are:

  1. 99 out of 100 opportunities evaluated are not funded!
  2. More than half of evaluated opportunities and 9 out of10 funded opportunities are ‘in-sourced’ – sourced from within the  close network of the investors.
  3. Less than half opportunities evaluated receive a chance to present their pitch in a meeting or a call and less than 2 out of 10 who get a chance to pitch get to the second meeting! So, if a founder of a new venture is meeting an investor for 2nd or 3rd time, she/he has already improved her/his chances of getting funded dramatically! Now, your chances to get an offer have improved from 1 out of 100 to 1 out of 7!

Of course, these are just the stats from one California-based investor. If you are in other less entrepreneurial-friendly parts of the world, the odds above would have to be discounted further. This article also does not state the typical time lag between identification of the opportunity and the ultimate offer. It is often long – sometimes more than a year! Time lag between the opportunity  identification and the offer is purposeful since it allows investors to observe if the venture is, in fact, making progress towards the end-goal.