DRIVING INNOVATION BY CORPORATE VENTURING: HOW TO MASTER GOVERNANCE AND CULTURE CHALLENGES Selfy andreany By: Joachim Von Heimburg

In cases BASF, the globally leading chemical company, has invested about € 150 millions in 23 ventures via their corporate venturing arm (BASF Venture Capital GmbH) since its creation in 2001

Evonik, another innovation focused chemical company recently announced to further strengthen its innovation capacity by establishing a corporate venturing unit within its Innovation Management organization. Evonik plans to invest a total of up to €100 million over the medium term in highly promising start-ups and leading specialist venture capital funds Continuance…

D.F. Kuratko et al., 2009  In a survey amongst executives from companies active in corporate venturing, only 37% rated their corporate venturing units as successful  At the same time venture capital funds continue to harvest nice returns on their investments and grew into a significant provider of new technologies and business models

two comments often made by capital venture funds capital venture funds

“von Heimburg” argues: “the key challenges evolve around the pre- exisisting governance processes, and culture elements within big corporations as they did not come to life with the overarching objective of making corporate venturing successful”

The following governance vectors have proven to be most impactful on success or failure of corporate ventures: 1. Who ‘owns’ the money financing the corporate venture fund? 2. Who calls the shots? 3. How to ensure appropriate controls? 4. How to manage expectations?

Who ‘owns’ the money financing the corporate venture fund?  CFO, it typically is seen as capital money, success is measured predominantly on return on investment  CTO, it is often seen as a corporate expense in the same way as the R&D budget. This typically maximizes its strategic utilization for creating new options for the company but may prove costly if the ‘burn factor’ is too high  CEO, he typically leans one or the other way. However, there is also the danger that corporate ventures become the ‘sand box’ of the CEO where he can play entrepreneur

Who calls the shots? It helps to be very clear from the get- go on differentiating between who takes investment decisions and who merely concurs, mostly on executional and compliance aspects

How to ensure appropriate controls? Therefore it is important to define the rules of engagement upfront which are endorsed by the key company leaders (CEO/CFO/CTO). Also some employees involved in corporate venturing may need special training – corporate venturing is a game very different from the core business of most companies!

How to manage expectations? Managing expectations requires mastering the communication challenge of speaking to the hearts and minds of management simultaneously

How to deal with those challenges? What can and should be done? Top Management needs to assess whether the venturing process is working as intended and the expectations of the organization, most importantly of the business groups and of Top Management are aligned, and realistic for the venturing group to meet