Companies in the automotive value chain are faced with a challenging future. While reporting record quarterly sales, they are also witnessing two alarming trends. Because of problems such as pollution, climate change and loss of productivity due to long commute times, consumer attitudes towards car ownership and use are changing. In the medium and long term, i.e., the next 5-30 years, these changes have a high probability to negatively impact automakers, their suppliers and their dealers, along with insurance companies, finance companies, and many other industries that are part of the automotive value chain. In addition, there is a growing consumer interest in electric cars (to address the pollution and climate change problems) and in self-driving, or autonomous, cars (to address the productivity problem, as well as a slew of other issues such reduced accidents and mobility for the elderly and handicapped). The success of Tesla Motors, Zipcar and Uber, the growing consumer anticipation of Google’s self-driving cars entering broader service, as well as Apple’s anticipated entry in the car business are exerting additional pressure on the automotive value chain to change the way it innovates. In this blog I explore what the automotive industry has been doing to address the potential disruption, analyze the effects of these initial steps, and provide recommendations on what corporations could be doing better.
Culture defines every company regardless of whether it is an early stage startup or a global enterprise. It influences behavior, and for this reason, culture is a very important issue for corporate innovation. Many corporate innovation initiatives failed because the corporations driving them lacked innovation culture or innovation DNA.
Based on my experience from the startups I built as an entrepreneur and the ones I funded over the past 15 years as a VC, I always claim that a company’s culture is defined by the first 10 employees, starting with the startup’s founders. Corporate culture is driven by leadership (and here); is based on performance management; and can only be achieved if there exists a common vocabulary among the individuals that live it.
In the last two years I have spoken to many business, technology, and corporate venture executives about their companies’ innovation goals and the initiatives they establish to address these goals. Several of these leaders are involved in the automotive industry and through our conversations I have concluded that a) in the next 10 years we will create more innovations that will impact the automotive industry than we have created in the previous 100, b) these innovations will be embraced because of certain important problems that must be addressed and will couple technology with other forms of innovation, c) because of the disruptive innovations that were introduced to the market in the last 3-4 years, and the ones that will be introduced in the near future, particularly those relating to the electric-autonomous-connected car, the automotive industry is approaching a tipping point of disruption.
In this post I review the two value chains that have been built around the automobile, discuss the societal problems that must be addressed and how the technology and business model innovations being developed to address these problems are disrupting the automotive industry. I also present companies that are pioneering these innovations while offering fresh visions on personal transportation.
In the previous post I introduced a five-dimensional framework to employ while setting up a corporate venture group and discussed in detail two of its dimensions: strategy and people. The corporation must establish a long-term strategy for its venture group. As part of this strategy it must create a set of objectives, formulate an investment thesis, decide on the stage of the target investments, the life of each fund, and the amount per investment. Recognizing that venture investing is a peoples business, the CVC must pay particular attention in hiring well. A CVC group may have up to six different teams depending on the scope of its activities and overall strategy. Next I will present the three additional dimensions: the incentives to offer to the members of the corporate venture group, generating the right deal flow to achieve the group’s strategy and satisfy its investment theses, and guidelines for the CVC group’s governance.
In the first part of the series on corporate venture capital I explored how the disruption of institutional VCs (IVCs) and the imperative for corporations to innovate provide an opportunity to corporate VCs (CVCs) to make their mark in the startup ecosystem and be viewed as viable and valuable financing sources to private companies. In the second part I provided more context on CVCs by presenting a brief history of corporate venture capital, and detailing the characteristics of CVCs during the dot-com period and today. In this blog I discuss when corporations should be establishing venture funds, I introduce a framework for creating venture funds and discuss two of the dimensions in this framework.
I started writing these posts with the hypothesis that in their effort to innovate, corporations must re-invent the traditional R&D model with one that augments the R&D efforts with venture investments, acquisitions, strategic partnerships and startup incubation. Corporate VCs (CVCs) are expected to play a big role in this innovation quest. It is assumed that a CVC can move faster, more flexibly, and more cheaply than traditional R&D to help a corporation respond to changes in technologies and business models. With that in mind corporations are establishing such groups in record numbers, including corporations from industries that have not traditionally worked with venture capital. Corporations have been providing their venture organizations with significant size funds to manage, and expect them to invest in companies of various stages and geographies. Today’s CVC prominence can result in many advantages for entrepreneurs and co-investment partners but also carries risks, many of which are due to the way CVCs are set up and operate within the broader corporate structure. In the last blog I examined how the disruption of institutional VCs (IVCs) can impact corporate VCs. In this blog I start taking an in-depth look of corporate VCs. I will examine the different types of corporate VCs, compare the characteristics of today’s corporate venture groups to the characteristics such groups had in the late ‘90s, and describe the areas where CVCs must focus on in order to succeed. In the next blog I will provide some ideas on how to best set up a CVC organization based on my work with such organizations to date.
A large corporation recently requested my advice on how to set up and structure their venture fund, which they wanted to base in Silicon Valley. This corporation had initially set up a venture fund in the late ‘90s to invest in Internet startups. By 2002 they closed down the fund after determining that its portfolio companies had lost their financial value and had created little intellectual property of interest. But the startup activity of the last four years and the disruptions startups are causing in the company’s industry is leading it to re-establish its fund. This example, and many other similar ones, demonstrates a recurring theme of the past three years: corporations from a variety of industries are establishing, or re-establishing, venture funds in Silicon Valley, and other innovation clusters, and are aggressively participating in startup financing rounds. According to Global Corporate Venturing today 1100 corporations have active venture funds. The number of funds has doubled since 2009 and 475 of which have been established since 2010. VentureSource reported that corporate venture capital firms (CVCs) invested $5 billion during 1H14, a jump of about 45% from a year earlier and the highest level since the dot-com era. The emergence of corporate venture capital as a major source of startup funding has been the result of two factors, the first accidental and the second intentional. First, because institutional venture capital is being disrupted, corporate venture capital is able to fill some of the void that is created and emerge as an important startup-financing source. Second, as was previously discussed, corporations intend to access externally developed disruptive innovations by participating in the financing of startups. This blog examines what CVCs need to understand about the institutional venture capital disruption in order to best capitalize on the opportunities it will create. In the next blog I will explore how to best set up a CVC organization so that it can provide the corporation with impactful, over the horizon visibility to technologies, business models and startups that can help it achieve its innovation goals while becoming a trusted and value-added partner to entrepreneurs.
In my last post I wrote about corporate incubation/acceleration models, presenting four distinct ones, discussed how to start one of these organizations, and how to increase the value derived from them. In this blog I provide additional details on the topic by:
- Presenting the criteria and guidelines a corporation should use to start an incubator or accelerator. This is particularly appropriate for corporations that are thinking about starting an incubator or accelerator, or have just started one,
- Discussing what the corporation could do with successfully incubated projects, e.g., whether to integrate them to a business unit, or let them operate independently. This is particularly appropriate for corporations that have started an incubator or accelerator and now considering how to be utilize the incubated efforts.
This is a long post, not unlike the previous one. I felt that it was important to provide a comprehensive view on corporate incubators and accelerators with two posts rather than creating a longer series, even though I recognize that the approach may tax at least some of the readers. For this I apologize in advance.
Corporations are establishing incubators, e.g., Samsung, and accelerators, e.g., Orange, in order to advance their disruptive innovation initiatives. They are doing so on their own, e.g., Samsung, Swisscom, or in partnership with independent accelerators, e.g., Disney, Microsoft, and Barclays have partnered with Techstars. The terms “incubator” and “accelerator” are frequently used interchangeably to denote an organization that aims at helping very early stage startups, or even just teams in the process of considering the creation of a startup, get off the ground successfully. They do that typically in exchange for a small equity percentage in each startup. This blog addresses the role of corporate incubators and accelerators in disruptive innovation, rather than the general topic of startup incubation that has been covered extensively elsewhere. It presents:
- Four different corporate incubation/acceleration models.
- The steps necessary for establishing and maintaining one of these organizations.
- A process to help corporations increase the value and success rate they derive from their incubation/acceleration initiatives.
The business models of large corporations are being disrupted faster than ever before, e.g., Netflix is disrupting the video distribution industry, while new lucrative markets being created by innovative startups, e.g., Uber, Nest, and SpaceX. As a result of these developments, corporations are starting to realize they will need to re-invent their disruptive innovation model. We have proposed a new model that brings together corporate venturing, intrapreneurship, corporate development and business development. In order to determine whether they can successfully achieve their disruptive innovation goals, corporations will also need to find a way to measure their track record under this model. For this reason they must identify the right Key Performance Indicators (KPIs), which I call innovation-KPIs, to distinguish them from execution-KPIs. Silicon Valley’s ecosystem, particularly VCs, can play a key role in the innovation model’s re-invention and offer best practices for relevant innovation-KPIs.
Corporations from industries as diverse as agriculture, manufacturing, logistics retail and financial services are being disrupted at an unprecedented rate by a variety of innovations. From technological breakthroughs in cloud computing and big data analytics to disruptions like crowdfunding and social engagement, most of these innovations are created by startups, including many that are based in Silicon Valley. As corporations attempt to address the implications of these disruptions and become more innovative, they are trying to determine how to interact with and benefit from the startup ecosystems creating these innovations. In this series of posts I will present and discuss a new model for corporations to use as they consider disruptive innovation. The model is very much influenced from my experiences over the past 25 years in Silicon Valley as an entrepreneur, startup and large company executive, and investor, as well as by the interactions on this topic I had with over 100 corporations over the past three years.