Corporate venture building: is there a right way?
Big banks don’t have a great reputation for innovation. Could corporate venture building change that?
When it comes to innovation, big banks are in a bit of a bind.
Imitate the start-ups and you may end up on a regulator’s radar. Do nothing and wait for the challengers and fintechs to come eat your lunch. Spend a ton of money on an innovation lab and, well, we all know that story.
None of those options are particularly appealing, which is why venture builders are so promising. These companies take a problem an organisation is facing and build a start-up to solve it. In theory, they offer the best of all worlds: the start-ups get the resources they need to scale, banks get innovative new technology. Everybody wins.
At least, that’s how it should be. But in the corporate world, it doesn’t always shake out that way.
What is CVB?
To get a better sense of corporate venture building, we spoke to Gustavo Vinacua, Global Head of Venture Creation at BBVA’s New Digital Businesses. To say we’re impressed with BBVA is an understatement. By building new companies and redefining what an incumbent bank can do, they’ve won a slew of industry plaudits – including two 11:FS Pulse Awards.
Here’s how Gustavo defines corporate venture building:
‘It’s a way to leverage specific assets that let you mimic startups. Small teams are empowered to go and build something without friction or a ton of processes.’
Essentially, corporations pool their resources with a venture builder to oversee a new company. That organisation is run by an entrepreneurial team of internal and external staff. Ideally, the new company is given the freedom to build out a new product while the corporation and venture builder offer oversight and strategic guidance.
What isn’t CVB?
Looking for the next big idea that will disrupt your industry? Stay away from corporate venture building.
While Gustavo recommends venture building ‘if you find whitespace where no one is building anything, or at least you don’t see anyone able to solve it in the right way…’ he says this approach is less effective in areas where significant progress has already been made.
‘Instead of reinventing the wheel, you may prefer to do something with others who are already out there,’ he advises.
Ventures may be designed to create and capture value in a different way than the corporate does
Banks have thrown fortunes into labs and accelerators with the sole aim of imitating disruptors, and what do they have to show for it? A lot of innovation theatre and few meaningful outcomes for the business. Turning to corporate venture building as a way to achieve some vague notion of progress isn’t likely to offer different results.
Too often, banks try to be innovative without first understanding what needs to be innovated. Successful companies solve specific problems: if you’re not addressing a key issue facing your business, you’re probably wasting your time.
Corporate venture building only works if all parties involved are aligned on what they’re doing. That won’t happen if the new company’s mission statement is vague to the point of confusion.
How much control are you willing to give up?
So you’ve decided a start-up model based around smaller, more agile teams will help you make the most of your assets. Sounds like a good plan – unless of course you refuse to cede any meaningful power to those teams.
‘You have to make sure you’re happy with empowering a small team to go and do whatever they want to do,’ says Gustavo. ‘They have to be the ones taking that thing in one direction or another’.
It requires patience and conviction to learn and test that stuff without seeing the money coming in
Putting space between yourself and your new venture won’t just help them work faster. Gustavo notes that taking a minority stake in the firm can give the company more flexibility with regulators, while reducing the friction and headwinds coming from the corporate control framework. The goal is to hand over control in a way that works best for everyone.
'You need to be prepared to lose some control,’ Gustavo says. ‘But lose it in the right way so the team can bring the thing to the right place’.
We don’t know who first said that patience was a virtue, but we do know they’d probably be a natural at corporate venture building. Your start-ups might not be immediate successes – and even if they do pay dividends, you might not be able to recognise it.
‘Ventures may be designed to create and capture value in a different way than the corporate does,” Gustavo says. ‘For example, [they may build] an ecosystem play or create a user base and then monetise outside the typical money-for-goods or money-for-service exchange’.
Corporations need time to acclimatise themselves to new definitions of success. Failing to do so may mean missing out on innovation down the road. As Gustavo says, ‘it requires patience and conviction to learn and test that stuff without seeing the money coming in’.
Be prepared to walk away
Patience may be a virtue, but so is knowing when something’s just not working. ‘Corporates also struggle to understand failure in the right way,’ Gustavo observes. He suggests a more relaxed approach for underperforming ventures: ‘We’ve been learning, we’re not going to pursue this anymore, and there’s nothing wrong’.
There are also ways to minimise the risks of misfires. Again, taking a minority stake has its benefits; it allows you to learn from failed ventures without having to meet all of the investment needs.
‘Closing a venture, depending on the way you’ve built it and how closely it’s linked to the mothership, can be painful,’ Gustavo says. ‘You may have to follow a ton of specific procedures to wind a business down, something you may approach in a completely different way if you were a start-up not at all linked with a corporate."
Corporate venture building isn’t a sure thing; without a clear purpose, a willingness to surrender control and a way to measure success, results are far from guaranteed. But when done right, it can help corporations move faster and innovate better.
Want to know how to make incumbents agile? Take a listen to Fintech Insider’s live insights from BBVA Open Summit!