Designing Corporate Ventures (Cv) in the Shadow of Private Venture Capital (Vc)

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Designing Corporate Ventures (CV) in the Shadow of Private Venture Capital (VC) Henry Chesborough

Peter Drucker: Search for innovation needs to be put into seperate organizational components (outside of the ongoing managerial business) in order to stimulate greater innovation and generate additional business growth.

But these attemps have only met temporary succes (pattern of cycle: enthusiasm, implementation, difficulties and termination). Therefore the methods of structuring the corporate venturing have changed and utilizes more VC structures to motivate employees to become more entrepreneurial and take more risks.

Example A: Exxon (1970s)
Two-fold corporate venturing programm:
1) external financial investments (VC in external start-up companies) and afterwards 2) Internal ventures (special unit inside Exxon to commerzialize the most promising areas identified through its external investment programms) Result: VC performed very well in financial terms, while those of internal ventures were much lower.

Why CV: use private equitiy investing to identify promising growth areas in markets near those of the corporation and then leverage the parent company’s business. Because of the rise and success of VC, today’s CV must be designed with VC structures.

Previsous Research on Corporate Venturing
- Von Hippel: when parent firm had significant prior experience in that market, the new venture was much more likely to succeed. Moreover best performing ventures went off on their own. - Norman Fast: succesful “new venuture divisions” in CV were perceived as threatening to established businesses in the parent firm - Kenneth Rind: Conflicts of interest can arise when venture unit is serving a market already served by the parent firm (venture unit might constrain marketing options) and problems of governance. - Block and Ornati: Most companies do not compensate venture managers any differently from their other managers in order to maintain...
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