Corporate Venturing: Creating New Businesses Within the Firm

Topics: Venture capital, Investment, Dot-com bubble Pages: 6 (1990 words) Published: August 29, 2011
In a world which innovators are kings, interest in internal corporate ventures has grown tremendously. In my literature review, I would like to share my insights from reading the book titled “Corporate venturing: creating new businesses within the firm” by Zenas Block and Ian C. MacMillan. In this book, the authors shared their views on the importance of corporate venturing especially in this competitive global economy. Also, other aspects of venturing like the management, organisation and control of the ventures are also covered in great detail. However, much focus will be placed on the imminent need for corporate ventures and also issues like what determines the new venture success. I would also discuss the difficulties faced by managers in ventures as after all; venturing is not as simple as one would like it to be. In the later part of my review, I would also provide some evaluations in relation to this topic. What is a corporate venture?

We consider a project a venture when it:
Involves an activity new to the organisation
Is initiated or conducted internally
Involves significantly higher risk of failure or large losses than the organisation’s base business •Is characterised by greater uncertainty then the base business •Is undertaken for the purpose of increasing sales, profits, productivity or quality •Will be managed separately at some point during its life (Block & Macmillan, 1993)

In essence, it is a practice where a large firm takes an equity stake in a small but innovative or specialist firm, to which it may also provide management and marketing expertise. The objective of such venture is to be able to gain a specific competitive advantage. It is very important to be able to distinguish between is a corporate venture and an extension of a normal business activity as even till today, there are many misinterpretations of what entails a venture. Hence, I see the importance of being able to understand what a corporate venture is.

Corporate venture: the growing phenomenon
There have been a growing number of large companies creating business development organisations aimed at leveraging their IP portfolio through external licensing and/or partnerships. There are many successful examples of companies that enjoy high growth from new ventures including renowned companies like Nokia. Nokia adopted a very interesting corporate venturing approach for finding innovation. They moved beyond “not invented here” and are now embracing the idea of “finding the best ideas where ever they are”. Nokia Venturing Organisation is focused on corporate venturing activities that include identifying and developing new businesses. They introduced it as “the renewal of Nokia”. Nokia Venture Partners invest exclusively in mobile and IP related start-up businesses and they have a third group called Innovent that directly provides support and nurtures innovators in hope of creating vast future opportunities for Nokia (Docherty, 2004). It is the very fact that venture capital and opportunities is the essential tool available for companies to increase their innovativeness, quoting Wharton management professor Gary Dushnitsky and thus be able to develop a competitive edge in the economy. In another paper “When does venture capital investment create firm value,” by Dushinitsky and Lenox, they present the evidence that corporate venture capital investment is associated with the creation of firm value which goes beyond narrow financial returns and capture both the financial returns and the strategic benefits. Furthermore, in some researches, through the use of databases of hundreds of companies, the researchers compared companies that invested in venture capital and those that did not. They found that the greater the amount of corporate venture capital invested, the greater is the innovation rate of the investing company, measured by either the number of patents generated or by the citation-weighted patents...

References: Ewing Marion Kauffman Foundation (2011): Right sizing the US venture capital industry
Kenneth Liss (2000), Harvard business school: Corporate Venturing: Entrepreneurship on the Inside
Leena Rao (2010), Study: U.S
Mike Docherty(2004), weblog:
Robert A. Burgelman and Liisa Välikangas (2005), Managing Internal Corporate Venturing Cycles
Zenas Block & Ian C.MacMillan (1995), Corporate Venturing: Creating new Businesses within the Firm
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