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Corporate Venturing: collaboration with small companies, innovators and specialists


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Corporate Venturing: the collaboration between large and small companies

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"corporate venturing" is the practice whereby large corporations systematically collaborate with small, albeit innovative and specialised, companies. Until now, the usual mode of collaboration has been investment or equity participation, but a multitude of other tools have been developed to establish agreements or "joint ventures" that do not require large volumes of investment. The aim of such collaboration is for both to acquire specific competitive advantages such as market access for start-ups or the incorporation of talent for corporations.

Digital transformation has given rise to a new generation of startups. Due to their youth, having emerged in the midst of the technological era, startups are characterised by their digital and innovative nature, which makes them important sources of innovation on which large corporations can collaborate.

Startups are proving that they have greater capacity for agile execution, adapting to change and managing chaos in the digital environment. This characteristic means that they are transforming the business fabric, driving digitalisation processes.

The technologies that startups are working with are attracting the attention of companies, which have detected a great opportunity to establish synergies and nurture themselves with these technologies. This is done through corporate venturing.

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Objectives and advantages of Corporate Venturing

This collaboration is due to the fact that each has different qualities and when the two come together, they complement each other. In the following graph we can see the strengths (bold) and weaknesses (blue) of both corporations and start-ups.

Corporate Venturing: collaboration with small companies, innovators and specialists

A good start-up ecosystem proves better at shortening innovation cycles, exploiting technology, improving existing business models and inventing new ones faster and more effectively than large corporations. A company will be better positioned to move ahead of its competitors in the marketplace, facilitating profitable growth and superior performance.

Early-stage high-growth companies should benefit from the support of larger, more experienced companies that help them with valuable resources, better sales and supply chain opportunities in exchange for their creativity and ideas. This makes a big difference for start-ups, as they can go to market or scale more easily.

It is important to understand and meet their needs. Although, according to several research studies, start-ups interact with corporations primarily to develop strategic partnerships, they may also have other needs to be met: accessing markets, developing channels, attracting new business customers, increasing visibility, or obtaining funding or contact with investors or potential acquisitions. The following graphic summarises how collaboration can build powerful synergies as a result of this complementarity.

Reducing the cost of key technologies accelerates the pace of innovation change

There are some technological fields that are shaping or changing the economy and these are: Cloud Computing, IoT, Blockchain, Big Data, 5G, Artificial Intelligence, Virtual Reality and cybersecurity.

Moreover, academics and practitioners agree that digital density and the increased affordability of technological solutions, as shown in Figure 4, are enabling an explosion of new technologies by driving down their costs.

The speed of innovation differs by industry. The speed of innovation in the automotive industry is faster than in the chemical industry, but slower than in the technology industry, which is the source of innovation, where there is a large pool of innovative start-ups with which companies can choose to collaborate.

Get to know more about differente topics around M&A, check our section HowTo.

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