By Elizabeth Boggs Davidsen, Chief of the Multilateral Investment Fund's Knowledge Economy Unit, which seeks to cultivate the driving forces of the new economy—technology, innovation, and entrepreneurship—to promote inclusive growth and job creation in Latin America and the Caribbean and Charmian Love, cofounder of Volans, co-authored Practitioner’s Guide: Steps to Corporate Innovation, Investment, and Collaboration through the Corporate Impact X project, in partnership with the Inter-American Development Bank Group and Big Society Capital. She has an MBA from Harvard Business School.
Sixty-one. That is how many companies on the Fortune 500 list were able to hold their spots from 1955 to 2015. A full 88% fell off during this 60-year period. What caused this corporate extinction? Well, one way to think about this question is to look at those that held their place on this list.
Although the 61 represent many different industries and sectors - one seemingly golden thread between them is their reputation for innovation and corporate venturing. With this in mind - how do we think about the businesses that make up the Fortune 500 list today? And who do we think will be in this precious 12% in the future? We think corporate venturing is a good indicator that a business is leaning into a different future –one where corporate cash is enabling positive outcomes for business and society.
According to the Global Corporate Venturing Symposium (GCV), there are approximately 1,200 total corporate venturing units as of the beginning of 2016. Corporate venturing takes many forms. A company may set up a fund to invest in start-ups and growth companies; offer strategic support to smaller companies and help them to generate mutually beneficial products or services; or work through other venture capital funds or trusts. James Mawson, the head of GCV, and other experts predict that the next decade will see a dramatic expansion of corporate venture capital with the formation of hundreds of new groups. This growth is due to the fact that every sector is being disrupted by innovation, and big companies have decided to participate in and manage the disruption instead of waiting to be left behind.
Whether the issue is defending existing markets from new entrants, positioning to capture emerging markets, or remaining competitive by managing supply chain or sales infrastructure, all companies need to keep up with changing times. And, they are recognizing that they need an injection of outside innovation, which is precisely what venture capital delivers. The principal benefit of corporate venture capital is not necessarily just a financial return, but to inform corporate strategy and have a lens on innovation.
With the changes facing our world - the focus of corporate venturing activity is as important as the venturing itself. As we gallop towards a world in 2050 with 9-10 billion people on the planet, a need to be 70% more productive on food to feed this population, a need for massive reduction to carbon emissions to stave off deeply disruptive climate change - our bet is that corporates that are focusing their resources on solving world problems will have the relevance and resilience in the market.
This lesson is not lost on Patagonia which launched Tin Shed Ventures™, a corporate venture capital fund, to invest in environmentally and socially responsible startup companies. Originally launched as $20 Million and Change in May 2013, Tin Shed Ventures partners with businesses focused on building renewable energy infrastructure, practicing regenerative organic agriculture, conserving water, diverting waste and creating sustainable materials. Tin Shed Ventures places environmental and social returns on equal footing with financial returns and provides long-term, patient capital that helps to support forward-thinking entrepreneurs for the long haul.
Nor is the French electric utility company ENGIE sitting on the sidelines. It launched ENGIE Rassembleurs d’Energies, a corporate impact venture fund, which invests in profitable, local enterprises providing B to C, sustainable and relevant energy access solutions to poor and remote populations in Africa, Latin America, Asia and Europe. The mission of ENGIE Rassembleurs d’Energies fits within ENGIE’s objective to provide 20 million people around the world with access to sustainable, decentralized energy by 2020. In April 2016, ENGIE reinforced its fund, raising its endowment from €10 million to €50 million.
And this isn’t just about big incumbent companies. The tech darlings are also looking at the risk of corporate mortality. Last year AirBnB, one of the most celebrated disruptive businesses of the 21st century, started its own corporate venturing unit, Samara, to protect it from competition and becoming obsolete. Samara is exploring new ways to leverage AirBnB’s current model into something wider which focusses on building strong trust in communities. Which begs the question - if AirBnB - a stalwart of new economy innovation - is seeing a role for corporate venturing to future proof itself, shouldn’t other businesses be doing something too?
The good news is that a corporation’s focus on creating positive outcomes is becoming increasingly entrenched in its venturing strategy. This is supported by evidence that shows that companies that have a clear focus on sustainability (aka. positive outcomes) perform better financially. A study on the Impact of Corporate Sustainability on Organization Process and Performance by Harvard and London Business Schools found that a dollar invested in 1993 in a value-weighted portfolio of high sustainability firms would have grown to US$22.60 by 2010, compared with $15.40 for low sustainability firms. In other words, companies that voluntarily adopted sustainability policies outperformed their counterparts, those that adopted none of these policies, over the long-term both in terms of stock mark and accounting performance.
Yet, rather than commit to longer-term investments, many companies today are still treading water – sitting on cash, buying back shares, paying high dividends. CEOs feel under pressure to deliver financial results within a year or even less, leading many to prioritize immediate shareholder rewards over investments in the future.
Is corporate venturing a silver bullet? No. Is there an absolute correlation between corporate venture capital and survival? Likely not. Surviving and thriving in the 21st Century – and beyond - takes more than just an allocation of cash on the balance sheet. But which company would you invest in? One that is following a strategy where they are putting their foot on the accelerator of innovation during these times of change - or one that is slamming on the breaks?
Just think about it. 2050 is only 33 years away - how old does that make the children in your life? And what kind of business do you expect them to be working in then?