Good morning. Companies are investing more in corporate venture building. Many are competing with startups to launch their next corporate unicorn, a term that typically describes a privately held startup company with a valuation of $1 billion.
EY-Parthenon's survey of 1,000 U.S. C-suite executives takes a look at corporate venture building, which is a business that is created by a large corporation resulting in a new source of revenue. About 22% of respondents dedicated at least one-fifth of their operating budget to venture building in 2023 and plan a similar level of investment this year. This represents a five-fold increase in the number of companies that dedicated at least 20% of their budget to venture building in 2022, according to the report.
In the last five years, 45% of companies surveyed have generated at least $100 million from their most successful new venture. And about 8% of organizations have launched a corporate unicorn, generating $1 billion or more in net-new annual revenue, in the same timeframe. Reaching this figure within a relatively short time frame is “commendable,” according to EY. However, less than 10% achieving unicorn status means there are “challenges with achieving significant scale for corporate ventures," the firm finds.
If you take a look at startup companies, they tend to be smaller than large corporations, especially in the early stages of growth, so they can act nimbly to adjust business practices and hit shifting goals. And they usually put less emphasis on hierarchy within teams.
For corporations, a notable trend brewing is decentralizing venture-building operations, according to EY. Although CFOs and CEOs will continue being the main financial sponsors for venture-building initiatives, they’re giving other leaders more autonomy to shape new businesses. Chief growth officers, chief strategy officers and business unit presidents are expected to become key financial sponsors as well.
Keeping the consumer in mind
The survey found that, on average, executives dedicate half of their venture-building investments to building internally, with the remaining 50% going toward accelerating venture-building through M&A and partnerships.
Knowing your target audience is seemingly key to reaching unicorn status. Corporate venture builds that have backed a unicorn are more likely than others to prioritize new ventures that strengthen their relationship with customers, with 47% expecting to prioritize business-to-business-to-consumer ventures and 44% prioritizing direct-to-consumer ventures in 2024, according to the report.
During the pilot and growth phases, the companies that launched more successful new ventures are 20% more likely to prioritize customer adoption, loyalty, and acquisition cost indicators. On the other hand, less successful corporate ventures have focused primarily on revenue growth and operating margin.
The companies that EY designates as high-growth corporate venture builders are seemingly reshaping strategies and governance models.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
