How To Bypass The Usual Operational Pitfalls Of Corporate Venture Capital

By Carol Strobel

In 2015, former Cisco CEO John Chambers famously predicted that about 40 percent of the leading global companies would not survive through 2025. Corporate venture capital (CVC) has emerged as a strategic way for large organizations to stay ahead of the curve and beat the innovation paradox that could lead to their extinction.

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A growing number of global investors—both VC firms and corporate venture arms—have been betting on the innovation ecosystem in Latin America recently. Corporate venture activity has continued to rise in the region during the pandemic with more than a quarter of deals having a CVC investor by the third quarter of 2020, according to data from Global Corporate Venturing.

Active CVC funds in the region include brands such as Google, Cisco, Microsoft and Qualcomm. In Brazil, corporate venturing projects are multiplying, although there is still plenty of room to grow. Among the companies that invest in this strategy, two-thirds are multinationals with headquarters in the country. They see this form of investment as an opportunity to expand into new markets.

Financial-sector giants such as Banco do Brasil, Bradesco, BTG, Itaú and XP are among the businesses that most frequently bet on corporate venture in Brazil, in addition to large retailers, such as Magazine Luiza, and health-related companies such as Dasa (DNA Capital) and Fleury’s new venture partnership with Sabin (Kortex Ventures). Not coincidentally, these organizations are leaders in some of the most mature sectors in Brazil’s burgeoning innovation ecosystem.

This rise in corporate venture capital makes a lot of sense. It lets large, public companies invest in more R&D and riskier, moonshot projects led by startups, usually off the balance sheet.

However, despite the many benefits larger companies can gain through more nimble, ingenious approaches and methodologies that are synonymous with startups, corporate venture funds often suffer some common challenges that stymie innovation’s progress.

The pitfalls

The usual pitfalls include a lack of flexibility or unwillingness to consider doing things differently, too much due diligence and bureaucratic processes that simply take far too long, in addition to deal negotiations that are too difficult because they are not always focused on long-term relationships like VCs.

Due to these challenges, more CVC funds have been partnering with VC firms on the ground in Latin America because the setup of a strong investment team requires a lot of skill and time that large corporations would prefer to bypass. Without the local know-how and relationships, CVCs without local presences often struggle to get the best deals.

Private and public entities are coming together to catalyze rapid innovation that benefits society through new investment partnerships between the government, corporations and VC firms. For example, Qualcomm’s recent efforts to boost Brazil’s IoT technology prowess is a winning strategy because Qualcomm stands to benefit tremendously from the joint venture’s output. Brazil is one of the leading global markets for internet and social media as we move rapidly forward to a world powered by 5G.

Encouraging more connections and collaboration between corporate giants, startups and government agencies is a sure-fire way to continue building the tech innovation ecosystems in Brazil and other leading markets in Latin America such as Colombia and Mexico. It will help transform the corporate mindset for a digital world that’s accelerating in the region, while bringing it closer to the more agile model of startups and relationship-focused VC firms.

Carol Strobel has been a Brazilian tech ecosystem and startup innovator for more than a decade, including years of experience as the legal director of Intel Capital for Latin America. She currently serves as an operating partner at Redpoint eventures, the first Silicon Valley VC fund on the ground in Brazil as of 2012.