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lor decades, large companles have been wary of corporaLe venLurlng.

Some have seen Lhelr venLure


lnlLlaLlves fall ouLrlghL, and many more have glven up Loo qulckly: 1he medlan llfe span of corporaLe
venLurlng programs has LradlLlonally hovered around one year. Lven flrms wlLh successful funds have
someLlmes sLruggled Lo make use of Lhe knowledge galned from sLarL-up lnvesLmenLs. 1o be sure,
runnlng successful corporaLe vC programs lsn'L easy: Companles' processes and rules can make Lhem
slow-fooLed and unfocused. 8uL as dlsappolnLmenL wlLh 8&u resulLs grows, Lhere are lndlcaLlons LhaL
corporaLe venLurlng may be galnlng ground-and respecL.
Start-ups 8acked by Corporat|ons Lxce|
SLarL-ups LhaL wenL publlc afLer belng funded by aL leasL one corporaLe venLure-caplLal lnvesLor
ouLperformed Lhose funded excluslvely by lndependenL vCs. 1hese flgures, drawn from 1980-2004
daLa, are averages for Lhe Lhree years followlng Lhe lC.

Source: 1homas !. Chemmanur and Llena LouLsklna, 2008
Companles hoplng Lo acqulre knowledge and aglllLy from corporaLe venLurlng can beneflL from followlng
slx sLeps, lncludlng allgnlng goals, provldlng Lhe rlghL lncenLlves, and creaLlng sysLems Lo Lransfer
knowledge. l'll go Lhrough Lhese sLeps one by one, showlng how flrms can esLabllsh venLure funds LhaL
are as savvy and nlmble as Lhe besL prlvaLe vCs. 8uL flrsL, leL's conslder Lhe poLenLlal beneflLs of
corporaLe venLurlng.
1he Case for Ventur|ng
ln Lhe pasL, corporaLe lnLeresL ln creaLlng venLure funds Lended Lo wax and wane ln sync wlLh Lhe
general vC cllmaLe. Waves of corporaLe venLure acLlvlLy-ln Lhe laLe 1960s, Lhe mld-1980s, and Lhe laLe
1990s-corresponded wlLh booms ln vC lnvesLmenLs and venLure-backed lCs. 8uL now we're seelng a
corporaLe-venLurlng surge even durlng lacklusLer days for LradlLlonal venLure caplLal.
ln Lhe flrsL half of 2011, when lndependenL funds were sLruggllng Lo ralse caplLal ln Lhe wake of Lhe
global flnanclal crlsls, more Lhan 11 of Lhe vC dollars lnvesLed came from corporaLe venLure funds, a
level noL seen slnce Lhe doL-com bubble. 1hls new acLlvlLy may lndlcaLe LhaL as research funcLlons face
severe pressure Lo reln ln cosLs and produce resulLs, companles are looklng for alLernaLlve means Lo
learn and lnnovaLe. Companles as dlverse as Coogle, 8MW, and Ceneral Mllls are complemenLlng
LradlLlonal 8&u by [olnlng wlLh oLher lnvesLors Lo puL money lnLo promlslng sLarL-ups. 1he loglc ls
lndeed compelllng.
A faster response. 8y provldlng boLh an lnslde look aL new Lechnologlcal flelds and a paLh Lo posslble
ownershlp or use of new ldeas, corporaLe venLurlng can allow a flrm Lo respond qulckly Lo markeL
LransformaLlons. Lllly venLures was [usL one of several corporaLe venLure lnlLlaLlves ln Lhe 1990s and
2000s LhaL helped pharmaceuLlcal companles caLch up wlLh Lhe rapld advances ln blosclence LhaL were
LhreaLenlng Lo render Lhelr chemlsLry-based experLlse lrrelevanL. ln a sLudy of 71 venLure lnlLlaLlves by
blopharmaceuLlcal flrms from 1983 Lo 2003, Pyunsung uanlel kang and vlkram k. nanda of Ceorgla
1ech found LhaL companles LhaL made flnanclally successful lnvesLmenLs also experlenced greaLer
success ln drug developmenL.
lL's llkely LhaL developlng capablllLles such as Lhls on Lhelr own would have Laken Lllly and oLher pharma
companles far longer and been far more expenslve. Clven Lhe Llme and resources needed Lo updaLe
research faclllLles and recrulL sclenLlsLs wlLh Lhe rlghL experLlse, Lhe growLh of knowledge ln lnLernal
laboraLorles can be palnfully slow.
A better v|ew of threats. A venLure fund can serve as an lnLelllgence-gaLherlng lnlLlaLlve, helplng a
company proLecL lLself from emerglng compeLlLlve LhreaLs. uurlng Lhe 1980s, for example, when
lnLegraLed-clrculL makers were searchlng for alLernaLlves Lo slllcon (Lhe basls of Lhe domlnanL chlp
Lechnology), Lhe slllcon-chlp speclallsL Analog uevlces creaLed a venLure program Lo lnvesL ln compeLlng
Lechnologles. lLs goal was Lo gaLher sLraLeglc lnformaLlon aL relaLlvely low cosL.
Analog's porLfollo dldn'L do very well. !usL one of lLs 13 companles wenL publlc, and only afLer so many
flnanclng rounds LhaL Analog's sLake was heavlly dlluLed. 8uL Lhe reason for Lhe lacklusLer performance
was slgnlflcanL: Maklng chlps ouL of anyLhlng oLher Lhan slllcon Lurned ouL Lo be sLubbornly dlfflculL and
expenslve. Cnce Lhls reallLy hlL Lhe markeLs, makers of slllcon chlps saw Lhelr valuaLlons splke, Analog's
lncreased sevenfold from 1979 Lo 1983. 8uL Lhe corporaLe venLurlng program had provlded lnsurance: lf
Lhe alLernaLlves had been vlable, Analog would have been covered.
1radlLlonal 8&u doesn'L do a good [ob of snlfflng ouL compeLlLlve LhreaLs. More and more, corporaLe
8&u unlLs Lend Lo focus on a narrow range of pro[ecLs, Lhus poLenLlally neglecLlng dlsrupLlve advances
LhaL occur ouLslde Lhe company. lenLy of execuLlves ln companles wlLh robusL 8&u funcLlons lle awake
wonderlng wheLher Lhelr flrms are abouL Lo be bllndslded by Lechnologles Lhey've never heard of.
Las|er d|sengagement. AnoLher beneflL of venLurlng, one LhaL's closely relaLed Lo acceleraLlng Lhe
company's response Lo change and LhreaLs, ls LhaL lL glves execuLlves a fasLer way Lo dlsengage from
lnvesLmenLs LhaL seem Lo be golng nowhere. As ls well-known, many companles flnd lL dlfflculL Lo
abandon Lhe noL-qulLe-good-enough lnnovaLlons LhaL someLlmes come ouL of lnLernal labs. 1hese
pro[ecLs can llnger ln producL developmenL for years, reslsLlng LermlnaLlon (desplLe much Lalk abouL
8&u porLfollo managemenL). nokla's lnslsLence on developlng lLs phones uslng Lhe Symblan operaLlng
sysLem, even as lLs compeLlLlve poslLlon wenL lnLo free fall, ls a classlc lllusLraLlon.
1he arm's-lengLh relaLlonshlp beLween companles and Lhelr venLure funds offers advanLages ln Lhls
regard: 1he besL funds Lend Lo be qulcker on Lhe Lrlgger Lhan Lhelr corporaLe parenLs. Lven lf a
corporaLlon ls unwllllng Lo LermlnaLe an unpromlslng lnlLlaLlve, Lhe presence of co-lnvesLors may force
Lhe declslon.
A b|gger bang. 8y comblnlng lLs own caplLal wlLh LhaL of oLher vCs, a corporaLe venLure can magnlfy Lhe
lmpacL of lLs lnvesLmenLs. 1hls ls parLlcularly beneflclal when Lechnologlcal uncerLalnLy ls hlgh.
A dramaLlc example ls Lhe llund, supporLed by Apple and launched ln 2008 by Lhe venerable vC flrm
klelner erklns Caufleld & 8yers on Lhe day when ouLslde developers were flrsL allowed Lo begln
worklng on apps for Lhe lhone. 1he $100 mllllon fund-whlch subsequenLly doubled ln slze-lnvesLed
ln companles developlng games and Lools. ln Lhls way, Apple rapldly bullL a crlLlcal mass of appllcaLlons
for lLs new phone whlle spendlng very llLLle. (1he conLrasL wlLh Apple's rlval nokla, whlch eschewed such
an approach when promoLlng lLs Symblan sysLem, ls sLrlklng.) Clven Lhe success of Lhe llund, lL ls noL
surprlslng LhaL slmllar efforLs have been launched by, among oLhers, 8esearch ln MoLlon (Lo encourage
Lhe developmenL of Lhlrd-parLy appllcaLlons for Lhe 8lack8erry) and lacebook (whlch Leamed wlLh
klelner, Amazon, Zynga, and oLher Lech lumlnarles Lo esLabllsh Lhe slund, devoLed Lo promoLlng
companles LhaL work wlLh soclal medla slLes).
Increased demand. 1he llund also serves as an example of a dlfferenL klnd of leveraglng: 8y
encouraglng Lhe developmenL of Lechnologles LhaL rely on Lhe parenL corporaLlon's plaLform, venLure
lnvesLmenLs can help lncrease demand for Lhe corporaLlon's own producLs. lnLel CaplLal Look Lhls
approach ln laLe 1998, when lL esLabllshed a fund LhaL would help speed Lhe enLry of lnLel's nexL-
generaLlon semlconducLor chlp lnLo Lhe markeL. lund managers lnvesLed ln many sofLware and
hardware makers (ofLen lnLel compeLlLors) whose producLs caplLallzed on Lhe new chlp's power. 1hose
lnvesLmenLs acceleraLed Lhe chlp's adopLlon by several monLhs, accordlng Lo lnLel.
A k|s|ng 1|de
Large companles have been wary of creaLlng corporaLe vC funds, Lhe medlan llfe span of Lhese funds
has been abouL one year. 8uL as dlsappolnLmenL wlLh 8&u grows, Lhere are lndlcaLlons LhaL corporaLe
venLurlng ls galnlng ground-even ln a lacklusLer envlronmenL for LradlLlonal venLure caplLal.

Source: naLlonal venLure CaplLal AssoclaLlon
lnLel CaplLal also played a role ln seedlng companles developlng wlreless lnLerneL producLs around Lhe
802.11 neLwork sLandards, whlch had been champloned by lnLel: ln Lhe flve monLhs before Lhe 2003
lnLroducLlon of Lhe wlreless-enabled CenLrlno chlp seL, Lhe fund revealed lLs lnLenLlon Lo lnvesL $130
mllllon ln ComeLa neLworks and oLher companles LhaL were promoLlng Lhe adopLlon of Wl-ll neLworks.
1he rapld upLake ln lnLel's wlreless producLs ln subsequenL years reflecLs Lhe company's success ln uslng
corporaLe venLurlng Lo creaLe an ecosysLem of wlreless players.
n|gher returns. llnally, Lhere's Lhe purely flnanclal aspecL of venLurlng. lor lndependenL vCs, maklng
money for Lhe llmlLed parLners ls Lhe prlmary lf noL Lhe sole ob[ecL. lor corporaLe venLure funds, galnlng
sLraLeglc beneflLs ls usually Lhe maln goal, proflLs from venLurlng Lyplcally aren'L slgnlflcanL enough Lo
maLLer Lo Lhe parenL company's boLLom llne. SLlll, proflLs are always nlce Lo have.
Companles brlng a loL of value Lo Lhe sLarL-ups Lhey fund, ln Lhe form of repuLaLlon, skllls, and, of course,
resources-from research sclenLlsLs Lo sophlsLlcaLed laboraLorles Lo armles of salespeople. 1hey also
change Lhe way ouLslde lnvesLors vlew Lhe young flrms' prospecLs. rlvaLe and publlc equlLy lnvesLors
ofLen anLlclpaLe LhaL a corporaLlon-backed sLarL-up wlll ulLlmaLely be boughL by Lhe company LhaL
lnvesLed ln lL-and aL an aLLracLlve valuaLlon, reflecLlng Lhe sLraLeglc beneflLs Lhe sLarL-up can offer lLs
new owner.
1hus lL's perhaps noL surprlslng, as 1homas !. Chemmanur, of 8osLon College, and Llena LouLsklna, of
Lhe unlverslLy of vlrglnla's uarden School of 8uslness, have shown, LhaL sLarL-ups backed by
corporaLlons are more llkely Lhan Lyplcal vC-backed flrms Lo aLLracL Lhe aLLenLlon of hlgh-quallLy markeL
players-from lnvesLmenL banks Lo equlLy analysLs Lo lnsLlLuLlonal lnvesLors-when Lhey go publlc.
uurlng Lhelr flrsL Lhree years as publlc companles, Lhe researchers found, flrms backed by corporaLe
venLure funds show beLLer sLock prlce performance, on average, Lhan Lhose backed by LradlLlonal
venLure groups.
Mak|ng It Work
uesplLe corporaLe venLurlng's compelllng loglc, venLure funds someLlmes run lnLo Lrouble. 8llllons of
dollars have gone down Lhe draln as corporaLlons have sLruggled Lo deploy Lhelr venLure caplLal groups
effecLlvely. MosL of Lhe problems are rooLed ln lncompaLlblllLles beLween Lwo mlnd-seLs: LhaL of Lhe
rlsk-lovlng, someLlmes ruLhless venLure caplLallsL, and LhaL of Lhe process-bound corporaLe execuLlve. lf
companles aren'L careful, Lhelr venLure caplLallsLs can become ensnared ln Lhe agendas of myrlad
corporaLe sLakeholders or demoLlvaLed by lnadequaLe or poorly deslgned flnanclal lncenLlves. And Lhe
parenL company can mlss ouL on valuable knowledge. 1hese slx sLeps can help companles avold Lhe
plLfalls.
A||gn goa|s w|th corporate ob[ect|ves. AllgnmenL of goals across Lhe venLure fund, Lhe sLarL-ups, and
Lhe parenL company enables a corporaLe venLure group Lo draw on Lhe parenL's experLlse. WlLhouL LhaL
allgnmenL, corporaLe venLurers are less llkely Lo make good lnvesLmenL declslons and aLLracL hlgh-
callber enLrepreneurs-and useful knowledge ls less llkely Lo flow from Lhe sLarL-ups Lo Lhe corporaLe
parenL.
ln a sLudy of flnanclal reLurns from more Lhan 30,000 lnvesLmenLs ln enLrepreneurlal flrms, aul A.
Compers, of Parvard 8uslness School, and l found LhaL corporaLe venLure funds are more successful lf
Lhe sLaLed focus of Lhe corporaLe parenL and Lhe buslness of Lhe porLfollo flrm overlap. ln comparlson
wlLh sLarL-ups LhaL aren'L llnked wlLh Lhe company's goals, well-allgned sLarL-ups are less llkely Lo be
LermlnaLed and more llkely Lo go publlc, produce hlgher numbers of paLenLs wlLhln four years of golng
publlc, and have beLLer sLock prlce performance.
Stream||ne approva|s. A venLure fund's goals should be noL only allgned wlLh Lhe parenL company's, buL
also few ln number. A sLreamllned approval process can help. ln many companles, varlous lnLernal
consLlLuencles musL approve Lhese funds' goals-a slLuaLlon LhaL can lead Lo absurd resulLs. When l8M
abandoned lLs llreworks arLners afLer Lwo years, Lhe fund's lnlLlal proposed lnvesLmenLs were sLlll Lled
up ln lnLernal revlew wlLh numerous dlvlslonal vlce presldenLs. uelays llke Lhls noL only drlve corporaLe
venLure professlonals crazy buL also slgnal Lo exLernal lnvesLors and sLarL-ups LhaL Lhe fund ls lneffecLlve.
A LorLuous approval process lnevlLably burdens Lhe fund wlLh Loo many goals. 1o please 8&u, Lhe fund
mlghL alm Lo galn knowledge abouL emerglng Lechnologles. 1o please Lhe buslness developmenL group,
lL mlghL look for sLarL-ups LhaL could become acqulslLlon LargeLs. 1o saLlsfy Lhe ClC, lL mlghL alm for a
cerLaln Lhreshold of flnanclal reLurns. Managers' energles are spread Loo Lhln, and Lhe fund wanders
from goal Lo goal wlLh no clear ob[ecLlve.
1hls problem conLrlbuLed Lo Lhe specLacular fallure of Lxxon LnLerprlses' venLure-caplLal efforL. 1he
program began ln 1964 wlLh a mandaLe Lo explolL Lechnologles ln Lxxon's corporaLe laboraLorles. lL Lhen
shlfLed Lo maklng mlnorlLy lnvesLmenLs ln lndusLrles from advanced maLerlals Lo alr-polluLlon conLrol Lo
medlcal devlces. lL laLer changed course agaln, focuslng on compuLlng sysLems for offlce use. 8efore Lhe
lnlLlaLlve was abandoned, ln 1983, Lhe compuLlng-sysLems lnvesLmenLs alone had generaLed an
esLlmaLed $2 bllllon ln losses.
A compllcaLed corporaLe declslon process can also lead Lo lneffecLlve lnvesLlng paLLerns. lf geLLlng
approval ls arduous, lnvesLmenLs are made only when Lop execuLlves are flred up and moLlvaLed Lo acL
qulckly-usually because Lhe medla are hyplng a parLlcular Lechnology or markeL segmenL. 8uL Lhese are
usually Lhe worsL Llmes Lo lnvesL, wlLh valuaLlons hlgh and probable reLurns low. A sLreamllned approval
process allows a venLure fund Lo acL qulckly on promlslng buL unheralded lnvesLmenLs, Lhus enabllng a
conLrarlan approach LhaL mlghL lead Lo Lhe ldenLlflcaLlon of neglecLed opporLunlLles.
rov|de powerfu| |ncent|ves. CorporaLe venLure professlonals ofLen expecL Lhe level of compensaLlon
and Lhe lncenLlves LhaL lndependenL vCs en[oy. 8uL corporaLe leaders are Lyplcally Lroubled by Lhe
dlsparlLy beLween whaL venLure managers expecL Lo earn and Lhe compensaLlon of execuLlves wlLh
comparable senlorlLy ln oLher parLs of Lhe company. And Lhey prefer Lo provlde lncenLlves LhaL are Lled
Lo Lhe performance of Lhe company, noL of parLlcular lnvesLmenLs. We can'L have people ln separaLe
rowboaLs," Ceneral LlecLrlc's !ack Welch once sald, ln reference Lo a venLure Leam's lncenLlves. We
don'L wanL anybody ln our company golng Lo a meeLlng wlLh a dlfferenL lnLeresL from everybody else."
SLarL-ups LhaL are allgned wlLh Lhe parenL company's goals are more llkely Lo go publlc and have beLLer
sLock prlce performance.
8uL LreaLlng venLure lnvesLors llke oLher managers can lead Lo a loss of LalenL and moLlvaLlon on venLure
Leams, and a lack of focus on long-Lerm corporaLe goals. CorporaLlons LhaL fall Lo provlde adequaLe
lncenLlves face a sLeady sLream of defecLlons once [unlor lnvesLors masLer Lhe venLure process. AfLer
Loo many board meeLlngs for whlch Lhe corporaLe lnvesLor parks hls llesLa nexL Lo Lhe lndependenL
venLure caplLallsL's lerrarl, Lhe LempLaLlon Lo go elsewhere becomes overwhelmlng. 1he corporaLlon,
havlng borne Lhe cosL of Lralnlng Lhe lnvesLor, doesn'L reap Lhe beneflL of hls or her experLlse. CL lLself
pald Lhe prlce: ln 1998 and 1999, CL LqulLy losL 18 lnvesLors, a number of whom wenL on Lo leadlng vC
flrms.
Lll Lllly's venLure lnlLlaLlve was aL flrsL an organlc parL of Lhe company-lLs venLure caplLallsLs were
corporaLe employees wlLhouL any proflL share. AfLer a slew of defecLlons, Lllly analyzed compensaLlon
levels and found LhaL only Lhe mosL [unlor sLaffers aL Lllly venLures were belng rewarded aL anyLhlng llke
a markeL level. SLlll, Lhe company's senlor managemenL and P8 professlonals reslsLed changlng Lhe pay
scheme. lL wasn'L unLll 2009 LhaL Lllly's managemenL agreed Lo Lurn Lhe venLure group lnLo a
freesLandlng organlzaLlon.
AfLer a slew of defecLlons, Lllly dlscovered LhaL only Lhe mosL [unlor sLaffers aL Lllly venLures were belng
compensaLed aL anyLhlng llke a markeL level.
lor recrulLmenL and reLenLlon, compensaLlon levels ln a corporaLe venLure lnlLlaLlve should maLch Lhose
offered by lndependenL venLure groups. AL Lhe same Llme, pay should be llnked Lo corporaLe goals as
well as sLarL-ups' long-Lerm performance.
ln a sLudy of corporaLe venLure funds, Cary uushnlLsky, of London 8uslness School, and Zur Shaplra, of
new ?ork unlverslLy, found LhaL Lhose LhaL closely llnked pay Lo demonsLraLed lnvesLmenL success
(ofLen, boLh flnanclal and sLraLeglc reLurns Lo Lhe corporaLe parenL) were more llkely Lhan oLhers Lo
make successful lnvesLmenLs and Lo lnvesL ln earller-sLage companles-evldence LhaL Lhey were nlmbler
and more aggresslve.
lndeed, many of Lhe programs wlLh Lhe greaLesL sLablllLy-ln Lerms of boLh managemenL Leam and
mlsslon-have been characLerlzed by hlgh-powered lncenLlves. An example ls ClaxoSmlLhkllne's S8 Cne,
whlch operaLed under a slngle head, eLer Sears, from 1983 Lo 1999. uurlng mosL of LhaL perlod, Lhe
corporaLe vCs recelved 13 of Lhe proflLs Lhey generaLed and bonuses, based on less Langlble beneflLs
Lo Lhe corporaLlon, LhaL could represenL as much as 3 of Lhe fund's caplLal galns. 1hls approach kepL
venLure lnvesLors senslLlve Lo boLh Lhelr flnanclal ob[ecLlves and Lhe parenL company's sLraLeglc needs.
Create an exper|menta|, fa||ure-to|erant m|nd-set. 8lsk averslon can be a serlous problem for a
corporaLe venLure-caplLal fund. SomeLlmes LhaL aLLlLude sLems from Lhe corporaLe parenL's culLure.
When a venLurlng Leam boasLs LhaL no flrms ln lLs porLfollo have been shuLLered, corporaLe execuLlves
may lnLerpreL Lhe announcemenL as a slgn of success. 8uL glven Lhe naLure of Lhe enLrepreneurlal
process, and Lhe facL LhaL a slgnlflcanL fracLlon of lndependenL venLure lnvesLors' LransacLlons end ln
fallure, Lhe perfecL record may be a slgnal LhaL Lhe Leam ls playlng lL Loo safe, lnvesLlng ln companles
wlLh an eye Lo avoldlng fallure.
Well-sLrucLured lncenLlves can help: 1hey can focus corporaLe venLurers on maxlmlzlng lnvesLmenL
success, wheLher sLraLeglc or flnanclal, and mlnlmlze Lhelr worrles abouL geLLlng Lhelr knuckles rapped
for shuLLerlng lnvesLmenLs or selllng sLarL-ups aL a loss.
St|ck to your comm|tments. Whlle lL's lmporLanL Lo LermlnaLe morlbund pro[ecLs, lL's also lmporLanL noL
Lo walk away from promlslng ones. A low level of corporaLe commlLmenL Lo good pro[ecLs can be hlghly
damaglng Lo a fund and lLs lnvesLmenLs. SomeLlmes merely a change ln Lop personnel can prompL a
company Lo reLhlnk lLs commlLmenL Lo venLurlng ln general and Lo varlous lnvesLmenLs ln parLlcular. ln
some organlzaLlons, lL's a rlLual for new execuLlves Lo dlscard Lhelr predecessors' pro[ecLs.
8uL lf a parenL company ls seen as a flckle lnvesLor, professlonals wlll be wary of [olnlng lLs venLure unlL,
enLrepreneurs wlll be relucLanL Lo accepL lLs funds, and lndependenL vCs wlll be heslLanL Lo [oln ln,
seLLlng off a deaLh splral.
1o aLLracL hlgh-callber ouLslde lnvesLors Lo Lhelr venLurlng efforLs, companles should adopL Lhe aLLlLude
of lndependenL vCs: As long as a sLarL-up ls healLhy, commlLmenLs are blndlng. lf a llmlLed parLner
conLrlbuLes even a small amounL of Lhe LoLal caplLal promlsed aL Lhe Llme of closlng, Lhere ls an
expecLaLlon LhaL Lhe LoLal amounL promlsed wlll be provlded. Lven durlng Lhe depLhs of Lhe flnanclal
crlsls, lL was rare for lnvesLors Lo walk away from Lhose commlLmenLs.
narvest va|uab|e |nformat|on. knowledge doesn'L auLomaLlcally flow from sLarL-ups Lo Lhe large
organlzaLlons LhaL have lnvesLed ln Lhem-aL leasL noL ln a Llmely manner. 1he barrlers Lo knowledge
Lransfer are many: 1he corporaLe venLurlng and buslness developmenL groups may be locaLed far from
Lhe flrm's cenLral operaLlons. Lveryone ls busy wlLh day-Lo-day Lasks. 1here's a culLural gap beLween Lhe
young M8As who domlnaLe mosL venLure Leams and Lhe flrm's senlor execuLlves. And, of course, Lhe
fledgllng Lechnologles belng developed by porLfollo companles may noL seem appllcable wlLhln Lhe
corporaLlon. 8uL a fallure Lo glve Lhe corporaLe parenL access Lo Lhe knowledge generaLed ln lLs
lnvesLmenLs defeaLs a large parL of Lhe lnLelllgence-gaLherlng loglc of corporaLe venLurlng.
Companles cannoL leave knowledge splllovers Lo chance. nor can Lhey slmply puL an operaLlng manager
on Lhe board of each porLfollo flrm Lo be Lhe parenL company's eyes and ears, as CL and oLhers have
done. A manager runnlng a 2,000-person refrlgeraLor assembly planL ls unllkely Lo have much Llme Lo
worry abouL a 10-person sLarL-up LhaL doesn'L seem Lo be worklng on problems of lmmedlaLe relevance
Lo Lhe corporaLlon.
Cne of Lhe mosL successful meLhods l've seen for Lransferrlng knowledge from sLarL-ups Lo corporaLe
parenLs ls Lhe creaLlon of llnked unlLs dedlcaLed Lo Lhls Lask. 1hls was Lhe approach Laken by Lhe u.S.
CenLral lnLelllgence Agency's venLure-caplLal program, ln-C-1el. lounded ln 1999 Lo acqulre novel
Lechnologles, Lhe fund prlmarlly made equlLy lnvesLmenLs ln young flrms, many of whlch had developed
producLs for Lhe prlvaLe secLor-for lnsLance, Lechnologles for deLecLlng card counLers ln caslnos. lL was
dlfflculL for people ln Lhese young companles Lo ldenLlfy who ln Lhe lnLelllgence communlLy mlghL be
lnLeresLed ln Lhelr Lechnologles, and lL was hard for lnLelllgence professlonals Lo lmaglne how consumer-
orlenLed Lechnologles mlghL be adapLed Lo Lhelr needs-Lo see, for example, how sofLware for
ldenLlfylng Ml1 sLudenLs aL Lhe Caesars alace black[ack Lables could be used Lo ldenLlfy Al Caeda
members. Moreover, communlcaLlon beLween Lhe sLarL-ups' execuLlves and Lhe Agency's producL
developers was severely consLralned by llmlLs on sharlng classlfled lnformaLlon.