Anis Uzzaman (アニス・ウッザマン ) is the General Partner and CEO at Pegasus Tech Ventures | Chairman of Startup World Cup.
In my experience as a corporate executive, entrepreneur and investor, I have observed the desire for corporations to become more innovative over the years. Doing so is critical to being successful and gaining new customers, but it is inherently challenging.
Historically, corporations have often formed internal organizations to stimulate innovation, including research and development departments and internal labs. These can work for a time, but I believe they are less effective given today’s rapid pace of technology change.
Today, corporations and startups face the opportunity and the challenge of changing technology. Innovative ideas and technologies often come from startups and university labs rather than corporate organizations. As a result, corporations around the globe are adopting a new model called innovation outsourcing.
The basis of this new model is the idea of collaboration, since it is almost impossible for one company to achieve success by itself. When I think of innovation outsourcing, what comes to mind is a corporation becoming more innovative by embracing the external venture ecosystem, which includes research organizations, technology companies, startups and venture capital firms working together.
The Problem With Forcing Internal Innovation
While it is a noble goal, it is often not effective for corporations to develop innovation internally no matter how high their motivation. There are three trends contributing to this fact.
1. Speed
In the startup environment, speed is critical and companies develop new technologies rapidly, evolving over weeks or months rather than years. However, based on the historic corporate model, companies can take so long to innovate that by the time they finish, the technology is no longer relevant.
2. Range Of Technologies
It is difficult for any corporation to be an expert in technologies across a wide range of sectors. When I look at our investment portfolio at Pegasus Tech Ventures, it includes a range of technologies including software, connectivity, AI, sensors, cybersecurity and advanced materials. No corporation—or company of any size—can be an expert in so many technology sectors.
3. Efficiency Of Capital
Like any form of investing, I advise our clients to diversify their investments rather than focus on just one area of technology. Innovation is often too risky. I recommend taking less risk by investing in a diverse portfolio of startups across different geographies and technologies. This is an efficient and effective technique, and it is better than committing corporate funds to just one or a small number of internal innovative efforts that might or might not yield results.
Using Venture Capital Strategically
Ecosystems are critical for corporations seeking innovation. It no longer works for a corporation to simply focus on innovation internally. Instead, companies can develop productive partnerships with startups early in their life cycle, collaborate to create solutions, invest via venture capital and focus on improving their own company offerings, which can help them offer new products and establish acquisition targets.
Taking this approach means using venture capital strategically. Yes, investments should have a positive financial return. But more than that, investments are a way for companies to develop partnerships, diversity their risk and find new and emerging technologies.
This leads to the concept of venture capital-as-a-service (VCaaS), a unique investment model which allows corporations to outsource their investments (full disclosure: My company offers this service). A given corporation finds an experienced VC firm that knows how to find innovative startups and invest in them. This requires a startup ecosystem and network, which is often impossible for a corporation to replicate. The VC firm then applies its expertise to find creative startups, complete due diligence and invest for corporations based on their strategic goals and budget. This approach can help give investing corporations higher deal flow, experienced investors to rely on and assistance in embracing the innovation ecosystem.
The Importance Of Innovation Networks
Corporations that use VCaaS can benefit from outsourcing their innovation efforts, including changing how corporations consider growth. Let’s review the old way of doing things versus the VCaaS model.
Using the old model, innovation is discovered via internal R&D. Product development is linear, and the corporation makes large investments in specific projects with little diversity. They spend money seeking innovation, making it a cost center.
Using the VCaaS model, internal R&D and the external innovation ecosystem work together. By collaborating with startups, corporations have the ability to learn and experiment. Investing in a wide portfolio can also help reduce corporate risk. Rather than a cost center, this model helps innovation become a strategic investment platform.
While corporations might maintain internal teams to focus on R&D, they can benefit by investing in startups and capitalizing on an external ecosystem. While those startups develop the revolutionary technology, the corporation’s internal engineers can instead concentrate their efforts on validation, integration and scaling.
Contributing Innovation, Not Just Financial Gain
Investing this way also offers corporations an advantage; it is not just a way to make money. They also gain the ability to surpass competitors, enter new markets, identify M&A targets and see disruptive technologies early.
These strategic returns—including insight, access and optionality—are the true advantages of investing via VCaaS.
Challenges And Considerations
Innovation outsourcing and venture capital-as-a-service have advantages in many cases. At the same time, it is important to understand the associated challenges and considerations.
If a corporation has substantial resources and motivation, it is possible to have a successful internal corporate investment team. If a corporation decides to pursue innovation outsourcing, a key consideration is to be transparent with your VC partner. Make sure the corporation’s goals, technology direction, budget and time frame are clear. Being disconnected with your investment partner can have major negative consequences, so I recommend spending significant effort up front to ensure strong alignment.
Achieving True Success
Across the globe, corporations are learning that rather than trying to innovate in isolation, collaboration is the key to success. That way, they can develop their internal capabilities while also capitalizing on startup and venture ecosystems.
Today, outsourcing innovation is crucial for survival. By realizing this, corporations can achieve unprecedented levels of industry leadership, reaching new levels of revenue and finding new customers along the way.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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