More corporates turning to venture builders for help with expansion

Venture studios have built some notable companies such as payment startup Ovo, which as since achieved unicorn status. More street vendors in Indonesia are accepting payment from e-wallets such as Ovo.
 

Companies are turning to venture builders to help them diversify their operations and stay relevant, as corporate lifespans are shortened by technological disruptions and the entry of well-funded and nimble startups.

The ability to remake itself has always been essential to a company’s survival.

Take, for instance, conglomerate Sembcorp Industries, which was formed in 1998 from the merger of Sembawang Corp and Singapore Technologies Industrial Corp.

Its operations at the time included property development, hotel ownership, a financial arm, as well as stakes in food and beverage chain Delifrance Asia and companies providing ferry services to Batam and Bintan in Indonesia.

To stay relevant, Sembcorp has over the years divested non-core operations and built new ones.

Recently, the company hived off its offshore and marine arm, Sembcorp Marine (Sembmarine), through a distribution-in-specie of Sembmarine shares to Sembcorp shareholders.

One of Sembcorp’s latest ventures, however, is being built with some external professional help.
 

GoNetZero

GoNetZero, a carbon management solutions provider, was built with the help of a venture studio called Futurelabs.

GoNetZero is one of several corporate-funded startups built under the Singapore Economic Development Board (EDB)’s Corporate Venture Launchpad (CVL).

It aims to help companies launch new ventures that can “stand apart from the mothership and run autonomously, but still tap the corporate parent’s advantages to achieve scale”, said Choo Heng Tong, Executive Vice-President at EDB.

“(Doing this) requires companies to take on more entrepreneurial risk,” Choo added.

“EDB believes the best way for companies to do this is to borrow the startup approach of being lean, being agile, and moving with speed.”

The first round of the programme, CVL 1.0, was initiated in May 2021 with four venture studios – companies that specialise in building startups – and S$10 million of funding. The funds provided supported up to 50 per cent of the cost of a concept validation sprint.

CVL 1.0 helped 13 companies kick off the corporate venture process.

Of these, six have launched or are launching new ventures.

The companies have committed at least S$50 million of follow-on seed investments to build these new ventures, said Choo.

EDB announced CVL 2.0 in July 2022 with six venture studios appointed and an additional S$20 million in funding committed by EDB New Ventures, the corporate venture building arm of EDB.

Responding to feedback by participating companies and venture studios, the programme has extended the support period for the “build and launch” phase of new ventures beyond concept validation sprints. Eligibility conditions were also broadened to include a wider range of companies, with EDB keen on inviting more regional businesses to build their ventures out of Singapore.

“The goal remains to support companies to incubate and launch high-potential new ventures that can be scaled to become globally leading businesses from Singapore,” said Choo.

The venture builder is a relatively new concept, gaining traction in the last five years. Venture studios have built some notable companies, such as payment startup Ovo.

Ovo, built for the Lippo Group by BCG Digital Ventures, has since achieved unicorn status and is now majority-owned by Grab.

It is one of the 25 ventures built by the venture studio so far.

Next, a venture studio launched by consultancy Bain & Company said it is seeing a lot of interest from Singapore corporates since joining EDB’s CVL. “We’ve only been a part of it for the last four months, but we’ve had over a dozen conversations with companies looking to do something,” said Michael Egan, one of the leads for Next.
 

Corporate success

The combination of venture builder and corporate backer should, in theory, improve a new venture’s chance of success.

With corporate assets and data available from inception, ventures should be better at finding a product market fit, for instance.

If an insurance player spins off an insurtech startup, there is an advantage of having an instant underwriter for the startup’s products.

Experiments can be run quickly, and the startup can get data almost instantly to tweak its product or pivot to find the right audience.

“That’s massively beneficial,” said Sam Hall, Asia-Pacific Chief Executive Officer of venture studio Rainmaking. “If that takes you two weeks or one month in the wild, it can take you two days in a corporate venture. If you expedite the time to data and synthesise it, that expedites the time to validation and expedites the time to scale,” he added.

But before rushing in, experts say corporates should answer several questions – among them: How much control should the corporate mothership have?

And what is the ultimate purpose of the venture: as a spin-off or a spin-in, where the corporate buys it back later?

The business model for venture studios varies by the outcome of what the corporate wants.
 

A corporation that wants to build a wholly-owned venture would be charged fees by a venture builder.

But if a company is looking to build a venture to spin off, co-investing and having skin in the game would be preferable to align incentives to ensure success.

“It is more about the delivery of outcomes than charging time,” said Hanna Stegmann, Managing Director and Partner at BCG Digital Ventures.

“In the end, it is really about creating value and being rewarded for that.”

There is also the question of capital for the corporate venture, said Goh Yiping, Partner at McKinsey.

The initial capital set aside to get the venture going usually comes from the company.

“(But) do we also get external capital to come in (later)?” Goh said. “And what is required for external capital to be interested in funding a corporate venture?”

The current economic uncertainty has caused some corporates to pause their venture building programmes, but a majority are looking to double down, said Mario Aquino, Founding Partner and Chief Executive Officer of venture studio FutureLabs.

“We all realise that purely from a financial standpoint, the best returns are made when you invest in adown-cycle,” he said. “Valuations are cheaper and talent is more readily available.”

The combination of venture builder and corporate backer should, in theory, improve a new venture’s chance of success. With corporate assets and data available from inception, ventures should be better atfinding a product market fit, for instance.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.