- Corporate venturing is growing worldwide, but Latin America is behind the curve.
- Here are three ways big corporations can increase their collaborations with start-ups while decreasing the chance of failure.
In Rio de Janeiro, oil giant Petrobras is working with start-up accelerators, sponsoring hackathons and mentoring small technology companies. Meanwhile, Mexico City-based multinational bread maker Bimbo is providing financing, mentoring and other resources to promising start-ups.
Corporate venturing – linking established firms to innovative start-ups – is growing across the globe, but there has been scant information available on the practice in Latin America – until now. A new study, Corporate Venturing Latam, maps 460 collaboration programmes that 107 corporate giants such as Petrobras, Bimbo, Itaú and Falabella are running with start-ups.
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In parallel, despite tremendous global growth and local activity, the adoption and success rates are low. The report found that only 16% of the larger companies analyzed in the region had any sort of corporate venturing mechanism such as corporate accelerators, hackathons or venture builders. That is surprising, given that 75% of Fortune 100 companies are reported to use corporate venture capital (just one of the mechanisms). Moreover, around three quarters of corporate innovation initiatives fail to deliver the desired results.
So, what is the current level of activity - and how can we increase its quantity and quality?
To zero in on the region's corporate venturing hubs, the study focuses on larger companies (with at least $4 billion in annual revenues) operating in six countries – Brazil, Mexico, Colombia, Chile, Argentina and Peru – where the most corporate venturing activity was found, in that order.
The report found that within this group:
· There are 184 corporate subsidiaries in 19 Latin American cities running 460 initiatives such as challenge prizes, scouting missions, corporate accelerators, coworking spaces, corporate venture capital, venture builders and start-up acquisitions.
· Companies with revenues over $25 billion are adopting corporate venturing at a higher level (8% more) than firms with revenues between $4 and $25 billion.
· Financial services, information technologies, management consulting and telecommunications are the most active industries in this field.
Meanwhile, regional funding and support are getting stronger. Venture capital for local start-ups more than tripled in the past five years. Start-up accelerators also proliferated, including state-driven and private initiatives. Given this growing momentum, how can the region get closer to the Fortune 100 adoption rate, while reducing the failure rate of these collaborations?
Less hype and more connectivity
According to the insights provided during the interviews with 133 chief innovation leaders (and similar roles), complemented with in-depth analysis of 1,760 corporate subsidiaries in Latin America, these were some of the lessons learnt about how to speed up adoption and optimize these collaborations.
1. Use cross-pollination, subsidiaries and foreign institutions to gain knowledge faster. Import best practices from other subsidiaries and international headquarters. Keep in mind that Latin American subsidiaries involved in corporate venturing have headquarters predominantly in Europe (45% of the cases), Latin America (25%) and the United States (24%).
Some are building innovation-knowledge networks with small virtual teams of four to five employees. Each team member belongs to different corporate subsidiaries, regions and departments, monitoring innovation methodologies within a search field defined by the team. All teams meet recurrently and aggregate insights that are presented to the top management once per quarter.
2. Cluster with other large companies in joint challenges to improve your value proposition and scouting muscle, while reducing your innovation cost. The growth in the number of corporates engaging in venturing has triggered a debate on how to seduce the best start-ups. Now, it is more common to hear an entrepreneur asking a corporation: Why you? What makes you unique?
Pool resources and collaborate with start-ups more efficiently by partnering with other corporations – including competitors. Start-ups may benefit from the added technical expertise and distribution channels of co-sponsored activities, a need especially relevant to local start-ups whose markets, with the exception of Brazil, are sometimes “not large enough to scale up their operations”, according to the IFC's vice-president, Georgina Baker.
3. Rely on numbers rather than hype when choosing your corporate venturing tools. The results show that several Latin American companies are still relying on intuition rather than data when designing their venturing strategies. Moreover, companies are predominantly bidding for low-cost engagements such as challenge prizes (24%) and scouting missions (20%) that are more cost-effective, but may present bigger challenges around integrating the value created in those programmes into the corporation.
Although data was limited before, independent benchmarks are now available that can answer questions on topics such as the length of time its takes to collaborate with a start-up via a corporate accelerator or venture client, or about the average cost of running a hackathon or challenge prize, for example. Considering that some mechanisms can be up to five times faster and three times more cost-effective than others, companies should research existing models thoroughly rather than relying on guesswork to ensure they choose the combination that best fits their company's objectives.
Worldwide, the number of companies collaborating with start-ups has quadrupled over the past seven years. With its increase in entrepreneurial activity, Latin America is a promising region in which this trend can continue to surge. Insourcing knowledge through a connected ecosystem, teaming with other corporates to improve the value proposition, and relying more on numbers are all promising strategies to improve how corporates innovate with startups in the region.
Disclaimer: The cited study was authored by IESE Business School, in collaboration with Wayra and supported by CORFO.