The PDMA Handbook of New Product Development

8.3. Corporate Venturing

Corporate venturing organizations are organizations that fund and establish businesses based on technology advances having broad applications outside the market strengths of the parent company. This is an organizational structure that goes through hot and cold phases almost on a ten-year cycle. The reader is encouraged to review articles by Chesbrough (2000) and Miles and Coven (2002) for a more extensive discussion.

NOTE

Corporate Venturing is moving from the creation of new businesses in new markets based on financial return to more strategic investments. For example, Intel Capital supports start-ups that make products that need even more powerful processors.

The standard for external corporate venturing is embodied in Lucent's new ventures group (Chesbrough, 2001). The unit created a portfolio of 26 companies valued in excess of $200 million with an impressive internal rate of return of 70 percent (Chesbrough, 2001). Despite their success, the unit was sold when Lucent became strapped for cash. Overall, despite the financial success, the lack of a direct link between the ventures and shareholder value represents the Achilles heel of this approach. Creating new businesses outside the value chain of the parent company does not seem to be sustainable—even when a workable process and organizational structure, like that developed at Lucent, has been developed.

Perhaps the value of external corporate venturing lies in making more strategic investments. Chesbrough ...