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Do you know what Corporate Venturing is? Basically, it is a term that can be translated directly to "corporate business", but its meaning covers many more nuances and contexts. In recent years, the practice has become more than a trend, especially in Latin America. The model of large firms collaborating with startups has been practiced for years in Europe and the US. In this model, companies develop a strong investment strategy, and are now turning their attention to Latin America, a region bustling with entrepreneurs, but still with some uncertainties. Many Latin American companies are already doing a good job of adhering to Corporate Venturing, although this is still a timid movement in the region. Even so, these companies already represent that there is an opportunity not only for large companies and startups working together, but also for local economic ecosystems, entrepreneurs, government officials, and society in general. New businesses and partnerships of this type add enormous value to the job market, in addition to technological advances and cultural transformations. But does this model only work for corporate giants? Not at all. Many small and medium-sized companies also use and benefit from this model around the world. READ ALSO: • Learn all about Computer Vision
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But what is Corporate Venturing?
It consists of investment practices by a company already established in the market in startups and scale-ups. Such practices can be challenges, hackathons, resource sharing, acceleration programs, incubators, co-workings, partial acquisitions, and much more. These practices are divided into two groups within this model: external and internal Corporate Venturing. The first consists of building a more intimate and mutual relationship between large companies and startups. This group includes POCs (proofs of concept), hackathons, and entrepreneurship marathons. The second, on the other hand, aims to stimulate and enable, through resources and autonomy, an individual or group within the company to create a new business. This group includes incubators and co-workings, for example.
Is Corporate Venturing only about capital?
First, we need to define which capital we are talking about. It is not just financial capital. It is much more than that! It involves social capital (through the figure of mentors and the possibility of networking and establishing connections), intellectual capital (through the exchange of knowledge and expertise), and human capital (the attributes that employees will acquire and improve after the experience), for example. In recent years, the adoption of these mechanisms has expanded globally. In the case of financial capital investment within Corporate Venturing, there have been increases both in the number of companies adopting this type of measure. The numbers went from 980 in 2013 to 3,232 in 2019, and continue to increase! In return, corporations benefit from a financial return, a more innovative mindset, new technologies, and much more. As a consequence, both large corporations and startups grow and become important partners. The impact is valuable for both parties.
The Market Context of Latin America
The economy of Latin America and its abundance of natural resources have attracted investors looking to diversify their portfolios in less common markets. Despite the high volatility of the region, indicators show that there can be great long-term advantages. Many internal factors contribute to this unstable environment. Uncertainties in the political, social, and economic scenarios are the main ones. All of this makes Latin America less attractive in indexes that measure investment and operational risks, according to data from the World Bank. Even so, business leaders are optimistic that technological disruption can boost regional opportunities, rather than threaten them. Latin America is an emerging region and is attracting more and more attention due to its huge potential. In 2018, Brazil led by a wide margin in the ranking of corporate financial capital investment (66.2%), followed by Colombia (16.9%), Mexico (8.8%), Argentina (4.2%), Chile (2.3%), and Peru (0.8%). Compared to 2017, investment grew in all regional markets in 2018. (There are 176 programs (companies x mechanisms) underway in Brazil (2018/2019 data) source: Prepared by Siota, J., Prats, J. of IESE Business School)
In practice
The main mechanisms used in Brazil, as well as in other Latin American countries, were challenges, scouting missions, hackathons, incubators and acceleration programs, corporate capital funds, as well as direct investments and acquisitions. Meanwhile, the main industrial sectors were: • Financial services
• Information technologies
• Administration and consulting
• Telecommunications
• Food, beverages and tobacco
• Pharmaceutical industry
• Energy
• Capital goods
• Ore and metal
• Machinery
• Retail
• Construction materials
(Main investment sectors in Brazil) To summarize, we can list the greatest advantages of adopting the Corporate Venturing model, keeping in mind that this is a situation of mutual advantages. It is more than a business partnership. It is the strengthening of a healthy market relationship, with high chances of profits and benefits for both giants and startups. *This text was written based on the study conducted by IESE Business School and Wayra
Fabio Caraça
Fábio Caraça is the Chief Growth Officer at Pix Force. He leads Pix Force's transformation into a scalable SaaS operation, combining strategic vision, culture, and high-impact execution.
