INSEAD’s Zeisberger Preaches Execution, Communication

INSEAD’s Zeisberger Preaches Execution, Communication

May 13, 2024

Interviewed by Nicolas Sauvage on October 2, 2021

Leveraging venture capital has become almost a prerequisite for corporate success, says Claudia Zeisberger, senior affiliate professor of Entrepreneurship & Family Enterprise at INSEAD. To remain competitive and innovative, industrial leaders must develop clear strategies and a focus on execution. She told Corporate Venturing Insider host and TDK Ventures President Nicolas Sauvage that even the most capable and resource-rich corporates need CVC to augment internal R&D and M&A endeavors to capture the capabilities that power sustainable success.

CVC’s Growth Spurt

Claudia stated that she is most intrigued by the deepening foothold CVC is gaining among traditional corporations. No longer are tech-entrenched firms the only ones investing in startups.

“It probably started five or six years ago, that at INSEAD we were seeing more and more interest emerging from…consumer, banking, and other corporates coming to us for help determining if they should be part of the (investing ecosystem),” whether it be through direct investment, equity, or private capital,” Claudia remembered. “If we dip our toes into it, how can we do it in a way that is as de-risked as possible? Should we do venture capital? Should we set up an incubator or an accelerator?”

That interest spurred INSEAD to implement an executive education program.

Outside the ivory tower, Claudia said the experience she has gained in advising corporates on investment opportunities, which led her to found the Global Private Equity Initiative, has provided insights both into the need for corporates to get involved in venture capital and the questions startups have in vetting potential investments.

“More and more startups would come and say, ‘Hey Claudia, we’re raising our next round, and we have a couple of term sheets, but one of the term sheets is the corporate behind it. Should we consider them?’ “Because I am always adamant that venture investors need to bring more than just capital to the table. Money is not a differentiator anymore,” she said.

So, Claudia set about collecting information about the challenges the industry faces, the best practices that have been adopted, and the secrets successful CVC arms use to get ahead. She said many of the corporate investment arms she talked to hadn’t achieved their mission. Sharing those findings has contributed to the dramatic increase in CVC growth.

“I would’ve never thought in 2015 that we would see such a kind of hockey stick chart projection in terms of new CVCs coming in, money being deployed out of CVCs, the number of deals being done, or percentage of CVC deals in the US,” she said. “I was positive about it; I was excited, but I would’ve never thought that it would grow that much.”

Jump In or Get Left Behind

Corporations today will lose traction, market share, and industrial leadership if they stick with an insular strategy. While they may have options about how to invest in startups, they “have no choice but to step out and be aware of what is happening” within their industries and those that could impact their businesses. At an absolute minimum, corporates need to observe. What is happening in the startup ecosystem; not just startups that are close to what they’re doing, what we call horizon one, but you need to think about what you do in your context in a much, much more global, broader, wider sense. You cannot afford to lose sight of the developments, the potential threats emerging from the outside.”

There is no single path to a “horizon three” mindset, she said. The key is knowing that conversation, observation, and engagement come through participation and the willingness to make mistakes from which you can learn.

Investing, through CVC or other means, provides those observation, participatory, and engagement platforms that can lead to discoveries that may influence the restructuring of a company’s internal R&D team. How corporations respond to changes outside their specialty areas and industries and then connect those insights into internal operations will determine which businesses flourish and which struggle over the next five to 10 years.

Corporates can explore what innovation steps are missing within their organization — visibility, execution, engagement, contrary thinking — “and then which part of corporate venturing can help close that gap,” Claudia said. “If you are confident in your execution capability in terms of R&D and you’re getting the intelligence that you need…I would strongly encourage those corporates to circle the wagons regularly and ask, is that still the case today? Because we’ve seen certain industries very quickly being disrupted from being reasonable observers. Even old hardcore industries like oil and commodities are now disrupted by requests for ESG compatibility. Investors are starting to put up screens that they didn’t put up even 12 months ago.”

Execution

An undefined sense of purpose in observing and implementing the developments that influence their productivity can be a big part of why CVC programs do not fulfill their promise. Claudia said. “In an entrepreneurial environment, this could be because companies neglect to re-examine the reason for their interest in startup investments. But far more often, the failure comes down to execution, Claudia believes.

“There’s one element of execution that is probably the most important — internal communication, the internal ‘PR’ so it’s clear to all your business units what it is that the corporate venture capital thing is doing,” she said. “What is this team doing? When should I go to them? Is there some way they can help me execute my KPI? If you can argue that and explain that, you will have incoming requests.”

Building and nurturing those internal relationships is the key to continuity and execution. An internal communications manager of CVC/mothership liaison may be able to communicate to business units the pivots and focus shifts the venture arm observes in areas tangential to the organization’s core businesses. The two entities then can brainstorm which developments could dovetail with the company’s aim. The CVC insider can grease the skids to facilitate a meeting between the entrepreneur and the business unit manager. Second-tier relationships with the department heads can ensure that a CVC does not become one of the 80% that close their doors within five years. Claudia believes the rate is so high because of CEO turnover.

“When the new CEO comes in, there’s a new sheriff in town,” she explained. “He or she has a different vision on execution, and since the CVC is usually considered non-core, it’s an easy one to open and close quickly. As the leadership changes, it’s important to show that you have your tentacles inside the organization. You need your fan base internally to say, ‘No, we need those guys’.”

Startup Engagement and Strategy

Execution also involves relationships and communication with the startup community.

“If you’re purely inwardly focused, you’re not bringing that knowledge. Your intelligence gathering and your funnel will run dry very quickly. You need to ensure that the message goes out to the broader ecosystem,” Claudia said.

Involvement in the entrepreneurial community spurs a kind of inbound sales funnel crucial to deal flow. Especially for new venture capital firms — whether corporate or financial — that cannot hope to find sufficient strong startups for investing, she said, because there are so many potential goldmines hidden across the globe.

“You don’t know which garage to look in to find innovation,” she said. “So, you need to create a certain visibility to the outside.” That way, consumer startups know exactly which consumer parent companies have CVCs they should be talking to.”

Becoming known in the startup community generates interest and generates a pool of emerging businesses the CVC can filter to build its portfolio. At the same time, participation in funding rounds has a snowball effect: one invitation leads to a few more, which segue into several others. Successfully managing the next funding round or clearing the path for a lucrative exit builds a CVC’s reputation. Once startups grow comfortable in a CVC’s participation in funding, they will seek other resources such as product validation, distribution channels, outsourcing partners, scaled manufacturing, and more. To meet those requests, the CVC must have established contact points with the relevant business units inside the parent organization.

Delivering on promises to startups necessitates a clear focus and strategy. Claudia suggests a defined, narrow, and unwavering investment thesis. Attempting to become a CVC jack of all trades is a sure-fire path to becoming a master of none. Specialization makes it easier to determine whether a startup fits the criteria and if the investment aligns with the mothership’s overall strategy.