Falling in love with technology alone is not enough; successful investments require consideration of factors like management, market conditions, and the broader funding environment. 
Bridging the Gap: How a POC Budget is Revolutionizing Corporate Venture Capital
Sep 27, 2023
Interviewed by Nicolas Sauvage on February 16th, 2023
Fumiko Uraki, Senior Director at Mitsubishi Chemical Group, spoke on the 61st episode of the Corporate Venturing Insider. With a journey full of adaptability, curiosity, and a commitment to fostering innovation and growth within the corporate world, Fumiko provided invaluable insights that will help grow both investors and entrepreneurs alike.
Falling in Love with Technology- The Dos and Don’ts
As investors look at so many different startups throughout their careers, it’s extremely important to be aware of personal biases. With Fumiko, she struggled to control her love for the technologies she was encountering. She candidly admits that she, like many tech enthusiasts, found herself falling in love with the allure of groundbreaking technologies. The prospect of innovation and overcoming challenges in the tech sector can be capitalizing. However, she emphasizes that she learned, sometimes the hard way, that technological brilliance alone does not guarantee a startup’s success.
“There are several deals that I fall in love with the technology, but as a company, they failed or they didn’t go as they planned,” says Fumiko. “So I start to learn very slowly to have a holistic view before investing.”
As she mentions, the success of a startup extends beyond technology. It involves a complex interplay of factors including effective management, timing, market conditions, and the overall funding environment. Recognizing the broader context in which a startup operates is essential to making informed investment decisions.
When asked about mistakes, Fumiko highlights a partnership with a startup that, while promising on the surface, ultimately didn’t yield the expected results. However, a crucial element was missing- transparency. After a time, Fumiko’s team realized that the startup’s CEO concealed critical information, painting a rosier picture of progress than reality dictated. It took the corporate team months to uncover the truth, that the commercialization timeline was significantly longer than initially communicated.
The lesson from this story was clear: relying solely on verbal assurances or limited information can be risky. To mitigate such risks, Fumiko emphasizes the importance of having multiple channels to verify information. It’s not about distrusting entrepreneurs but rather about ensuring a well-rounded understanding of the situation. Engaging with various stakeholders within the startup and corroborating data from different sources can provide a more accurate picture.
The Blueprint for Mitsubishi’s CVC Success
When asked about the influences that shaped her approach at Mitsubishi Chemical, she acknowledges that she didn’t hesitate to draw from her experience at BASF Venture Capital. Fumiko candidly admitted to adopting several elements from their playbook, viewing it as a natural course of action given the common learning curves associated with CVC.
One critical aspect Fumiko highlighted that she implemented during her time at BASF was the concept of independent decision-making for startup investments. In the Japanese corporate landscape at that time, such independent decision-making was far from common practice. Typically, decisions of this nature required navigating cumbersome board meetings or executive gatherings, processes that could stretch for months.
“We have to have an independent decision-making system for investment because it has to be fast and it has to be also flexible,” says Fumiko.
Here she clearly understood the need for speed and flexibility in the dynamic world of startups. To expedite the investment process, she introduced an independent advisory board within Mitsubishi Chemical which would ensure swift responses to investment opportunities. Conducting due diligence and establishing robust evaluation criteria are all cornerstones of their CVC framework, ensuring thorough and informed decision-making.
The Proof of Concept (POC) Budget
While much of Mitsubishi Chemical’s CVC strategy mirrored her leanings from BASF, Fumiko innovatively introduced a concept that set them apart- the Proof of Concept (POC) Budget. The introduction of this budget addresses a universal challenge in the realm of CVCs: the timeline misalignment between startup and corporate budgets.
She recognizes that often, startups demand swift action, but corporate budgets are tied to annual cycles, leading to frustrating delays. Her solution was simple- create a dedicated budget to initiate Proof of Concept activities with startups. This budget could be activated swiftly, allowing for essential initial steps even before formal investment decisions. It’s a means to bridge the gap between startup speed and corporate bureaucracy. As Fumiko mentions, the POC budget’s primary purpose is to expedite partnership engagement. By having the means to initiate preliminary collaborations before major investments, Mitsubishi Chemical can test the waters and understand the potential of a startup project better.
“We can also get a lot of insight with POC not only about the technology readiness or the feasibility but also the chemistry to work with that company,” she explains. “So it’s not only the startup side but also the business unit side as many times they do not have the readiness, culture, or people to work with the startup.”
But of course, the POC budget isn’t without its challenges, as Fumiko adds. While it accelerates the process, it also requires careful assessment and management. The potential pitfall is when the business units view it as “easy money” for curiosity-driven experiments rather than serious, strategic endeavors. To counter this, Mitsubishi Chemical employs champions who ensure alignment with the larger strategy and genuine intent behind the POC projects. They scrutinize each project’s potential to avoid becoming a mere information source for casual experimentation.
The Evolution of Japanese CVCs
From its early stages to the present, Japanese CVCs have witnessed significant growth and maturity, offering valuable insights into the world of startup investments. As we delve into the discussion, Fumiko takes us back to 2008 with her career at BASF Venture Capital in Japan. At that time, Japanese CVCs were still in their infancy, with only a handful of electronic companies engaging in CVC activities, primarily centered in Silicon Valley. However, as the technology and bio sectors experience bubbles and subsequent downturns, many corporations pulled back from CVC efforts.
“There is a good network within CVCs in Japan that learn from the peers and are also working very closely with the venture capital people,” shares Fumiko. “So I think the ecosystem is now really kind of developed in a very good way.”
Recognizing the urgency to promote CVCs, Fumiko and her colleagues initiated CVC forums in collaboration with the Japan Venture Capital Association. Fast forward more than a decade, and the CVC landscape in Japan has undergone a remarkable transformation. Membership in the association has surged and manufacturing giants like TDK and Mitsubishi Chemical are achieving notable successes through their CVC arms.
When comparing investment strategies, there is a clear difference between domestic and overseas ventures. Investing outside Japan often involves a more hands-on approach, with CVCs actively participating in the management and growth of startups. In contrast, Japanese investment focuses on business alignment, reflecting the strong relationships cultivated with local startups.
From a nascent and struggling ecosystem, Japanese CVC has evolved into a thriving community with strong government support, cross-industry collaboration, and a growing number of successful investment cases. As the CVC landscape continues to mature, it offers a glimpse into the future of corporate innovation and startup partnerships in Japan and beyond.
