This is part five of a multi-part series on corporate innovation. Parts one and two focused on how to structure a corporate venture capital fund to function as effectively as a traditional venture capital fund and parts three and four discussed how to maximize the innovation exposure return on investment. The series continues with continues with how to ensure that the corporate parent is able to absorb the innovation.

Through this series, we have focused on maximizing the quantity of innovation that a corporate venture capital fund can deliver to the corporate parent. But, where otherwise effective CVCs often fall down is in assuming that bringing an innovative startup to the organization will automatically result in pilots and innovation transfer. Line management is busy running their own business units. After the initial flurry of focus, engaging with startups is typically nowhere near the top of their priority list.

There are two basic strategies for aligning focus so as to maximize a large organization’s exposure to innovation and to accelerate the CVC portfolio’s growth:

Informal – Someone affiliated with the CVC works hard to develop personal relationships with key decision-makers throughout the organization. This person gets to know who is serious about and amenable to working with startups to find innovative solutions to problems and who is merely paying lip service to the creed. He or she uses a bit of salesmanship, some moral persuasion, and the knowledge of the possible to make pilots happen. This approach requires minimal change to the corporate parent and can be implemented the fastest. The disadvantages are that it takes a very skilled person to pull this off and that, in many cases, the fund will have to pass on startups that really could make a difference to the parent organization simply because they are not able to convince anyone within the corporation to conduct a pilot.

Formal - This involves creating a series of structures designed to involve mid- to senior-management in the innovation ecosystem. This includes but goes far beyond simply scheduling pitch events throughout the regions where the corporate parent operates. To be truly effective, management’s job requirements and compensation structure have to change. While the possibilities are endless, here are a few examples:

  • Incorporating into six month and annual reviews metrics quantifying how many pilots a business unit attempted. Avoid over-emphasizing pilot success – that ends up deterring experimentation. After all, several quick-and-cheap failed pilots are also valuable.
  • Setting up a standing committee of senior management that meets once every few months under the guidance of the CVC to identify one or two key areas of innovation (e.g., smart apartment technology for a REIT holding multifamily rental properties) that they want to be the CVC’s primary focus at that time. This has the added benefit of effectively pre-committing the business line to piloting with the startup (or startups) that the CVC finds.
  • Requiring all middle management to evaluate prospective startup investments using a simplified scoring rubric designed by the CVC. Innovation is infectious; expose someone to 20, 30, 40+ groundbreaking startups and they will catch the fever. (If they don’t that tells you something about that manager….) Plus, when one of the startups they reviewed favorably is selected, they will be that much more open to more innovation.

The more formal the approach will, of course, yield better results. It requires touching the most sensitive place: compensation. It also means that a lot of people who are not very well-versed in the startup world (e.g., HR) have to construct an incentive structure that encourages engaging with the startup world. But it is doable, and, when it works, it's pretty awesome.

I’ll be at the HIVE conference on December 4 to 5 in Austin presenting more on innovation in venture capital. Register now to be part of the discussion.

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Acknowledgments: I’d like to thank David Coats (Correlation Ventures), David Gerster (JLL Spark), Blake Luse (Ferguson Ventures), David Teten (ask him about his new fund), Linda Isaacson (FPL Global), Jill Ford (Toyota AI Ventures), Stacey Wallin (Numinus, formerly at BD Tech), Ameet Amin (Proto Homes, formerly at Colliers) and everyone else who contributed their thoughts to this article.