Is There An Opportunity To Help Large Companies Establish Corporate Venture Arms?

Yes, and there have been many.

First, the problem is most corporate venture arms have merely played the role of supplemental runway support for independent lead venture capital investors. And thus, in essence, perpetuated the fragmentation, syndication, and collusion of risk in the arbitrage of innovation, quite the opposite of what is needed to recognize the prime risk identified by outliers.

And since most venture capital firms in Silicon Valley have turned subprime (99.4% of them, as I explain ad nauseam on this blog), corporate venture money the way most corporations deploy it, is more good money after bad, and thus does not really produce substantiative returns to a corporation nor moves their corporate monetary needle.

Second, if the goal of the corporation is to eventually absorb the innovation they invested in, more trouble lies ahead. For most corporations have established a beach-head around their core competency quite resistant to change. And groundbreaking innovation of the outlier kind (upstream) is bound to erode exactly the position of the corporation it has so painstakingly preserved, with a new normalization of truth the corporation will be unwilling to embrace. Most likely with a business model in conflict with the walled-garden established by the cash-cow of the corporation.

If and even when the corporation demonstrates extreme incentives to reinvent itself continually, which it should do to survive the test of time, the potential of a discount at acquisition time does not make up for the ability to scoop up any startup company on the open market without having engaged in volatile and unfavorable investment risk with strings attached.

So rather than having a venture arm, it makes more sense for corporations to develop a roadmap of emerging startup technologies it must acquire to reinvent itself continually upstream and downstream, and merely snap up those technologies to round out its own, rather than to participate in the regurgitation of subprime risk at the time of startup formation.

But I can see why corporations, faced with the dense fog created by venture capital’s subprime deal appetite, may want to toy with their own deployment of prime. A reason why so many alternative startup funding strategies have emerged as desperate bandaids to venture capital’s sub-priming. None will work that deploy merely a new (or even more diluted) distribution of the same subprime risk.

The key to finding an outlier of innovation – that knows no precedent – is the deliberate pursuit of prime risk. Not the avoidance of it. And as long as venture investors are not willing or able to pursue the foresight needed to deploy prime risk from the beginning (alone if need be), I would suggest staying out of venture altogether.

 

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