Coopetition in corporate venture capital investments: An oxymoron?
Much of public discussions and debates on corporate innovation and performance focus on the notion of competition. Fierce, cut-throat, hypercompetitive climate is assumed to dominate today’s business environment, and business schools do their best to prepare graduates to seek and sustain competitive advantage in the face of rival’s adversity, says Sergey Anokhin (Kent State University). Interestingly, however, these same business schools preach the benefits of cooperative strategies, and suggest that in many cases combining efforts with others and building connections vertically and horizontally is beneficial for the long-term success. Can you combine the two? Is it possible to talk about large-scale collaboration among multiple competitors each of which openly pursues the same innovative agenda? Some scholars and practitioners suggested that coopetition – or cooperation among competitors – is a strategy to consider. But does coopetition truly work? For instance, in corporate venture capital investments – a corporate practice where established companies invest in high-tech startups working on high-potential ideas – is it possible to have firms share their ideas with rivals? Or is it more of an oxymoron that claims the attention and resources of corporate decision makers without offering anything in return?
Coopetition: The reality, seys Sergey Anokhin, Kent State
The truth, explains Sergey Anokhin (Kent State) , is that the vast majority of corporations investing in high-tech startup syndicate their deals with other incumbents, many of which are, in fact, their direct competitors. New ventures may have over a dozen corporate investors who not only provide capital to the startup but also share their technical and market-related expertise with the new venture – and by extension with all the corporate partners connected to the startup. The really surprising part is that most of these corporations are after the very same thing: innovative ideas. Do they manage to cooperate despite being competitors outside of each particular investment? And if so, how should they structure their participation in the CVC deal to benefit the most?
The secret to profiting from coopetition
As each corporation engaged in CVC investments is connected to multiple competitors across many different deals, the secret to getting the most out of such investments lies with the careful positioning of the company within the syndication network, says Dr. Sergey Anokhin. Two things are especially important. One, it is essential to stay close to the center of the network because this facilitates access to diverse ideas, reduces the amount of time needed to internalize new technologies, and ensures the flow of relevant information. Two, it is critical to avoid proximity to isolated regions of the network – for very similar reasons. Corporations that position themselves right, stand to gain much from their CVC syndicate participation in terms of innovation. In turn, corporations that manage to gain innovatively, tend to reward their shareholders with much higher returns. By occupying the proper network position in the CVC syndicate, corporations gain much more than they lose due to information leak to competitors. In other words, when it comes to corporate venture capital, coopetition works – as long as you manage your network position carefully.
However, it is important to remember, warns Sergey Anokhin, that gaining from the strategic position in the syndicate network takes time. One shouldn’t expect immediate payoffs. About two years is required for the positional advantages to translate into strengthened innovativeness. Two more years is what it takes to see the effects of innovativeness to manifest in financial returns. That is, corporations need to think long-term, and truly commit to their CVC programs if they are to enjoy healthy returns to their CVC activity. If they do not have the luxury of waiting for years until realizing the returns on their investments, they may want to consider alternative uses for the corporate funds, concludes dr. Sergey Anokhin- Kent State University
Fore more information, read Baierl, R., Sergey Anokhin, & Grichnik, D. (2016). Coopetition in corporate venture capital: the relationship between network attributes, corporate innovativeness, and financial performance. International Journal of Technology Management, 71(1-2), 58-80.
The article created in April 2018