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Bringing Silicon Valley Inside

With the rise of innovation enthusiasm, for example, corporate venturing quickly became an unqualified imperative. If your sclerotic, ossified Fortune 500 company were to have any hope of competing with young and aggressive entrepreneurial upstarts, corporate venturing was the answer. The idea was simple: Bring the youthful vigor of Silicon Valley inside your staid corporate bureaucracy—internalize the same excitement and energy, imagination and intellect, and motivation and incentives. Harness the power and principles of venture capital, the creative promise and possibilities of java-fueled skunkworks and incubators, and all the rest and best that intrapreneurship had to offer.

The goal was to stimulate the underutilized brainpower and capture the latent entrepreneurial energy of corporate employees who alternately had become too comfortable with, or too frustrated by, the old corporate bureaucracy and routines. Become a corporate venture capitalist, both figuratively and literally! Create autonomy and motivational rewards and set employees loose. Let them plant a bunch of real innovation options and watch as they grow. Then, prune the underperformers and nourish the healthy ones—just as in the hothouse, Darwinian world of venture capital–fueled entrepreneurship.

Many corporate venturing promoters went beyond recommending such simple intrapreneurship. They advocated stretching beyond the firm's own organizational and financial boundaries. Don't just act like a venture capitalist, literally be a venture capitalist. Use corporate cash to bankroll your own venture fund.

Especially by the late 1990s, more corporate executives began asking themselves, "Why should the Sand Hill Road VCs get all the glory and all the gains?" Instead, let's ourselves cast a wide net both inside and outside the company to capture new ideas with great strategic and financial promise—from whatever the source. Not Invented Here (NIH) became an asset, not a quandary. Let's fund them all, whether from inside or out, and manage the portfolio as would any sharp venture capitalist.

That was the theory, anyway. After a brief but intense splurge on such venture activities, even many of the more celebrated corporate venturing efforts were sharply curtailed or simply shut down after various dysfunctions, disappointments, and red ink ensued. Corporate venturing did not fulfill its promise; the venture imperative became the venture illusion. Even exemplars such as Lucent and Procter & Gamble either curbed or shut down their skunkworks and shut down or sold off most or all of their venture portfolios. The initial, uncritical enthusiasm for corporate venturing ignored the crucial fact that an established operating company is not—and probably should not try to be—either a venture capital firm or a de novo startup. It also became clear that successfully implementing corporate venturing activities requires careful balancing of numerous internal tensions and conflicts that venture capitalists and standalone startups simply do not have to deal with.

The mixed results of these corporate venturing experiments do not mean that there are no useful lessons for established companies to learn from the world of venture capital and startups. But whatever lessons might be gleaned from the VC mindset and a more general entrepreneurial perspective, successful and established operating companies must not abandon their strengths and, chasing after a dream, try to be something they are not designed for and can never be. Aggressive skunkworks and incubators often are not the right approaches for most companies; they do not offer innovation salvation and, in fact, tend to bring a host of new and serious challenges for a firm's core businesses. Corporate venturing would not be the establishment's innovation panacea, as many had hoped.

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