Not sure whether a venture will spin out or spin in? Set the venture up as its own company anyway. A separate company is easier to staff, fund and even bring back home.
Every corporate venture starts with a question its parent has yet to answer: will this business one day leave home, or return to the parent? Jasdeep Sawhney, who runs InMotion, Jaguar Land Rover’s venture building arm, says his team is “never sure right from the beginning” which way a venture will go. So the preparation starts on day one, with leadership backing, a separate company, the right founder and a clear equity split.
Jasdeep compared notes on that preparation with Vuyo Mpako, head of Old Mutual’s Next176 unit, and João Paulo Fernandes, venture builder and entrepreneur in residence at PwC Germany, in a webinar hosted by Global Corporate Venturing.
JLR builds new business models, such as selling direct to consumers, that sit outside what its core organization is set up to run. Old Mutual looks for outside investors in its ventures from the start. PwC builds ventures, like circular economy solutions, that need many companies to take part.
The units build very different ventures, yet all follow the same four tactics, which other corporate venture builders can adapt to their own setting:
1. Win C-suite backing for the program from the start
A survey by Global Corporate Venturing (GCV) shows that more than 60% of venture building programs support their ventures for over 12 months. Almost a quarter support them for more than three years.
The parent company has to keep backing the work for that whole stretch, so Jasdeep advises looking for a CEO or CFO to sponsor the program from the start. In his experience, venture building is an uphill battle for any program that lacks that sponsor. To win that sponsorship, each of the three companies puts a different kind of value in front of its leadership:
PwC: financial return and cross-selling. The firm pitches its C-suite on ventures that make money and on new clients who first arrive through a venture. Before that pitch, PwC ran a roadshow across its business units to show each one the benefits of sponsoring ventures.
Old Mutual: financial return and options for the future. Next176 backs their case with tight portfolio management. With ten ventures in play, the CFO judges the portfolio as a whole, so Next176’s job is to keep the whole portfolio moving forward. To make that work, Next176 governs how it spends capital more strictly than Old Mutual’s core businesses do.
JLR: strategic direction. InMotion shows JLR where to invest and also where to hold back, so that a venture that fails still gives the company useful strategic information.
2. Set up each venture as a separate company from day one
With a sponsor in place, the first decision for each venture is its legal setup.
InMotion incorporates each new business as a separate legal entity from the first day. In Jasdeep's experience, a separate company makes it easier to contain risk, hire talent and keep each team apart from the others. Those benefits hold, even when a business later moves back inside JLR.
Old Mutual’s Next176 also sets up each venture as its own company. In Vuyo’s view, keeping ventures inside the parent creates two problems:
Governance: financial services operates under heavy governance, so bringing an early-stage venture inside Old Mutual means taking on that weight before the venture has proven itself.
Cost: a venture inside Old Mutual adds its losses to the parent’s results. A large enterprise can absorb a $1 million loss from one venture a year, but Next176 has launched a dozen ventures alongside its startup investments. At three to five ventures a year, the combined losses start to show.
A separate company addresses both problems. The venture stays at arm’s length from Old Mutual’s governance while it is young, and it can take money from outside investors, who carry part of those losses.
3. Recruit founders from outside and borrow experts from inside
Once a venture has its own legal entity, it needs someone to run it. InMotion fills that job from outside JLR. Jasdeep has his reasons for that rule:
Mindset: a startup founder needs more appetite for risk and a different kind of accountability than corporate work requires, so InMotion hires people who already have this work attitude.
Talent: bringing new people into JLR is one of the top reasons the studio exists.
Moreover, in most ventures within JLR, internal advisors join the outside founder early on in the process. Subject-matter experts from across the company work alongside the founder while the startup builds its concept, and they help move it from idea to venture. Once the venture takes shape, the experts step back, and the founder runs the business independently.
PwC hires outside founders too, setting a specific bar for them. Its founders should have grown a company from zero to 50 people or to $5 million in revenue, and they should be able to:
build a product
sell it to the market
hire well
raise money from investors
However, founders who combine that record with deep knowledge of a specific technology are hard to find, so PwC also recruits from inside the firm, unlike JLR. That's due to internal founders knowing best how to put the firm’s assets and capabilities to work.
4. Give founders equity, with a clear rule for the split
Since founders in all three companies earn less than they would in a corporate job, equity comes in — to make up for that loss. They split that equity using different rules:
JLR: when the idea comes from JLR or is directly strategic, InMotion typically takes 80% and reserves 20% for a founder pool. When an outside expert brings a product to incubate, the split reverses: the founder keeps 80% and JLR takes a 20% minority stake, with the option to buy more as the venture becomes more strategic.
PwC: the firm decides case by case. For a fully independent venture, PwC typically takes under 20%, rising to 50% at most. At that level the venture would effectively carry the PwC label, and PwC wants its ventures to stand on their own. PwC also looks at how the venture will be funded. If it plans to raise outside money later, PwC leaves the team a bigger share. If PwC and its partners fund the venture to break even, the team may get a smaller share.
Old Mutual: Every team will get equity, because Next176 often competes with other investors to back the same founders. Next176 usually sets aside 20% of each venture for these founders. If a team brings more than usual, such as relevant experience or an existing product, the investment committee can raise that share.
