Venture capital (VC) thrives on risk. Corporations prioritize stable growth. Top-tier VC firm Andreessen Horowitz (AH) often pushes the boundaries of traditional VC and continuously experiments with new strategies, and pivots quickly when strategies fall short.
New Collaboration
Now, AH and Eli Lilly are rewriting the playbook with a pioneering Biotech Ecosystem Fund. This collaboration has the potential to redefine how Corporate VC (CVC) fuels innovation – not just in biotech, but across emerging industries. Here are three key lessons from this partnership that VCs, CVCs and entrepreneurs can use to build the next wave of unicorns.
#1. Top Unicorn Developers Master Early-Stage Venture Risk
Corporations prioritize consistent and growing cash flow and avoid high risk ventures. In contrast, VCs bet on future valuations and accept high risks. Corporate target returns, as measured by the weighted average cost of capital (WACC), are relatively modest compared to the aggressive VC target portfolio returns of 25% or more annually. This disparity is because about 80% of VC investments fail due to the inherent risk in emerging industries and ventures. To offset this loss, the remaining 20% must score high returns to compensate investors. Examples of home runs include:
· Instagram, where VCs doubled their investment in about a week.
· eBay, where Benchmark Partners invested about $7 million and harvested about $2.4 billion in about 18 months.
#2. Top Unicorn Developers Master Stage-Wise Investing
Corporations typically invest larger amounts in mature projects with predictable cash flow, reducing their risk. VCs, however, focus on high-risk ,high-potential early-stage ventures. To manage this risk, they invest in tranches, investing additional capital if key milestones are met. They also seek very high annual returns, up to 80% – 100%, in very early stages. This disciplined approach balances risk and reward, forces startups to prove potential, and enhances capital effectiveness. By collaborating with AH, Lilly can leverage this expertise.
#3. Top Unicorn Developers Blend Financial and Venture Development Expertise
The leading VCs do more than just provide funding. They also offer expertise and access to top-tier networks of markets, talent, advisors, and alliances. These networks and access can help CVCs push biotech breakthroughs forward.
The Missing Link for CVC: Training Unicorn-Entrepreneurs to Get to Strategy Aha!
Success in biotech CVC is mainly based on product development and regulatory approval. But in non-biotech industries, where most unicorns are built, venture success is based on finding the unicorn strategy to dominate the emerging industry and developing the skills to execute. Top VCs, like Andy Rachleff (co-founder of Benchmark Capital), invest after entrepreneurs validate their strategy – the “Strategy Aha” moment, change CEOs up to ~85% of the time, and yet fail on about 80% of their ventures. To succeed without being replaced, about 18% of 87 billion-dollar entrepreneurs used startup, launch, and leadership skills to delay VC and control VCs; and 76% avoided VC to keep control of the venture and the wealth created.
The Corporate VC Playbook: Developing the Unicorn-Entrepreneur Ecosystem
Philipp Willigmann, corporate venture and ecosystem expert ( www.u-path.com), notes that “This new alliance represents a significant step forward—corporations can gain from VC agility, while VCs can tap into corporate networks and capital. However, what’s still missing is a new ecosystem that blends Corporate VC with Unicorn-Entrepreneurship, particularly for non-biotech industries and early-stage ventures that lack the proof VCs typically require.” So, the true benefit of this alliance is that it addresses a key CVC need for expertise. But in non-biotech emerging industries, many billion-dollar entrepreneurs imitated the product but improved on the strategy. Entrepreneurs who followed this imitate-and-improve strategy included Steve Jobs, Michael Dell, Jeff Bezos, and Brian Chesky. This means that CVCs need to build a unicorn-entrepreneur ecosystem of entrepreneurs and intrapreneurs to bridge the gap from idea to strategy Aha with skills. They cannot rely solely on capital or on technology.
The unicorn-entrepreneur ecosystem to bridge the gap includes three key steps:
· Training All Potential Entrepreneurs & Intrapreneurs: Entrepreneurs and intrapreneurs in the corporate ecosystem must be trained with the strategy, launch and leadership skills needed to succeed. An entrepreneur’s potential is not always evident from the pitch. Appearances can deceive. Even Steve Jobs faced multiple rejections from VCs.
· Leveraging Corporate Networks: By connecting startups with key partners, customers, and suppliers, CVCs can help in accelerating market traction.
· Adopting Stage-Wise Growth Financing like VCs: Instead of large upfront investments, funding should be milestone-based, aligning with venture progress.
MY TAKE: The partnership between Andreessen Horowitz and Eli Lilly exemplifies how corporations can bridge the Aha gap – in biotech. But to unlock potential in non-biotech industries, corporate venture capital must evolve, and shift focus from funding technology to building a unicorn-entrepreneur ecosystem that trains finance-smart entrepreneurs and intrapreneurs, equipping them with skills to drive long-term growth and unicorn innovation.
Read the full article here
