A Strategic Investment that Becomes a Win-Win
Corporate venture capital (CVC) refers to funds that large corporations invest directly in innovative startup companies or early-stage growth companies. Sometimes, the corporation expects an equity stake in the company. But many CVC groups choose to make strategic investments that become win-win deals for both the corporations and the smaller businesses.
Corporations invest in CVC for two primary reasons:
- to minimize the risk of being disrupted by emerging technologies
- to accelerate the speed of innovation within their own product lines. Collaboration can be a cheaper, faster alternative to ramping up the corporation’s own internal R&D.
The corporation also benefits from access to new talent or niche technology that may help get their new products to market faster.
In some cases, your business may be asked to beta test new equipment or collaborate on pilot projects that help your partner test commercialization strategies for a promising new product and applications.
How Small Companies Benefit
Small business owners seeking to scale their businesses often welcome partnerships with corporate venturing groups. In addition to getting an infusion of cash, you may get access to your corporate partner’s customer base or expertise in marketing and data analytics.
Plus, having a corporate partner can give your business instant credibility when raising additional funds from other sources. A successful collaboration with a well-known business can also help attract a buyer when you’re ready to sell your business.
Sometimes, the corporate partner may make an offer to acquire your business. But in most cases, CVC projects only last two to three years. In some cases, the corporation’s priorities change. Or you may prefer to take advantage of other emerging opportunities to grow your business.
CVC Is Enabling the Digital Transformation of Printing
Corporations such as 3M, Adobe, HP, and Avery have long been major supporters of digital technology ventures in the graphic communications field. Big global packaging companies have also invested CVC to further refine what’s possible with digital printing and converting equipment and materials.
Avery’s stated goal is “to combine the best of both worlds: disruptive technology and entrepreneurial thinking with operational excellence at a global scale.” According to their website, Avery Dennison Corporate Venture Capital investments take many forms, including minority equity investments, joint development agreements, non-recurring engineering projects, reseller relationships, and other forms of strategic technical and commercial partnerships.
Adobe was an early investor in Digimarc, a 1990s digital identification start-up that has become a leader in helping brands, retailers, and publishers minimize the unauthorized use or reproduction of their products.
Adobe was also an early investor in EFI, before the company went public and expanded from software development for color copiers to development of integrated digital printing systems for ceramics, building materials, signs, textiles, and corrugated packaging and displays.
In April 2021, Amcor, a global leader in consumer packaging announced a $10 million to $15 million strategic investment in ePac Flexible Packaging.
‘We are incredibly proud of Amcor’s innovation and R&D capabilities but with our scale and global footprint, we are also uniquely positioned to supplement our internal efforts with investments in complementary technologies and business models,” Amcor’s CEO Ron Delia explained.”Our investment in ePac is the first corporate venture-type investment for Amcor and provides a great opportunity to learn from a high-growth start-up.”
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ePac was founded in 2016 as a joint venture of Arion Partners and Emerald Packaging. The start-up was the first flexible packaging company in North America based exclusively on a digital technology platform. The business model was built on lessons learned during the successful U.S. beta testing of the HP Indigo 20000 for flexible packaging at Emerald Packaging.
ePac’s mission at the start was to “provide consumer packaged goods companies (CPGs) the ability to rapidly produce test-market packaging, quickly roll-out marketing promotions, and eliminate excess inventory through print-on-demand and design-to-print services.”
Today, e-Pac has a fast-growing international footprint, with 18 fully operational sites and 5 more on the way. ePac serves thousands of customers and generates annual revenues of approximately $100 million.
ePac recently announced plans to build a digital flexible packaging facility adjacent to the incubation lab and working showroom of Karlville, a global company known for its innovative packaging solutions.The initiative at Karlville’s headquarters in Miami, Florida,will reinforce Karlville’s core machine competencies in lamination, coating, slitting, inspection, and pouch-making.
ePac Miami will be equipped with Karlville Solventless and HP Indigo Pack Ready laminators, slitters, and stand-up pouch makers. As an incubation strategy, the ePac/Karlville partnership will enable the development of new technologies in lamination, coating, and curing and create a testing ground for new material. The ultimate goal is to broaden the diversity of pouch formats.
“We are happy to be working closely with both HP and ePac to help push digital business to the next level,” said John Price, Karlville President.
Getting Noticed
Most corporations with active CVC programs have dedicated web pages that explain how to apply for funding. These web pages will describe the types of technologies or markets that the CVC group currently wants to invest in.
Or, you can build relationships with influential corporate leaders at customer conferences sponsored by corporations such as EFI, HP, and Canon or customer get-togethers hosted by major exhibitors at big printing conferences.
Geographic proximity can also be an advantage. When I worked on the leadership team at Vomela in St. Paul, Minnesota, our innovation-focused graphics converting business partnered with 3M International to test the equipment, processes, and materials for developing computer-cut decorative or branding vinyl graphics for cars and recreational vehicles.
Our facility was just 6 miles from 3M’s headquarters, so we frequently hosted groups of engineers and scientists from 3M’s internal R&D division. They used our state-of-the-art converting equipment to test innovations such as reflective adhesive vinyl for traffic and safety signs and vehicle markings.
We also beta-tested 3M’s Scotchprint® 2000 digital printer, the first high-speed electrographic
printer capable of producing higher volumes of full-color, large-format,outdoor-durable graphics for vehicles, signs, and transit advertising.
The 3M-Vomela relationship has lasted more than 70 years for three main reasons: They knew us. They liked us. And we earned their trust. We remained silent on every confidential 3M project we supported. Integrity matters!
Good Questions to Ask
To get the best results from a corporate venture capital project, here are some important questions to address.
Is the corporation committed to making this partnership work? If the partnership lacks commitment from the full executive team, the joint project can get derailed by internal corporate politics.
Is the agreement exclusive or non-exclusive? Will your company be competing for projects with other companies the corporation invests in? Will your ability to work with other strategic investors be hampered?
Has the corporation fully spelled out its strategic objectives? Do you know what the corporate investment group is trying to accomplish? Some companies may be trying to test market a new application of a material or printing technology. Others may simply want access to the technical talent on your staff who can help them develop new products or troubleshoot an emerging technology.
Will the corporation provide enough resources to conduct a commercial go-to-market pilot project? Will the pilot project be large enough to deliver the accurate insights they need to proceed to their next steps? Are the corporate employees assigned to your project stretched too thin with their day jobs or other joint projects?
Has the CVC group assigned a corporation insider who can help you keep the project moving ahead? To keep a project on track, you may have questions about how to access corporate marketing or data resources. Some small-business owners get frustrated by the slow pace of corporate decision-making and the intricacies of corporate bureaucracies.
Don’t overlook the differences in the culture between a big corporation and a nimble, independent small business.
If you wonder if you are ready for a CVC project, call me at 561-543-2323. From my previous experience as the owner for a specialty graphics converting company, I learned firsthand about some of the avoidable risks and unanticipated rewards of corporate collaborations.
RECOMMENDED READING
How corporates and start-ups can collaborate successfully | McKinsey
How incumbents can industrialize business building | McKinsey
3M Ventures | Venture Capital Arm of 3M Company
Successful exits | Adobe Ventures
News | HP Tech Ventures
Avery Dennison Corporate Venture Capital Program