Good morning. Companies are investing more in corporate venture building. Many are competing with startups to launch their next corporate unicorn, a term that typically describes a privately held startup company with a valuation of $1 billion.
EY-Parthenon’s survey of 1,000 U.S. C-suite executives takes a look at corporate venture building, which is a business that is created by a large corporation resulting in a new source of revenue. About 22% of respondents dedicated at least one-fifth of their operating budget to venture building in 2023 and plan a similar level of investment this year. This represents a five-fold increase in the number of companies that dedicated at least 20% of their budget to venture building in 2022, according to the report.
In the last five years, 45% of companies surveyed have generated at least $100 million from their most successful new venture. And about 8% of organizations have launched a corporate unicorn, generating $1 billion or more in net-new annual revenue, in the same timeframe. Reaching this figure within a relatively short time frame is “commendable,” according to EY. However, less than 10% achieving unicorn status means there are “challenges with achieving significant scale for corporate ventures,” the firm finds.
If you take a look at startup companies, they tend to be smaller than large corporations, especially in the early stages of growth, so they can act nimbly to adjust business practices and hit shifting goals. And they usually put less emphasis on hierarchy within teams.
For corporations, a notable trend brewing is decentralizing venture-building operations, according to EY. Although CFOs and CEOs will continue being the main financial sponsors for venture-building initiatives, they’re giving other leaders more autonomy to shape new businesses. Chief growth officers, chief strategy officers and business unit presidents are expected to become key financial sponsors as well.
Keeping the consumer in mind
The survey found that, on average, executives dedicate half of their venture-building investments to building internally, with the remaining 50% going toward accelerating venture-building through M&A and partnerships.
Knowing your target audience is seemingly key to reaching unicorn status. Corporate venture builds that have backed a unicorn are more likely than others to prioritize new ventures that strengthen their relationship with customers, with 47% expecting to prioritize business-to-business-to-consumer ventures and 44% prioritizing direct-to-consumer ventures in 2024, according to the report.
During the pilot and growth phases, the companies that launched more successful new ventures are 20% more likely to prioritize customer adoption, loyalty, and acquisition cost indicators. On the other hand, less successful corporate ventures have focused primarily on revenue growth and operating margin.
The companies that EY designates as high-growth corporate venture builders are seemingly reshaping strategies and governance models.
Sheryl Estrada
[email protected]
The following sections of CFO Daily were curated by Greg McKenna.
Leaderboard
Stefan Schellinger was appointed CFO of Ardagh Metal Packaging (NYSE: AMBP), a manufacturer of beverage cans, effective Sept. 1. He will succeed current CFO David Bourne, who has decided to move on to new opportunities, the company said. Schellinger most recently served as CFO and executive director of ContourGlobal, a British energy business.
Rory O’Donnell was appointed CFO of GrafTech (NYSE: EAF), an electrical components manufacturer, effective Sept. 3. He will succeed interim CFO Catherine Hedoux-Delgado, who was promoted last September after then-CFO Timothy Flanagan was appointed CEO and president of the company. O’Donnell previously served as SVP, controller and principal accounting officer at Covia Corporation, an industrial minerals business.
Big Deal
Strong second-quarter results mean year-end bonuses will be higher across almost the entire financial services industry, according to the latest estimates from compensation consulting firm Johnson Associates. The estimates are based on results at 10 asset management firms and eight major investment banks.
Debt underwriters could see the biggest jump, the report said, with bonuses estimated to increase by 25%-35% thanks to higher volumes driven by investment grade issuances. Equity underwriters are also expected to be big winners as the IPO market, which has already raised more than it did in all of 2023, fuels an estimated 20%-30% increase.
The report cautioned, however, that the second half of the year could be more volatile and uncertain. Bonuses in the commercial and retail banking sector are estimated to be flat or down slightly.
Going deeper
“‘Black Swan’ hedge funder warns a recession is coming this year—and the biggest market bubble in history will soon pop,” is a new report from Coins2Day’s Will Daniel. Some Wall Street bulls, excited by the possibility of a soft landing, have claimed we’re currently living in the “Roaring 2020s.” Mark Spitznagel, founder and CIO of private hedge fund Universa Investments, isn’t buying it, but he’s not telling investors to short the market, either.
Overheard
“Waiting does bring risk, and that’s why we have to be extra vigilant on this. Because our policies act with a lag in both directions, we can’t really afford to be late. We have to act as soon as possible.”
— Raphael Bostic, President of the Atlanta Fed and a voting member of the Federal Open Market Committee, told the Financial Times in an interview about why he was “open” to a September rate cut.
