Corporations Are Placing Their Bets on Technological Innovators
August’s TAG (Technology Association of Georgia) Corporate Development Society meeting featured a panel of speakers from four large corporations—UPS, Hewlett-Packard, Assurant, and AFLAC—and from a venture capital firm, Forte Ventures. The speakers discussed the growing trend of corporations’ making venture capital (VC) investments in technology firms. Corporations see these investments as strategic opportunities to learn about innovative technology and to expand their technological capabilities.
Panelist Tom Hawkins, managing partner of Forte Ventures, claimed that “almost every corporation” has a VC group today. More than 50 percent of VC deals are technology investments, Hawkins reported.
These companies are assuming some risk by investing outside their core competency, but even conservative corporations like UPS understand that they need to invest in “things we don’t understand” to remain competitive in an increasingly technology-driven market, noted panelist Rimas Kapeskas, managing director of the UPS Strategic Enterprise Fund. To mitigate their risk, some corporations partner with companies like Forte and TTV Capital when they invest in entrepreneurs and start-ups.
Corporations often see technology investment as an extension of their R&D efforts. Some expect an ROI, while others invest to gain competitive insights, to stay abreast of technological trends and innovations, and/or to expand their technological capabilities.
Robert Lonergan, executive vice president and chief strategy officer at Assurant, said that his company sometimes invests in tech firms as part of buy/build/invest decisions about new digital solutions. The investments must have strategic value to drive growth, as well as an ROI. Investing in entrepreneurs “gives us insight into where things are going,” Lonergan noted.
AFLAC invests in technology entrepreneurs knowing that 90 percent of these ventures will fail, but the company’s investment is part of its strategic vision to “grow through technology,” said Nadeem Khan, president of AFLAC Corporate Ventures. AFLAC knows that customers increasingly want to do everything online, so more and more of them will want to buy insurance online rather than meeting with an agent. With this in mind, AFLAC is investing in building the capabilities to give customers the experience they are looking for.
Similarly, UPS has acquired new digital capabilities by investing in inventory management technology and near-real-time, data-driven credit decisioning technology, since UPS has a lending arm.
For its part, Hewlett Packard has made the strategic decision to invest only in mature entrepreneurs that “handle completion well” and are “transparent” about their customers and structure, Ray Schuder, managing director of Hewlett Packard Ventures said.
The panelists agreed that VC investment must be mandated or at least encouraged by the top of the organization, although it can sometimes be difficult to persuade executive management to invest in unfamiliar technology. Finding an internal champion for VC investment often helps to change a reluctant CEO’s mindset.
Investing venture capital into entrepreneurs is a “win-win” for both the investor and the entrepreneur, the panelists concluded. The entrepreneur’s business venture is allowed to take flight, and the corporation stays on the leading edge of technological innovation.