1. A corporate venturing unit uses techniques and processes that have been developed within the venture capital industry, including separation from mainstream business operations, the stimulation and processing of a number of entrepreneurial projects or investments and formalized processes to nurture, assess, develop, fund and cull projects. It is these common features that cause many writers to refer to corporate venturing generically and to distinguish venturing activities from the management processes used to run the core businesses. For further detail on the venture capital industry model, see H. Chesbrough, “Designing Corporate Ventures in the Shadow of Private Venture Capital,” California Management Review 42, no. 3 (spring 2000): 31–49; and P. Gompers and J. Lerner, “The Venture Capital Cycle” (Cambridge, Massachusetts: MIT Press, 1999).
2. Our work builds explicitly on a number of earlier studies of the different types of corporate venturing units. However, our article breaks new ground in two important respects. First, we give more attention to the objectives that lie behind the decision to set up a venturing unit and link these objectives with the appropriate business model. Most previous categorizations have only distinguished between financial objectives and strategic objectives. Second, we use this understanding to explain why corporate venturing units fail to spawn significant new businesses. Earlier studies include H. Chesbrough, “Making Sense of Corporate Venture Capital,” Harvard Business Review 80 (March 2002): 90–99; R.A. Burgelman, “Designs for Corporate Entrepreneurship in Established Firms,” California Management Review 26, no. 3 (spring 1984): 154–166; R.A. Burgelman, “Strategy Is Destiny: How Strategy-Making Shapes a Company’s Future” (New York: Free Press, 2002); R. Moss Kanter, “Evolve!: Succeeding in the Digital Culture of Tomorrow” (Boston: Harvard Business School Press, 2001); and R. Moss Kanter, “When Giants Learn To Dance: Mastering the Challenges of Strategy Management and Careers in the 1990s” (New York: Simon & Schuster, 1989).
3. Our research suggests that “new leg” venturing will not solve a corporate growth problem, despite contrary advice from numerous authors. See R. Foster and S. Kaplan, “Creative Destruction: Why Companies That Are Built To Last Underperform the Market — And How To Successfully Transform Them” (New York: Doubleday Publishing/Currency Books, 2001); G. Hamel, “Leading the Revolution: How To Thrive in Turbulent Times by Making Innovation a Way of Life” (Boston: Harvard Business School Press, 2000); Kanter, “When Giants Learn To Dance”; R. Liefer, C.M. McDermott, G. Colarelli O’Connor, L.S. Peters, M.P. Rice, R.W. Veryzer and M. Rice, “Radical Innovation: “How Mature Companies Can Outsmart Upstarts” (Boston: Harvard Business School Press, 2000); and M. Baghai, S. Coley and D. White, “The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise” (New York: Perseus Books, 1999).
4. More specifically, Intel Capital makes four different types of investments: “ecosystem investments,” to increase demand for the microprocessor; “market development” investments, such as Ariba Online, to help accelerate technology adoption in a foreign country; “gap fillers,” which are investments intended to fill a gap in a growing market; and “eyes and ears” investments that are targeted toward new disruptive technologies that Intel might otherwise miss.
5. The idea of separating out certain activities from their normal functional management is well established in the literature. See P.F. Drucker, “Innovation and Entrepreneurship: Practice and Principles” (New York: Harper & Row, 1985); and C. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms To Fail” (Boston: Harvard Business School Press, 1997).
6. Gifford Pinchot coined this term. See G. Pinchot, “Intrapreneuring: Why You Don’t Have To Leave the Corporation To Become an Entrepreneur” (New York: Harper & Row, 1985).
7. The foremost proponents of this idea were Rosabeth Moss Kanter and Gary Hamel but many other consultants and academics made similar arguments. See Kanter, “When Giants Learn To Dance”; Hamel, “Leading the Revolution”; and Foster and Kaplan, “Creative Destruction.”
8. It is worth noting that the statistical evidence collected in the London Business School questionnaire showed that innovation venturing often fails because of excessive autonomy. That is, there was a strong, statistically significant correlation between venture unit performance and operating autonomy, and between venture unit performance and operating budget independence.
9. Lucent New Ventures Group is written up in detail in R. Moss Kanter and M.A. Heskett, “Lucent Technologies New Ventures Group,” Harvard Business School Case no. 9-300-085 (Boston: Harvard Business School Publishing, 2000); H.W. Chesbrough and A. Massaro, “Lucent Technologies: The Future of the New Ventures Group,” Harvard Business School case no. 9-601-102 (Boston: Harvard Business School Publishing, 2001); and Chesbrough, “Designing Corporate Ventures.”
10. Coller Capital focused on the secondary market in which entire portfolios of investments are traded, typically at a substantial discount. Lucent retained a minority stake when it sold NVG to Coller.
11. The success of GE Capital up till 2000 is documented in D.L. Laurie, “Venture Catalyst: The Five Strategies for Explosive Corporate Growth (New York: Perseus, 2001).
12. See M. Maula and G. Murray, “Corporate Venture Capital and the Creation of US Public Companies: The Impact of Sources of Venture Capital on the Performance of Portfolio Companies,” in “Creating Value: Winners in the New Business Environment,” eds. M.A. Hitt, R. Amit, C.E. Lucier and R.D. Nixon (Oxford: Blackwell Publishers, 2002).
13. See Hamel, “Leading the Revolution” and C.C. Markides, “All the Right Moves: A Guide To Crafting Breakthrough Strategy” (Boston: Harvard Business School Press, 1999).
14. Ralph Biggadike studied corporate diversification in the 1970s and concluded that a major cause of failure was due to the timidity of management. See R. Biggadike, “The Risky Business of Corporate Diversification,” Harvard Business Review 57 (May–June 1979): 103–111; and R. Biggadike, “Corporate Diversification: Entry, Strategy and Performance” (Boston: Harvard Business School Press, 1979).