Supervisor:

Prof. ANTONIO GHEZZI

Master Graduation Thesis by:

ERIK SUDATI

837933

A.A. 2015/2016

Master of Science in Management Engineering

Analysis of the Strategic Interaction among

Established Corporations and Startups in Italy

TABLE OF CONTENTS ABSTRACT ................................................................................................................................... I

SOMMARIO ............................................................................................................................... II

EXECUTIVE SUMMARY ............................................................................................................... X

INTRODUCTION .......................................................................................................................... 1

LITERATURE REVIEW .................................................................................................................. 3

1. CORPORATE ENTREPRENEURSHIP ............................................................................................................. 3

2. CORPORATE VENTURE CAPITAL ................................................................................................................ 6

2.1 CORPORATE ENTREPRENEURSHIP AND CVC ....................................................................................... 6

2.2 HISTORY AND PHASES ......................................................................................................................... 7

2.3 DEFINITION AND CONTEXT .................................................................................................................. 8

2.4 CHARACTERISTICS OF CVC PROGRAMS ............................................................................................. 11

2.4.1 CVC OBJECTIVES.......................................................................................................................... 11

2.4.2 CVC STRUCTURE AND TYPOLOGY ............................................................................................... 12

2.5 FOUR INVESTOR COMPANY ARCHETYPES ......................................................................................... 14

3. OPEN INNOVATION AND CVC: A LOOK TO THE FUTURE ......................................................................... 17

3.1 R&D AND EXTERNAL INNOVATION .................................................................................................... 19

3.2 THE FUTURE OF CVC .......................................................................................................................... 20

4. HOW TO SET UP A STARTUP ENGAGEMENT SOLUTION.......................................................................... 22

4.1 STEP 1 – CLARIFY YOUR OBJECTIVES ............................................................................................. 22

4.2 STEP 2 – CONSIDER THE PROGRAM OPTIONS ............................................................................... 23

4.3 STEP 3 – CONNECT POTENTIAL RESOURCES .................................................................................. 25

THE FRAMEWORK .................................................................................................................... 27

5. CRITERION OF INCLUSION ....................................................................................................................... 27

6. STRUCTURE .............................................................................................................................................. 29

6.1 GENERAL INFORMATION ........................................................................................................... 30

6.2 SOLUTION CHARACTERISTICS .................................................................................................... 30

6.3 NOTES ........................................................................................................................................ 31

METHODOLOGY ....................................................................................................................... 32

7. TOOLS FOR DATA COLLECTION ................................................................................................................ 32

7.1. SECONDARY SOURCES INVESTIGATION ............................................................................................ 32

7.2 DIRECT PERSONAL INTERVIEWS ........................................................................................................ 33

7.2.1 THE SURVEY ................................................................................................................................ 33

RESEARCH AND ANALYSIS ........................................................................................................ 35

8. THE MAP .................................................................................................................................................. 35

8.1 MAP ................................................................................................................................................... 35

8.2 REMARKS AND INSIGHTS ................................................................................................................... 45

8.2.1 REMARKS .................................................................................................................................... 45

8.2.2 INSIGHTS ..................................................................................................................................... 45

9. CRITICAL ANALYSIS .................................................................................................................................. 48

9.1 RESULTS ............................................................................................................................................. 48

9.2 BENEFITS, LIMITS, AND OPPORTUNITIES ........................................................................................... 51

CONCLUSIONS .......................................................................................................................... 55

REFERENCES ............................................................................................................................. 59

LIST OF FIGURES Figure 2.1 – CVC phases (BCG, 2012)

Figure 2.2 – business opportunities framework (Volans, 2014)

Figure 2.3 – CVC models categorization (BVCA, 2012)

Figure 2.4 – Investment trajectory (Volans, 2014)

Figure 2.5 – CVC investments map (Chesbrough, 2002)

Figure 3.1 – open innovation paradigm (Chesbrough, 2003)

Figure 3.2 – evolution of open innovation (Accenture, 2015)

Figure 4.1 – startup engagement programs (Nesta, 2015)

Figure 4.2 – resource commitment through the various programs (Nesta, 2015)

Figure 9.1 – global quarterly CVC financing history (CB Insights, 2016)

Figure 9.2 – global quarterly CVC financing history (CB Insights, 2016)

Figure 9.3 – global corporate VC vs. Corporation financing (CB Insights, 2016)

LIST OF TABLES AND GRAPHS Table 1.1 – Corporate Entrepreneurship definitions (personal elaboration)

Table 6.1 – STRUCTURE, dimension of the framework (personal elaboration)

Table 6.2 – GROWTH STAGE, dimension of the framework (personal elaboration)

Table 8.1 – COLORS LEGEND of the solution category in the map (personal elaboration)

Table 8.2 – COMMITMENT OF THE COMPANY in terms of number of solutions and types of solution implemented (personal elaboration)

Table 8.3 – SYNTHETIC TABLE of the number of solutions (category and type) implemented by Italian companies (personal elaboration)

Graph 8.1 – PARETO CHART of the distribution of open innovation programs/practices. In red, the cumulative line as a percentage of the total (personal elaboration).

I

ABSTRACT In a highly competitive landscape marked by a rapid technological progress, today corporations all over the

world see the power of startups growing; they see newly created ventures grow exponentially and quickly

disrupting the industry where they operate. From here the need for established corporations to become more

entrepreneurial and to interiorize the power of disruption instead of fighting it. This study wants to capture an

updated image of the strategic interaction among corporations and startups in Italy by analyzing the startup

engagement solutions backed by Italian corporations; solutions that are seen as one – but not the only – stra-

tegic management practice to institutionalize entrepreneurship. The study presents a map of the Italian

startup engagement solutions backed by established corporations; it shows the level at which Italian corpora-

tions are involved in interaction with startups, what are the factors at the base of the current level of adoption,

the limits and the opportunities for future development.

The study gave as result that there are twenty-two Italian companies implementing disruptive open innovation

solutions through forty different programs or practices, and, under a deeper view, the four most committed

companies account for the 40% of the total corporate practices/programs implemented in Italy. The results

stemming from the map, when put in comparison with the level of adoption of startup engagement solutions

by companies in the world, shows how Italy is far behind the most developed countries, and is experiencing

an underdeveloped situation. Through the interviews held with some of the Italian corporate venture capital-

ists, it was possible to see that adopting a solution of strategic interaction with startups (in the case of the

interviews, CVC programs) brings always an advantage in terms of improvements of the current strategy or of

optionality for the future strategy. Regarding the limits and the reasons at the base of the low diffusion of the

solution of open innovation with startups In Italy, it came out that the phenomenon is underdeveloped due to

both problems related to the investors (the companies) and problems related to the investees (the startups).

The former are related to an old and risk-averse management culture coupled with a lack of preparation in

the field; the latter are related to a low-value startup ecosystem in the country triggered (also) by a suboptimal

funding by all the investors (institutional and private).

II

SOMMARIO Oggigiorno, in un panorama altamente competitivo segnato da un rapido progresso tecnologico, le aziende di

tutto il mondo vedono il potere delle startup crescere: vedono società appena create crescere esponenzial-

mente e sconvolgere velocemente i settori di mercato dove operano. Da qui il bisogno per le aziende consoli-

date di diventare più imprenditoriali e interiorizzare il potere di creare disruption invece che combatterlo. Lo

studio presenta come e a che livello le aziende italiane sono coinvolte in interazione con startup, quali sono i

fattori alla base di questo livello e le opportunità per lo sviluppo futuro. In dettaglio, lo studio si prefigge di:

1) mappare all’interno di un framework originale tutte le aziende che stanno attualmente implementando

programmi o pratiche di open innovation con startup, con l’obiettivo di internalizzare il potere di creare di-

sruption che queste nuove società portano in sé stesse. Tra le diverse soluzioni che una società può imple-

mentare per entrare in contatto con startups, il framework considererà, seguendo un definito criterio di inclu-

sione, CVC programs, incubatori/acceleratori, collaborazioni e startup competitions.

2) dare, alla luce della ricerca precedentemente condotta, una interpretazione critica del livello di adozione

dell’interazione tra aziende e startup in Italia come pratica strategica, presentando le ragioni dietro a questo

risultato e gli ostacoli che ne intralciano la diffusione, i benefici derivanti dall’implementazione e le possibili

opportunità di sviluppo futuro. Questa interpretazione critica del fenomeno sarà redatta tramite interviste

qualitative con manager a capo delle soluzioni di startup engagement più strutturate e di spicco.

STRUTTURA DEL PAPER – dopo l’introduzione, c’è la sezione Literature Review, che dà una solida base teoretica

al campo sotto investigazione e va a costituire l’insieme di ipotesi alla base della ricerca empirica. Il paper

continua con la sezione The Framework, dove, come suggerisce il titolo, è introdotto in dettaglio il framework

all’interno del quale le differenti soluzioni di startup engagement sono mappate. All’interno di questa sezione

è anche spiegato il criterio di inclusione che sta alla base della selezione dei tipi di soluzioni di startup engage-

ment. Segue la sezione Methodology, che dà una descrizione completa e accurata delle metodologie e delle

tecniche utilizzate per raccogliere i dati e analizzarli. Dopo aver impostato la metodologia adottata per l'analisi,

segue la sezione Research and Analysis, in cui i risultati della ricerca sono presentati e poi analizzati. Infine, la

carta si chiude con la sezione Conclusions dove è redatta una analisi critica dei risultati e si sottolinea Il contri-

buto che essi possono apportare e lo spazio che possono aprire a successive ricerche.

LITERATURE REVIEW

Questa sezione del documento mira a dare un solido basamento teorico all’oggetto di indagine: lo spazio in

cui le imprese incontrano l'ecosistema startup per perseguire obiettivi strategici. Inoltre, la Literature Review

III

rappresenta il fondamento della ricerca empirica, dal momento che il processo di mappatura prenderà riferi-

mento dagli aspetti e dimensioni illustrati in questa sezione. I programmi di CVC sono il primo tipo di soluzione

di startup engagement analizzato, in quanto più strutturati e di conseguenza quelli che meglio rappresentano

il fenomeno. CVC è innanzitutto inquadrato dal punto di vista teorico come pratica manageriale legata alla

corporate entrepreneurship, e successivamente analizzato da altri punti di vista. Dopo questa ampia analisi

della letteratura riguardante il CVC, vengono prese in considerazione le altre soluzioni di startup engagement

volte all’open innovation.

CORPORATE ENTREPRENEURSHIP – processo attraverso il quale una azienda si impegna in una diversificazione

attraverso uno sviluppo interno ed esterno. Tale diversificazione richiede nuove combinazioni di risorse per

estendere le attività della azienda in settori non correlati, o marginalmente legati, al suo attuale dominio di

competenza e le sue corrispondenti opportunità. Questo processo consiste nella realizzazione di attività di

innovazione (ad esempio la creazione e l'introduzione di prodotti, processi di produzione e sistemi organizza-

tivi), il rinnovo (ad esempio rivitalizzare le operazioni della società attraverso la creazione o acquisizione di

nuove capacità), e il venturing (entrare in nuovi business espandendo le operazioni in mercati nuovi o esi-

stenti).

CORPORATE VENTURE CAPITAL – i programmi di CVC possono essere inclusi nella lista delle possibili applica-

zioni della corporate entrepreneurship orientare all’esterno. CVC è un fenomeno che comporta la fusione e la

combinazione di risorse interne con quelle esterne al fine di individuare nuove opportunità e garantire il futuro

delle grandi imprese consolidate. Ci sono più di 1.200 aziende in tutto il mondo con programmi di CVC, più

della metà dei quali formate dal 2010 in poi. Le aziende stanno usando CVC come un modo per accedere a

nuovi e dirompenti tecnologie, per sviluppare nuovi modelli di business e per partecipare nei mercati emer-

genti; tutte strategie che possono fornire un contributo significativo alla crescita aziendale.

Tuttavia, potrebbe essere semplicistico affermare che il CVC è in crescita. Più corretto sarebbe dire che il CVC

è tornato in grande stile. Fin dalla sua comparsa nel 1960 ci sono stati in linea di massima tre ondate di svi-

luppo, con una emergente quarta onda in corso.

Per quanto riguarda la definizione di CVC, ci sono diverse scuole di pensiero. Nel 2002 Chesbrough ha definito

CVC dando precise regole di inclusione ed esclusione. Al giorno d'oggi, al contrario, gli operatori del settore

preferiscono non dare una definizione troppo ristretta di CVC e hanno quindi rimosso la maggior parte delle

regole di confinamento specificate nel decennio precedente. Secondo la loro esperienza, confinando CVC in

una definizione eccessivamente restringente si escluderebbero di certo alcuni programmi di investimento che

potrebbero invece dare preziosi spunti al mercato. Con ciò presente, questo documento adotterà come rife-

rimento la seguente definizione sintetica proposta da Dushnitsky:

IV

CVC è definito come un investimento di minoranza in equity da parte di una impresa consolidata

in una impresa privata. Tre fattori sono comuni a tutti gli investimenti CVC. In primo luogo, mentre

i rendimenti finanziari sono una considerazione importante, ci sono spesso obiettivi strategici che

motivano le attività di CVC. In secondo luogo, le imprese finanziate sono tenute private e indipen-

denti (legalmente e non) dalla società di che ha investito. In terzo luogo, l'azienda che investe

riceve una quota di partecipazione azionaria di minoranza. (Dushnitsky, 2008)

I modelli di CVC possono essere sintetizzati in tre modelli principali. Quattro aspetti primari del fondo sono

descritti, come mostrato in figura, per ciascuno dei tre modelli. Inoltre, un quarto modello ibrido sarà aggiunto

ai seguenti tre.

Il quarto modello è chiamato Syndication e consiste in un co-investimento della società con altri investitori per

ridurre il rischio e aumentare il capitale investito. Questo tipo di co-investimento può essere fatto indiretta-

mente attraverso un fondo controllato o direttamente con un investimento di bilancio.

IL FUTURO DEL CVC - Oltre al ruolo chiave che il CVC ricopre nell’innovazione oggi, è importante capire l’evo-

luzione che può avere il CVC dal punto di vista dell’open innovation, intesa come pratica per generare inten-

zionalmente un flusso bi-direzionale di conoscenza che favorisca l’innovazione, utile sia all’interno dell’azienda

che verso l’esterno. Secondo il report G20 YEA summit, CVC rappresenta solo il primo passo che una grande

azienda può compiere per iniziare una strategia di open innovation. Come mostrato nella seguente figura,

l’open innovation è un cammino che si articola in quattro fasi e vede l'applicazione di quattro strumenti diversi.

Chiaramente l’uno non esclude l’altro, e la massima espressione si ottiene con l’adozione di tutti questi stru-

menti:

Categorizzazione dei modelli di CVC (BVCA, 2012)

V

COME IMPOSTARE UNA STARTUP ENGAGEMENT SOLUTION – In questo paragrafo si delineano tutti i modi at-

traverso i quali una società può scegliere di interagire con l'ecosistema startup. Prima di pensare a quale solu-

zione di startup engagement implementare, è necessario chiarire gli obiettivi che l'azienda vuole raggiungere:

ringiovanire la cultura aziendale, innovare grandi e vecchi brand, risolvere problemi di business, o espansione

futura in nuovi mercati. Una volta decisi gli obiettivi principali, è il momento di individuare un programma

adatto tra tutte le possibili opzioni: eventi a sé stanti, condivisione di risorse, supporto del business, collabo-

razione, investimento, acquisizione. L’ultimo step è quello di connettere le potenziali risorse per attuare il pro-

gramma: denaro, tempo degli impiegati dell’azienda, prodotti, asset intangibili.

IL FRAMEWORK

Come accennato nell'introduzione, questo documento ha come primo obiettivo quello di mappare in un fra-

mework originale tutte le aziende italiane che stanno attuando programmi o pratiche di open innovation con

startup. Tra le diverse soluzioni che una società può implementare per interagire con startup, il quadro pren-

derà in considerazione solo i programmi di CVC, incubatori / acceleratori e startup competition.

Nei paragrafi seguenti è spiegato il criterio di inclusione che governa la selezione delle soluzioni di startup

engagement che siano coerenti con l'obiettivo della ricerca. Inoltre, è presentato il framework nel quale le

soluzioni sono inquadrate e organizzate.

Evoluzione dell’open innovation (Accenture, 2015)

VI

CRITERIO DI INCLUSIONE - Lo studio si rivolge a tutte le soluzioni di open innovation guidate da scopi strategici:

quelli volti a sostenere la strategia corrente attraverso l'innovazione, o quelli volti ad assicurarsi opzioni future

per lo sviluppo del proprio business. In poche parole, queste soluzioni, per esser selezionate, devono essere

volte ad internalizzare il potere di creare disruption, riportando un approccio imprenditoriale all'interno di una

società consolidata e ormai rigida. Inoltre, per escludere tutte quelle pratiche occasionali, la ricerca si concentra

sulle soluzioni che sono istituzionalizzate, strutturate e attuate sistematicamente con continuo impegno.

STRUTTURA - Ora che il criterio di inclusione alla base della selezione è stato introdotto, è possibile spostarsi

sul come le informazioni raccolte sono inquadrate ed organizzate. In questo schema, tutte le soluzioni di open

innovation che includono una interazione con l'ecosistema startup - programmi di CVC, incubatori / accelera-

tori, partnership e concorsi di avvio - verranno mappati, e le loro caratteristiche delineate attraverso le dimen-

sioni a più livelli della mappa.

Al livello più alto, il quadro mostra quattro categorie di dimensioni:

Informazioni generali

Questa categoria identifica le soluzioni di startup engagement e le aziende che vi stanno alle spalle.

Comprende 2 dimensioni: azienda (il nome dell’azienda che implementa la soluzione), nome del pro-

gramma (il nome ufficiale del programma, se c’è).

Caratteristiche della soluzione

Questa categoria comprende tutte le dimensioni necessarie per descrivere una soluzione di intera-

zione strategica con startup. I modelli di struttura di un programma di CVC può riferirsi a: categoria

della soluzione (i 4 modelli di CVC programmi, partnership, incubatori / acceleratori , startup competi-

tion), settori target (aree di mercato su cui l'azienda sta convergendo i suoi sforzi), fase di crescita della

startup oggetto di interesse (pre-seed, seme, presto, tardi fase).

Note

Le note mostrano tutte le informazioni aggiuntive di contorno che potrebbero essere necessarie per

meglio illustrare le soluzioni, che in molti casi sono uniche. Informazioni aggiuntive (ciò che non può

essere detto attraverso i numeri; le peculiarità che caratterizzano la soluzione), contatti (contatti e-

mail della soluzione), link (il link al sito della soluzione, nel caso l'azienda abbia una pagina web dedi-

cata).

RICERCA E ANALISI

In questa sezione verrà presentato il vero e proprio centro del paper; ciò che la ricerca empirica ha portato

alla luce. Come accennato nell’introduzione, l'obiettivo di questo studio è distribuito su due fasi successive: la

mappatura e l'analisi critica dei risultati.

VII

Mappatura (The Map)

È fondamentale prima di tutto fare una considerazione per quanto riguarda il tipo di soluzione “partnership”.

La tabella sintetica riporta come risultato "NA", non disponibile, in quanto questo tipo di soluzione non è stato

inserito nella mappatura. Questo però non significa che in Italia non ci sono partnership con start-up, infatti si

possono individuare alcune aziende che attualmente investono in programmi di co-sviluppo, ma alcune diffi-

coltà hanno reso difficile inquadrare tutte queste aziende nella mappa: prima di tutto, le partnership sono

molto difficili da individuare, soprattutto quando sono l'unica soluzione che una società implementa; in se-

condo luogo, sono pratiche strategiche che una società spesso non vuole rivelare. Pertanto, nonostante sia

legittimo presumere che una società già impegnata in un programma di interazione con startup implementi

anche una partnership, non sarà mai possibile inquadrare tutte le aziende che in Italia attuano questo tipo di

soluzione. Inoltre, le partnership con startup possono essere implementate in infiniti modi, spesso personaliz-

zati a seconda degli attori coinvolti e questo rende difficile tenerne traccia. Per tutte queste ragioni, dato il

fatto che non è possibile presentare un quadro completo di tutte le collaborazioni attive in Italia, questa solu-

zione è stata totalmente omessa dalla mappatura.

Per quanto riguarda le altre soluzioni, la mappatura ha individuato ventidue aziende italiane che implemen-

tano soluzioni di open innovation attraverso quaranta diversi programmi o pratiche. Solamente dieci di queste

ventidue aziende portano avanti più di una soluzione (programmi o pratiche). Facendo un’analisi più appro-

fondita, le quattro imprese più virtuose (con più soluzioni all’attivo) contano per il 40% del totale delle pratiche

/ programmi. Tra queste, UniCredit è l'unica azienda in Italia ad implementare tutti i tipi di soluzioni di open

innovation (CVC, Incubatori/acceleratori e startup competition). Analizzando il tipo di soluzioni messe in atto

da queste ventidue imprese, è possibile trarre le seguenti conclusioni: tredici aziende stanno facendo investi-

menti in capitale di rischio di start-up attraverso l'attuazione di un totale di diciotto diversi programmi di CVC.

La maggioranza delle aziende che adotta uno dei quattro modelli di CVC implementa almeno un altro tipo di

SOLUTION CATEGORYN° OF SOLUTIONS

IMPLEMENTEDTYPE OF SOLUTION N° OF BACKING COMPANIES

CORPORATE DIRECT INVESTMENT 4

INTERNAL DEDICATED FUND 6

EXTERNAL FUND 3

SYNDICATION 5

ACCELERATOR / INCUBATOR 17 ACCELERATOR / INCUBATOR 13

STARTUP COMPETITION 5 STARTUP COMPETITION 5

PARTNERSHIP N/A PARTNERSHIP N/A

13CVC PROGRAM

Tabella sintetica del numero di soluzioni (categoria e tipo) implementate da aziende italiane

VIII

soluzione. Per quanto riguarda i diversi modelli di CVC, si può notare che i fondi dedicati sono maggiormente

concentrati su investimenti early / late stage, mentre gli investimenti diretti a bilancio sono più orientati sulla

fase pre-seed / seed. Interessante inoltre notare che Il terzo modello di CVC, la partecipazione come LP ad un

fondo esterno, è attuato solo da banche (Unicredit e Intesa San Paolo). Per quanto riguarda gli investimenti in

syndication con altri investitori, in quattro casi su cinque il co-investimento è attuato dalle imprese attraverso

investimenti diretti a bilancio. Muovendosi su un altro tipo di soluzione, incubatori / acceleratori, la ricerca

mostra che sono tredici le società che offrono un programma di incubazione / accelerazione per startup, e che

Alcune aziende stanno anche realizzando più di un programma di incubazione / accelerazione (Enel, Buon-

giorno, Zambon). Va inoltre sottolineato che Acceleratori / incubatori sono spesso gestiti in collaborazione con

altri soggetti, al fine di ottenere il massimo beneficio possibile dall’open innovation. Per concludere, cinque

aziende stanno proponendo startup competition. In tre casi su cinque, questi contest sono fini a sé stessi,

mentre nel resto dei casi si tratta di pratiche per selezionare startup e fare uno screening iniziale che sarà poi

seguito da incubazione, accelerazione, partnership o investimento in equity.

Analisi Critica

Quando i risultati derivanti dalla mappatura sono messi a confronto con il livello di adozione di soluzioni di

open innovation da parte di aziende in tutto il mondo, si vede chiaramente che l'Italia è molto indietro rispetto

ai paesi più sviluppati, e sta vivendo una evidente situazione di sottosviluppo. Attraverso le interviste fatte con

alcuni dei corporate venture capitalist italiani, è stato possibile indagare le ragioni alla base di questi risultati,

gli ostacoli che impediscono la diffusione di queste pratiche di interazione con startup e le possibili opportunità

di sviluppo futuro. Secondo gli intervistati, l'adozione di una soluzione di interazione strategica con startup (nel

caso delle interviste, programmi CVC) porta sempre un vantaggio in termini di miglioramento della strategia

corrente o di opzionalità per strategie future. Per quanto riguarda i limiti e le ragioni alla base della scarsa

diffusione di questo fenomeno in Italia, sono state evidenziate sia cause legate agli investitori (le aziende), che

problemi relativi alle partecipate (startup). I primi sono legati ad una cultura aziendale italiana inadeguata e

avversa al rischio, unita ad una chiara mancanza di preparazione su questi temi; i problemi esterni invece, sono

riconducibili a uno scarso valore dell’ecosistema startup nel paese, dovuto (anche) ad un finanziamento non

ottimale da parte di tutto il comparto di investitori (istituzionali e privati). Di conseguenza, dove il venture

capitalism ha una maggiore portata, è più facile per una società trovare startup nelle quali valga la pena inve-

stire. Pertanto, data una buona preparazione e la giusta cultura all'interno dell'azienda, più è di valore l'ecosi-

stema startup in cui l'azienda è situata, maggiori sono i vantaggi ottenibili dall'interazione con esso. Detto ciò,

da questa situazione italiana poco matura, alcune opportunità di sviluppo potrebbero ancora emergere se

venissero attuati gli interventi coretti: gli investitori dovrebbero riuscire a chiudere deal più redditizi, il governo

dovrebbe favorire e attirare gli investitori internazionali, e, inoltre, sarebbe necessario sia un cambiamento di

mentalità per superare la barriera culturale di avversione al rischio, sia un impegno costante da parte di tutti

gli attori del venture capitalism italiano.

IX

X

EXECUTIVE SUMMARY In a highly competitive landscape marked by a rapid technological progress, today corporations all over the

world see the power of startups growing; they see newly created ventures grow exponentially and quickly

disrupting the industry where they operate. From here the need for established corporations to become more

entrepreneurial and to interiorize the power of disruption instead of fighting it. The study presents how and

at which level Italian corporations are involved in interaction with startups, what are the factors at the base of

the current level of adoption and what are the opportunities for future development. In details, the study will:

1) Map within an original framework all the Italian companies that are currently implementing programs or

practices of open innovation with startups, with the aim of internalize the power of disruption that these new

ventures bring within themselves. Among the different solutions that a corporation can implement to engage

with startup, the framework will consider CVC programs, incubators/accelerators, partnerships and startup

competitions, following a defined criterion of inclusion.

2) Give, in light of the research previously conducted, a critical interpretation of the level of adoption of the

interaction among corporations and startups in Italy as a strategic practice, presenting the reasons behind

these results and the obstacles that hinder the diffusion, alongside with the benefits stemming from the im-

plementation and possible opportunities for future development. This critical interpretation of the phenome-

non will be outlined through qualitative interviews with the managers in charge of the most prominent and

structured corporate startup engagement programs (CVCs).

STRUCTURE OF THE PAPER – after the introduction, there is the section Literature Review, which gives solid

theoretical basement to the field under investigation and constitutes the set of assumptions at the base of the

empirical research. The paper continues with the section The Framework, where, as the title suggests, it is

introduced in details the framework under which the different corporate startup engagements solutions are

mapped. Within this section is also explained the criterion of inclusion at the base of the selection of the

corporate startup engagement solutions. It follows the Methodology, which gives a complete and accurate

description of the methodologies and techniques used for gathering the data, analyzing them, and reflecting

over their contribution. After having set the methodology adopted for the analysis, it follows the section Re-

search and Analysis, where the findings of the research are presented and then analyzed. Finally, the paper

closes with the section Conclusions, where the findings are presented under a critical view and it is highlighted

the contribution they can give and the space they can open to further studies and researches.

XI

LITERATURE REVIEW

This section of the paper aims at giving a solid theoretical basement to the field under investigation: the space

where corporations meet the startup ecosystem to pursue strategic goals. Moreover, the literature review

represents the foundation of the empirical research, as the process of mapping will take reference from the

aspects and dimensions outlined in this section. CVC program is the first startup engagement solution analyzed

in the Literature Review, as it is the most structured and consequently the one that best represents the phe-

nomenon of interaction corporation-startup. CVC is firstly framed as a management practice in the wider the-

oretical field of corporate entrepreneurship and then deeply analyzed under other different perspectives. Af-

ter this extensive analysis of the literature regarding CVC, the other startup engagement solutions are taken

into account, introduced and analyzed.

CORPORATE ENTREPRENEURSHIP – both scholars and practitioners agree upon the necessity for a company to

implement corporate entrepreneurship activities to ensure the survival of the business. Despite this, the liter-

ature does not comprehend a commonly shared definition of corporate entrepreneurship and, in the last 30

years, many definitions have been proposed and even addressed with different terms: corporate entrepre-

neurship, corporate venturing, intrepreneuring, intrapreneurship, internal entrepreneurship, venturing, stra-

tegic renewal. Despite the definitions for corporate entrepreneurship are abundant, all of them are based on

the same elements and follow a common pattern. For this reason, corporate entrepreneurship can be broadly

defined so to include all the common core components. Merging Zahra and Burgelman’s definitions, the most

complete ones, it is possible to define corporate entrepreneurship in a more comprehensive way as:

The process whereby the firms engage in diversification through internal and external develop-

ment. Such diversification requires new resource combinations to extend the firm’s activities in

areas unrelated, or marginally related, to its current domain of competence and corresponding

opportunity. This process consists in the implementation of a company’s activities of innovation

(i.e. creating and introducing products, production processes and organizational systems), renewal

(i.e. revitalizing the company’s operations by building or acquiring new capabilities, and by chang-

ing the scope of its business or competitive approach), and venturing (i.e. entering new businesses

by expanding operations in existing or new markets).

CORPORATE VENTURE CAPITAL – CVC programs can be included in the list of the possible applications of ex-

ternally-oriented corporate entrepreneurship. A phenomenon that entails the fusion and combination of in-

ternal resources with external ones in order to spot out new opportunities and ensure the future of big con-

solidated corporations. There are more than 1,200 corporations worldwide with CVC programs, more than

half of which were formed since 2010. Companies are using CVC as a compelling way to drive outside-in inno-

vation to access new and disruptive technologies, to develop new business models and to participate in emerg-

ing markets; all strategies that may provide meaningful contributions to corporate growth.

XII

However, it might be simplistic to state that corporate venture capital investing is growing. More correct would

be saying CVC is back in style. Since its appearance in the 1960s there have been broadly three waves of de-

velopment, with an emergence of a fourth wave underway.

Regarding the definition of CVC, there are different school of thoughts. Chesbrough defined CVC in 2002

giving precise rules of inclusion and exclusions. Nowadays, conversely, practitioners prefer not to give a too

narrow definition of CVC and have then removed most of the exclusions and boundaries specified in the pre-

vious decade. According to them, further confining CVC would for sure exclude some investment programs

that could give valuable insights to the industry. Bearing in mind this issue from practitioners’ side, this paper

will adopt as reference the following syntheticalal definition proposed by Dushnitsky:

CVC is defined as a minority equity investment by an established corporation in a privately-held

entrepreneurial venture. Three factors are common to all CVC investments. First, while financial

returns are an important consideration, there are often strategic objectives that motivate CVC

CVC phases (BCG, 2012)

XIII

activities. Second, the funded ventures are privately held considerations and are independent (le-

gally and otherwise) from the investing corporation. Third, the investing firm receives a minority

equity stake in the venture. (Dushnitsky, 2008)

To be more precise on the space CVC covers within the corporate management activities, it is useful to un-

derstand how a CVC program sets itself in the framework that comprises all the possible ways of creating

new business opportunities (figure2).

Given the current approach of defining CVC as a more open phenomenon, it is indeed important not to con-

fuse CVC with private or independent venture capital (VC or IVC). The General Partners (GPs) of VC fund as-

sess and invest in high growth potential businesses by deploying funds raised from external investors known

as Limited Partners (LPs). They hold the committed capital in a fund for 10 years (typically) dispersing returns

gained from the sale of investment businesses both during and at the conclusion of the fund’s lifetime. The

sole objective of such a fund is financial return. Conversely, CVC has both a strategic and a financial objec-

tive.

- Financial objective: providing financial return for the corporation. With increasing cash on balance

sheets, financially-driven CVC investments are looking to take some risk in exchange for high returns.

In this situation CVC and VC overlap (Volans, 2014).

Business opportunities framework (Volans, 2014)

XIV

- Strategic objective: developing capabilities, access and / or markets of the parent company, aligning

with long-term strategy. Multiple CVC units may be created to focus on different aspects of the strat-

egy – and they often adapt and evolve over time. A strategic CVC investment will identify and amplify

synergies between itself and the venture. To do so, it will provide management skills and other forms

of expertise to the investee (Volans, 2014).

At the end of the day, financial objectives are necessary to maintain internal support, while CVC’s ability in

meeting strategic objectives will be vital to long-term success.

Given the different objectives a CVC program can pursue and the intrinsic characteristics of the corporation

that implements it, the CVC models can be synthetized under three main models, which will be in turn included

in two wider and more general categories. Four primary aspects of the fund are described, as shown in figure

3, for each of the three model. In addition, a fourth hybrid model will be added to the following three.

Let’s go deeper in each of the three main CVC models:

1. Corporate direct investment: given the direct nature of the investment, where the money out-

flow is accounted as a balance sheet invoice, this type of investment program is closely linked to the

company’s value chain and business divisions. It is an in-house venture program, managed by internal

corporate talents and clearly addressed to support the company in pursue its strategic goals. Financial

performances are therefore secondary compared to the strategic ones.

2. Internal dedicated fund: The corporate VC is set up as a separate unit of the parent corporation

with an independently defined budget. The fund is managed by internal employees of the company as

CVC models categorization (BVCA, 2012)

XV

well as newly hired people, usually from the VC world. The management team is to all extents the

General Partner of the fund that usually carry interests to produce financial returns. Because of the

greater autonomy of this model respect to the first one, there are less internal pressures to invest in

startups where the prospects for a financial return are secondary to other corporate interests. It is

clear how the financial and strategic goals of investment coexist in this situation.

3. External fund: The company invests in an external fund, such as an independent VC, and act as a

Limited Partner. This solution is almost merely financial as the company has a low influence on the

investment decision taken by the GP of the fund. For this reason, this model of CVC is not suitable to

be a strategic approach of open innovation.

The aforementioned classification is part of a broader one that sees two general classes of investment

approaches:

- direct / on-balance-sheet investment: investing money of the company through an annual

budget. The investment is hence listed as an expense line (first model, figure 3). The invest-

ment activities is managed by the company’s personnel. It is relevant to mention a further

sub-classification, which includes in the direct form of CVC investments also joint-ventures

with other companies, spin-offs and step-by-step investments (occasional investment carried

on without strategic nor financial, but for marketing and brand-awareness reason, to under-

line a company’s presence in an industry). Despite these are minority equity investments, the

occasional nature excludes them from a current definition of CVC program.

- indirect / off-balance-sheet investment: investing involves a third party or separate fully-

owned fund where money is committed for a longer period. The fully-owned fund is a 100%-

captive fund where the company creates an independent subsidiary to invest its own capital

only (second model, figure 3). The third party fund can be either a semi-captive fund where

the company opens the fund to other investors or an external VC fund where the company is

just a LP (third model, figure 3). In both cases, the investment activities is managed by external

personnel (subsidiary or VC).

4. Syndication: this fourth model consists in a co-investment of the company with other investors to

reduce the risk and increase the capital invested. In the technical language, this type of investment is

called Syndication and can be done indirectly through a subsidiary fund or directly with an investment

out of balance sheet. This last model can be clearly noticed by the investment trajectory graph (figure

4) where the CVC area overlaps with VC (and sometimes PE, when deals are bigger). The framework

below shows how the different investors distribute their investment over the lifecycle phases of the

investee.

XVI

OPEN INNOVATION AND CVC – there is a statistically significant correlation between collaboration, innovation

and growth, among both large companies and startups, in all the G20 countries. The continuous innovation

paradigm has become an imperative, a rule rather than an opinion of few: most innovations fail. Yet, in the

long run, the risk of not innovating is greater than that of innovating. Companies that don’t continuously in-

novate will die. It is nowadays manifest that innovating is not an option, but a necessity. It is likewise clear that

innovating internally is not enough to guarantee a company’s success – a small startup with an innovative

business model, backed by the right VC, can disrupt an entire industry in few years and scale up its operations

to secure a big slice of the market outperforming old-style competitors.

This is a rather old concept, clear and sound since the explosion of the dot-com bubble. It was indeed back in

2003 when Chesbrough, in his book “Open Innovation: The New Imperative for Creating and Profiting from

Technology”, first defined the concept of open innovation as a way to enlarge the boundaries of the old, and

not anymore sufficient, closed / internal innovation.

Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal inno-

vation, and expand the markets for external use of innovation (Chesbrough, 2003).

Later in time, a remark had to be added to this definition to make clear the openness of this strategic approach

towards innovation:

The actors in the network have access to the inputs of others and cannot exert exclusive rights

over the resultant innovation (Appleyard and Chesbrough, 2007).

Although the advantages of open innovation over closed innovation are well known and widely accepted, and

many large companies claim to have embraced “open innovation” since the concept came to prominence

more than a decade ago, the world is far to make open innovation a standard strategic approach. As discussed

during the G20 YEA’s summit, in most cases, such innovation is focused on executing predetermined goals:

”How can I get others to help me do what I already want to do?” That mindset is not equal to the challenges

and opportunities of the 21st century. For this reason, open innovation is still a hot topic and the years coming

will be fundamental to create the right conditions to put it in practice worldwide.

Corporations have narrowed the focus of their R&D by pressing for clear, short-term wins; venture

capitalists are too quick to get caught up in the latest, hottest thing; and even the vaunted crowd-

funding option is pretty limited: It’s great if you’re an internet star, but try getting a crowd excited

about an innovative idea in industrial machinery. It doesn’t have to be this way. Effective means

of boosting innovation already exist, but not enough companies are making use of them (Lerner,

2013).

One of the means Lerner mentioned is corporate venture capital.

XVII

THE FUTURE OF CVC – Besides the key role of CVC in the innovation context today, it is important to understand

what the future evolution of CVC can be under the light of open innovation. According to the report of G20

YEA’s summit, CVC represents just the first step for a large corporation to begin a strategy of open innovation.

As shown in Figure 7, open innovation is a journey of four phases that sees the application of four different

tools:

However, the state-of-art of open innovation lays in the application of a cohesive strategy that include a mix

of these tools together. It is trivial to say that a company able to achieve ecosystem innovation has most

probably already went through the previous three phases applying the respective tools.

HOW TO SET UP A STARTUP ENGAGEMENT SOLUTION – In this paragraph are outlined all the ways a com-

pany can choose to interact with the startup ecosystem. The explanation will also highlight the main steps a

manager should follow to set up a program of interaction with startups. The first thing to do, is clarify the

objectives the company wants to achieve: Rejuvenating corporate culture, innovating big brands, solving

business problems, expanding into future markets. Once the core objectives have been decided, it is time to

identify a suitable program among all the possible options of startup engagement. The second step is to con-

sider which program option to implement:

evolution of open innovation (Accenture, 2015)

XVIII

One-off events

Some corporates choose to attract startups through relatively self–contained events, that can have

different natures, but often take the form of competitions where participants are asked to solve spe-

cific challenges. These tend to be good starting points to drive internal culture change by exposing

employees to the entrepreneurial mindset of startups, provide new perspectives of emerging business

trends and technologies, and also foster external association of the corporate brand with innovation.

However, it is important to understand that these programs provide less immediate return in terms

of business relationships and also require careful consideration of the needs of the startups (Nesta,

2015). As aforementioned, these events can be light solutions only aimed at bringing some fresh en-

trepreneurial air within the organization, but they can also be harder strategic solutions where the

company wants to set the foundation to continue the interaction overtime; events that constitute the

first step in a more structured program (of incubation or even equity-based investment) aimed at

backing the current strategy or exploring new strategic paths.

Sharing resources

Sharing resources with startups can be a comparatively cheap way for corporates to build a more

innovative brand. However, it is important to understand that these programs, especially supplying

free tools, provide less immediate return in terms of business relationships (Nesta, 2015). The re-

sources commonly shared are free tools for startups and co-working spaces. In the first case, a com-

pany can give discounted or free access to software, physical products or knowledge; sharing tools is

also a way to create positive network externalities for a company’s products. In the second case, a

company gives a space where more startups can work together in a common space, where they have

free internet access and other tools to cover basic needs.

Business support

Corporates also operate various forms of business support programs, in particular incubators and ac-

celerators, that help the growth of early–stage startups and make them ready for investment, market

entry and scale (see paragraph 3.2 for more detailed information). These programs can be powerful

tools to foster culture change and internal learning by engaging employees as mentors or advisors.

However, whether these programs should be run directly by corporates or only in partnership with

third parties is a hotly debated topic. In any case, business support programs have to be designed with

the startup needs in mind, and not solely oriented towards the growth of the corporate host (Nesta,

2015).

XIX

Partnerships

Business partnerships can take many different forms, and may sit on a spectrum from the relatively

short–term, transactional engagement to the long–term, committed relationship (Nesta, 2015). The

most common partnership programs are product co-development and procurement. While product

co-development takes more time and requires big efforts from both the parts, procurement is a

quicker and easier program – for the company it is a way to access a new technology on the market,

and for startups is a quick way to scale up its operations (even though can be quite risky). partnerships

do not involve any equity investment as they are just commercial agreements. These programs, when

done with multiple and diverse actors, are a powerful tool of open innovation and they can be put

under the category Joint Innovation outlined in section 3.2.

Investments

Investing in equity is one way to develop a company’s business strategy. As already explained in the

previous sections, CVC programs, in their various forms, are the way a corporation can invest in

startups.

Acquisitions

It is the logical extension of corporate venturing that, as previously said, serves as a pipeline for future

M&A’s. Acquiring startups can be a quick and impactful way of buying complementary technology or

capabilities that solve specific business problems and enter new markets. It often happens that acqui-

sitions are just a way to hire new ready-made talents. Acquisitions with this strategic objective are

called acqui-hiring (Nesta, 2015).

The third and last step is to connect potential resources. Each corporate, be they medium–sized or large, has

resources it can leverage to bring a startup program to life: cash, employee time, products, intangible assets.

THE FRAMEWORK

As mentioned in the introduction, this paper has as first objective the one of mapping within an original frame-

work all the Italian companies that are currently implementing strategic programs or practices of open inno-

vation with startups. Among the different solutions that a corporation can implement to engage with startup,

the framework will consider just CVC programs, incubators/accelerators and startup competitions. In the sec-

tion 4 of the Literature Analysis, the study shown how different can be the ways of interacting with startups

for a corporation. Given the variety of ways of interaction seen, and the consequent variety of objectives that

lies underneath the choice to be implemented (financial, strategic, commercial, etc…), it is necessary to draw

the boundaries of the research.

XX

In the following paragraphs of this section is explained the criterion of inclusion that rules the selection of the

startup engagement solutions that are consistent with the objective of the research. In addition is outlined the

framework in which the selected startup engagement solutions are framed and organized.

CRITERION OF INCLUSION – The study targets all the open innovation solutions driven by strategic purposes:

the ones aimed at supporting the current strategy through innovation, or the ones aimed at securing options

on future strategic directions. In few words, these solutions must be aimed at internalizing the power of creat-

ing disruption by bringing an entrepreneurial approach within a stiff corporation. In addition, to exclude all those

occasional practices, the research focuses on the solutions that are institutionalized, structured and systemat-

ically implemented overtime under a continuous commitment. If for heavy solutions – called programs – it is

legit to assume that a company systematically implements a defined plan of interaction, regarding lighter so-

lutions – called practices – it can’t be always said the same.

THE STRUCTURE – Now that the rule of inclusion at the base of the selection has been introduced, it is possible

to move more in details on how the information collected is framed and organized. Under this framework, all

the Open Innovation solutions that include an interaction with the startup ecosystem – CVC programs, Incu-

bators/accelerators, partnerships and startup contests – will be mapped, and their characteristics outlined

through the multi-leveled dimensions of the map. At the higher level, the framework displays four dimensions:

General information

This category identifies the Open Innovation solutions – or solutions, if more than one – and the com-

pany that backs it. It includes 2 dimensions: backing company (the name of the company, or holding,

that is running the program), program name (the official name of the program, if it exists).

Solution characteristics

This category includes all the dimensions necessary to describe a startup engagement solution, from

the type to its characteristics. The first four dimensions relate to all the types of solution, while the

last six dimensions relate to any of the four models of structure a CVC program can refer to: Solution

category (the 4 models of CVC programs, partnerships, incubators/accelerators, startup competitions),

target industries (market areas the company is converging its efforts in), target startup growth stage

(pre-seed, seed, early, late stage).

Notes

Here the framework displays all the additional information that might be necessary to explain the

solutions, as in many cases they are unique: additional information (what can’t be said through num-

bers. This dimension contains all the peculiarities that characterize the Open Innovation solution),

contacts (email contacts of the solution), links (the link to the website of the solution, if the company

has a dedicated webpage).

XXI

METHODOLOGY

Before entering in the core results of the research, it is necessary to explain how data were collected. This

way, it will be made clear how it was possible to give an answer to each of the two research questions set as

objective of this paper. The following paragraph presents the main tools used for collecting data, making dis-

tinctions between the first objective – The Map – and the second one – The Critical Analysis.

TOOLS FOR DATA COLLECTION – Seen the novelty of the phenomenon in Italy, and since no previous researches

were done on it, it was necessary to implement and combine different approaches to have a more complete

understanding and to better tackle the dual nature of the objective.

Secondary sources investigation

Regarding the creation of The Map, it is necessary to identify among all the Italian companies the ones

with at least one active startup engagement solution. It is obvious that the most exhaustive way to do

so would be directly approaching all the Italian companies. However, due to the large width of the

dataset and the difficulties of getting in contact with companies the most viable solution is the inves-

tigation through secondary sources. Secondary sources investigation is done through the scanning of

the articles of the main Italian journals and magazines of innovation and finance. Once a company is

identified, the information gathering is done directly on the company’s website or the website of the

specific startup engagement program/practice (if available).

Direct personal interviews

While The Map is just a methodical, organized presentation of information, The Critical Analysis is

meant to be a subjective interpretation of the phenomenon, aimed at presenting the reasons behind

the results obtained, the benefits stemming from the implementation of startup engagement solu-

tions, the limits of the diffusion of this phenomenon and possible opportunities for future develop-

ment. Therefore, regarding this second part of the research objective, a more direct approach is re-

quired; the tool chosen is the direct personal interviews. In the same way the second part of the ob-

jective serves as complement for the first one, this tool is complementary to the secondary sources

investigation.

RESEARCH AND ANALYSIS

In this section will be shown the core of the paper; what the empirical research brought to the surface. As

mentioned at the beginning of the paper in the introduction, the objective of this study is deployed over two

subsequent steps: The Map and The Critical Analysis.

XXII

The Map

Fundamental is to make a consideration regarding the category Partnership. The synthetical table reports as

result “NA”, not available, as no such programs were framed in the map. This outcome does not mean that

there are no partnerships with startups aimed at joint innovation in Italy, in fact, there are some companies

currently investing in co-development programs with startups, but some difficulties made it hard to frame

them in the map. First of all, partnerships are very hard to be spotted when they are the only solution a com-

pany implements to engage with startups; they are strategic practices that a company often do not want to

disclose. Therefore, even if it is legit to assume that a company already implementing a program of interaction

with startups also implements partnerships, it will never be possible to frame all the companies in Italy imple-

menting this program. In addition, partnerships with startups can be implemented in infinite ways, suited and

personalized depending on the actors involved; this makes it hard to keep track of them, as it is not easy to

distinguish clearly which ones are aimed at joint innovation. For these reasons, given the fact that is not pos-

sible to present a complete picture of all the active partnerships aimed at joint innovation with startups, this

solution has been omitted from the mapping.

Regarding the other solutions, the overall view sees twenty-two Italian companies implementing disruptive

open innovation solutions through forty different programs or practices. Just ten of them bring on more than

one solution (program or practice). Under a deeper view, the four most committed companies account for the

40% of the total practices/programs, where Unicredit is the only company in Italy implementing all the three

types of open innovation solution. Analyzing the type of solutions implemented by the set of companies, it is

possible to draw the following conclusions: thirteen companies are making equity investments in startups,

implementing a total of eighteen different programs of CVC. the clear majority of the companies that adopted

one of the four models of CVC program bring on also at least one other type of solution. Regarding the models

of the CVC solutions, it can be noticed that internal dedicated funds are more focused on early/later stage

SOLUTION CATEGORYN° OF SOLUTIONS

IMPLEMENTEDTYPE OF SOLUTION N° OF BACKING COMPANIES

CORPORATE DIRECT INVESTMENT 4

INTERNAL DEDICATED FUND 6

EXTERNAL FUND 3

SYNDICATION 5

ACCELERATOR / INCUBATOR 17 ACCELERATOR / INCUBATOR 13

STARTUP COMPETITION 5 STARTUP COMPETITION 5

PARTNERSHIP N/A PARTNERSHIP N/A

13CVC PROGRAM

SYNTHETIC TABLE of the number of solutions (category and type) implemented by Italian companies

XXIII

investment, while corporate direct investments are more focused on pre-seed/seed stage. The external fund

model is implemented by banks only (Unicredit and Intesa San Paolo). About investments in syndication with

other investors, in four out of five cases the syndication is done through corporate direct investment. Moving

to incubators/accelerators, thirteen companies implementing an acceleration or incubation program for

startups, and some companies are even implementing more than one program of incubation/acceleration

(Enel, Buongiorno, Zambon). It should be highlighted that accelerators/incubators are run in collaboration with

other actors in order to get the most out of open innovation. Finally, five companies are implementing a prac-

tice of startup competition for startups. In three cases out of five they are standalone competitions, while the

remainder are practices to select startups for further equity investments or partnerships.

Critical Analysis

When the results stemming from the map are put in comparison with the level of adoption of the open inno-

vation with startups by companies in the world, it comes clear Italy is far behind the most developed countries,

and is experiencing an underdeveloped situation. Through the interviews held with some of the Italian corpo-

rate venture capitalists, it was possible to investigate the reasons behind these results and the obstacles that

hinder the diffusion, alongside with the benefits stemming from the implementation and possible opportuni-

ties for future development. Adopting a solution of strategic interaction with startups (in the case of the inter-

views, CVC programs) brings always an advantage in terms of improvements of the current strategy or of op-

tionality for the future strategy. Regarding the limits and the reasons at the base of the low diffusion of the

solution of open innovation with startups In Italy, it came out that the phenomenon is underdeveloped due to

both problems related to the investors (the companies) and problems related to the investees (the startups).

The former are related to an old and risk-averse management culture coupled with a lack of preparation in

the field; the latter are related to a low-value startup ecosystem in the country triggered (also) by a suboptimal

funding by all the investors (institutional and private). Where the venture capitalism has a greater magnitude,

it is consequently easier for a corporation to find valuable ventures to invest in. Therefore, given a good prep-

aration and the right culture inside the company, the more valuable the startup ecosystem where the company

is set, the greater the advantages a company can gain from the interaction. Said so, however, from this under-

developed situation some opportunities of development can still emerge if the right intervention are taken;

Investors must succeed in closing very profitable deals, the government should favor and attract international

investors, a change of mindset is as well needed to overcome the cultural barrier of risk aversion, and, at last,

a continuous commitment by all the players in the Italian venture capitalism.

1

INTRODUCTION The competitive landscape in many industries is marked today by a fierce growing competition. The market is

characterized by a rapid technological progress in many fields that quickly makes current solutions to cus-

tomer’s problems obsolete. For large companies in this scenario, creating new businesses is the challenge of

the day. Tweaking existing offerings, taking over rivals, downsizing, or moving into developing countries is no

more enough to survive. Corporations have realized that any player that is not continually developing, acquir-

ing, and adapting to the changing business environment, may be out of business within a few years.

These changes have highlighted the need for companies to become more entrepreneurial (Dess, Lumpkin and

McGee, 1999; Brazel and Herbert, 1999) in order to spot out and exploit new business opportunities. Corpo-

rations must become Janus-like, looking in two directions at once, with one face focused on the old and the

other seeking out the new (D. Garvin, L. Levesque, 2006). A new, ad hoc strategic approach is needed, which

must be based on entrepreneurship, along with the constant ability to change and innovate. Here lies the

biggest challenge for a consolidated corporation: to guarantee constancy in keeping this entrepreneurial effort

alive while growing. Institutionalizing entrepreneurship requires the right cultural approach and sure a cleared-

eye strategic view right at the C-level positions. It is an organizational paradox that, while the existing capabil-

ities provide the basis for the current performance of a company, without renewal, they are likely to constrain

the future ability to compete (Leonard Barton, 1992). Most organizations lose their entrepreneurial spirit once

they cross the start-up phase. The transition from an entrepreneurial growth company to a ‘well-managed’

business is usually accompanied by a decreasing ability to identify and pursue opportunities. Initiatives and

excitement give place to structure and systems. Organizations become blind to opportunities in the process

(Ramachandran, 2006).

In this light, the paper sees the dialogue with startups by consolidated corporations as one – but not the only

– management practice to institutionalize entrepreneurship and consequently to implement a strategy of con-

tinuous innovation. When mentioning the dialogue with startups and corporations, the research includes sys-

tematic open innovation programs and practices that involve the interaction with the startup ecosystem (i.e.

corporate venturing activities such as corporate incubators/accelerators, and corporate startup competitions).

Big companies are lately waking up to the fact that their industries are disrupted by the innova-

tions led by startups. Instead of thinking ‘some incumbents are gonna lose, some startups are

gonna win’, startups should be seen as potential partners. Partners to create more value for your

company, more value for the consumer, and for the whole industry.

Giuseppe Zocco, co–founder of Index Ventures

2

This study wants to capture an updated image of the strategic interaction among corporations and startups in

Italy by analyzing the startup engagement solutions backed by Italian corporations. The study presents how and

at which level Italian corporations are involved in interaction with startups, what are the factors at the base of

the current level of adoption and what are the opportunities for future development. In details, the study will:

1) Map within an original framework all the Italian companies that are currently implementing programs or

practices of open innovation with startups, with the aim of internalize the power of disruption that these new

ventures bring within themselves. Among the different solutions that a corporation can implement to engage

with startup, the framework will consider CVC programs, incubators/accelerators, partnerships and startup

competitions, following a defined criterion of inclusion.

2) Give, in light of the research previously conducted, a critical interpretation of the level of adoption of the

interaction among corporations and startups in Italy as a strategic practice, presenting the reasons behind

these results and the obstacles that hinder the diffusion, alongside with the benefits stemming from the im-

plementation and possible opportunities for future development. This critical interpretation of the phenome-

non will be outlined through qualitative interviews with the managers in charge of the most prominent and

structured corporate startup engagement programs (CVCs).

For the sake of simplicity, the first part of the objective – the map of the Italian corporations that implement

open innovation solutions with startups – will be addressed as The map; the second part of the objective – the

critical interpretation of the results coming from the first step of the research – will be addressed as Critical

analysis.

STRUCTURE OF THE PAPER – after this introduction, there is the section Literature Review, which gives solid

theoretical basement to the field under investigation and constitutes the set of assumptions at the base of the

empirical research. The paper continues with the section The Framework, where, as the title suggests, it is

introduced in details the framework under which the different corporate startup engagements solutions are

mapped. Within this section is also explained the criterion of inclusion at the base of the selection of the

corporate startup engagement solutions. It follows the Methodology, which gives a complete and accurate

description of the methodologies and techniques used for gathering the data, analyzing them, and reflecting

over their contribution. After having set the methodology adopted for the analysis, it follows the section Re-

search and Analysis, where the findings of the research are presented and then analyzed. Finally, the paper

closes with the section Conclusions, where the findings are presented under a critical view and it is highlighted

the contribution they can give and the space they can open to further studies and researches.

3

LITERATURE REVIEW

This section of the paper aims at giving a solid theoretical basement to the field under investigation: the space

where corporations meet the startup ecosystem to pursue strategic goals. Moreover, the literature review

represents the foundation of the empirical research, as the process of mapping will take reference from the

aspects and dimensions outlined in this section.

CVC program is the first startup engagement solution analyzed in the Literature Review, as it is the most struc-

tured and consequently the one that best represents the phenomenon of interaction corporation-startup.

Despite the booming of the startup ecosystem in the last years, CVC is a relatively old phenomenon, which is

now living a new wave under a different, more strategic form. For this reason, the subject can sure find refer-

ence in management theories of the ‘80s, but it needs to be integrated with the latest trend known as open

innovation in order to be outlined under a more contemporary view.

CVC is here firstly framed as a management practice in the wider theoretical field of corporate entrepreneur-

ship. After an analysis from the historical point of view, where the main phases of this phenomenon are iden-

tified, CVC is also defined and collocated within the corporate strategy of a company. CVC is then examined

through an analytical evaluation of its main aspects (i.e. objectives, structure, and typologies), along with the

identification of four archetypes of investor company.

As previously anticipated, after having outlined corporate venture capital in itself, the phenomenon is investi-

gated in relation to the “hottest” and widely spoken concept of open innovation to give the most updated

overview possible. As an innovation practice, CVC is here studied in conjunction with the most traditional R&D

and then projected into the future through a prediction of its evolution under the open innovation approach.

To conclude, follows a general overview of the most common ways for a corporation to interact with startups.

1. CORPORATE ENTREPRENEURSHIP

Over the years, a large and growing consensus has been built around the importance of corporate entrepre-

neurship in today’s competitive landscape. As explained in the introduction to this paper, both scholars and

practitioners agree upon the necessity for a company to implement corporate entrepreneurship activities to

ensure the survival of the business. Despite this, the literature does not comprehend a commonly shared defi-

nition of corporate entrepreneurship and, in the last 30 years, many definitions have been proposed and even

addressed with different terms: corporate entrepreneurship, corporate venturing, intrepreneuring, intrapre-

neurship, internal entrepreneurship, venturing, strategic renewal (see Table 1).

4

PINCHOT, 1985 Corporate entrepreneurship can be defined as start-up entrepreneurship turned inward.

SPANN, ADAMS & WORTHMAN, 1988

Corporate entrepreneurship is the establishment of a separate corporate organization (often in the form of a profit center, strategic business unit, division, or subsidiary) to introduce a new product, serve or create a new market, or utilize a new technology (p.149).

COVIN & SLEVIN, 1991 Corporate entrepreneurship involves extending the firm’s domain of competence and corresponding opportunity set through internally generated new resource combination (p.7, quoting Burgelman).

GUTH & GINSBERG, 1990

Corporate entrepreneurship encompasses two types of phenomena and the processes surrounding them (1) the birth of new business within existing organization, i.e. internal innovation or venturing, and (2) the transformation of organization through renewal of the key ideas on which they are built, i.e. strategic renewal (p.5). strategic renewal involves the creation of new wealth through combinations of resources (p.6).

SCHOLLHAMMER, 1982

Internal (or intra-corporate) entrepreneurship refers to all formalized entrepreneurial activities within existing business organizations. Formalized internal entrepreneurial activities are those, which receive explicit organizational sanction and resource commitment for the purpose of innovative corpo-rate endeavor - new product developments, product improvements, new methods or procedures (p.211).

BURGELMAN, 1983

Corporate entrepreneurship refers to the process whereby the firms engage in diversification through internal development. Such diversification requires new resource combinations to extend the firm’s activities in areas unrelated, or marginally related, to its current domain of competence and corre-sponding opportunity set (p.1349).

JENNINGS & LUMPKIN, 1989

Corporate entrepreneurship is defined as the extent to which new products and/or new markets are developed. An organization is entrepreneurial if it develops a higher than average number of new prod-ucts and/or new markets (p.489).

SCHENDEL, 1990

Corporate Entrepreneurship involves the notion of birth of new businesses within on-going busi-nesses, and the transformation of stagnant, on-going businesses in need of revival or transformation (p.2).

BLOCK & MACMILLAN, 1993

A project is a corporate venture when it (a) involves an activity new to the organization, (b) is initiated or conducted internally, (c) involves significantly higher risk failure or large losses than the organiza-tion’s base business, (d) is characterized by grater uncertainty that the base business (e) will be man-aged separately at some time during its life, (f) is undertaken for the purpose of increasing sales, profit, productivity or quality (p. 14).

SHAKER A. ZAHRA, 1995-1996

Corporate entrepreneurship is seen as the sum of a company’s innovation, renewal, and venturing efforts. Innovation involves creating and introducing products, production processes and organiza-tional systems. Renewal means revitalizing the company’s operations by changing the scope of its busi-ness, its competitive approaches or both. It also means building or acquiring new capabilities and then creatively leveraging them to add value for shareholders. Venturing means that the firm will enter new businesses by expanding operations in existing or new markets (1995, p.227; 1996, p.1715).

CHUNG AND GIBBONS, 1997

Corporate entrepreneurship is an organizational process for transforming individual ideas into col-lective actions through the management of uncertainties (p.14).

The differences in the definition of corporate entrepreneurship stem from the different focuses that various

schools of thought put on the topic. Four basic schools of thought can be identified.

Table 1.1 – Corporate Entrepreneurship definitions (personal elaboration)

5

Corporate Venturing. This body of thinking argues that new business ventures need to be managed

separately from the mainstream business, or they will not survive long enough to deliver benefit to

the sponsoring company. It examines the organizational arrangements that new ventures need and

the processes of aligning them with the company’s existing activities. This line of thinking includes

work by Galbraith (1982), Burgelman (1983), and Drucker (1985).

Intrapreneurship. This approach focuses on the individual employee and his or her propensity to act

in an entrepreneurial way. It works on the basic assumption that all large firms put in place bureau-

cratic systems and structures that inhibit initiative, so individuals have to be prepared to actively chal-

lenge those systems. It examines the often subversive tactics these corporate entrepreneurs adopt,

and the things executives can do to make their lives easier or harder. It also considers the personalities

and styles of individuals who make good corporate entrepreneurs. The term intrapreneurship was in-

troduced by Pinchot (1985), but this line of thinking has also been discussed by Kanter (1982) and

Birkinshaw (1997).

Entrepreneurial Transformation. Premised on the assumption that large firms can and should adapt to

an ever-changing environment, entrepreneurial transformation suggests that such adaptation can

best be achieved by manipulating the firm’s culture and organization systems, thereby inducing indi-

viduals to act in a more entrepreneurial way. This line of thinking includes studies by Peters and Wa-

terman (1982), Ghoshal and Bartlett (1997), Kanter (1989), and Tushman and O’Reilly (1996).

Bringing the Market Inside. This school of thought also operates at the firm level, but it focuses more

on the structural changes that can be made to encourage entrepreneurial behavior. It uses the meta-

phor of the marketplace to suggest how large firms should manage their resource allocation and peo-

ple management systems, and it argues for greater use of such market techniques as spin-offs and

corporate venture capital operations. Inspired by the seminal ideas of Joseph Schumpeter, its recent

adherents include Hamel (1999) and Foster and Kaplan (2001).

Despite the definitions for corporate entrepreneurship are abundant, all of them are based on the same ele-

ments and follow a common pattern. For this reason, corporate entrepreneurship can be broadly defined so

to include all the common core components. Merging Zahra and Burgelman’s definitions, the most complete

ones, it is possible to define corporate entrepreneurship in a more comprehensive way as:

The process whereby the firms engage in diversification through internal and external develop-

ment. Such diversification requires new resource combinations to extend the firm’s activities in

areas unrelated, or marginally related, to its current domain of competence and corresponding

opportunity. This process consists in the implementation of a company’s activities of innovation

(i.e. creating and introducing products, production processes and organizational systems), renewal

6

(i.e. revitalizing the company’s operations by building or acquiring new capabilities, and by chang-

ing the scope of its business or competitive approach), and venturing (i.e. entering new businesses

by expanding operations in existing or new markets).

This definition appears to be complete enough to bring together the schools of thought on corporate entre-

preneurship, along with their focuses on the different organizational impacts. This synthetical view of corpo-

rate entrepreneurship highlights the dual nature at the base – internal and external – while underlying the

importance of combining complementary resources to perform the core activities of innovation, renewal and

venturing.

2. CORPORATE VENTURE CAPITAL

According to CVI²’s most recent report1 on corporate venture capital (CVC), there are more than 1,200 corpo-

rations worldwide with CVC programs, more than half of which were formed since 2010. Companies are using

CVC as a compelling way to drive outside-in innovation to access new and disruptive technologies, to develop

new business models and to participate in emerging markets; all strategies that may provide meaningful con-

tributions to corporate growth. Moreover, corporate venturing has expanded from its traditional strongholds

in technology and pharmaceuticals into fields as diverse as machinery, power and gas production, consumer,

construction, and many others.

However, it might be simplistic to state that corporate venture capital investing is growing. More correct would

be saying CVC is back in style. Since its appearance in the 1960s – according to BCG2 – there have been broadly

three waves of development, with an emergence of a fourth wave underway.

Before analyzing in detail history and phases of CVC, it may be useful to frame the phenomenon into the

broader approach of Corporate Entrepreneurship, deeply explained in the previous paragraph.

2.1 CORPORATE ENTREPRENEURSHIP AND CVC

The connection between corporate entrepreneurship and corporate venture capital lies in the domain of cor-

porate entrepreneurship. Corporate entrepreneurship activities can be internally or externally oriented (Mac-

Millan et al., 1986; Veciana, 1996). Internal activities are defined as the development within a large organiza-

tion of internal markets: relatively small and independent units created thanks to each individual entrepre-

neurial spirit; an internal development à la Bulgerman. On the other side, external entrepreneurship can be

1 2015 - Corporate Venture Capital Compensation, CVI² - organization of specialized corporate venturing and innova-tion service providers including DLA Piper, Bell Mason Group, Silicon Valley Bank, Global Corporate Venturing, J. The-lander Consulting, and Deloitte LLP. 2 Corporate Venture Capital: Avoid the Risk, Miss the Rewards, BCG.perspectives, 2012 - Bielesch, Brigl, Khanna, Roos, Schmieg

7

defined as the first phenomenon that consists in the process of combining resources dispersed in the environ-

ment by individual entrepreneurs with his or her own unique resources to create a new resource combination

independent of all others (Gautam & Verma, 1997).

Corporate venture Capital programs can be therefore included in the list of the possible applications of exter-

nally-oriented corporate entrepreneurship. A phenomenon that entails the fusion and combination of internal

resources with external ones in order to spot out new opportunities and ensure the future of big consolidated

corporations.

2.2 HISTORY AND PHASES

In the mid-60s, the main driver was financial returns rather than innovation even though that period was also

characterized by technological advancement and strong corporate performance.

The next entry of CVCs into the very small startup ecosystem occurred in the early ‘80s and was again finan-

cially motivated. The first institutional VC firms (IVCs), as we know them today, were also being formed at that

time. That incursion came to an abrupt end with the stock market crash of 1987.

Ten years later, during the dot-com era, the technological innovation that was being created and the stock

market performance brought CVCs back to the startup ecosystem. For the first time investing in innovation

became a motivating factor in addition to the drive for financial returns, but the 2001 dot-com implosion and

recession spelled the end of the third wave.

The most recent wave of corporate VCs begun around 2006 but CVC groups formation has picked up steam

around 2009-2010 and continues nowadays. It may appear at first sight that another boom-and-bust cycle is

forming. However, there is extensive and commonly-shared evidence that history is not repeating itself. Ra-

ther, CVC, once an experiment, has entered a new, more mature phase. Companies across the business land-

scape have embraced venturing. They are reallocating resources from internal R&D toward external innova-

tion and committing those resources for the long term. In many cases, they are banding together with com-

panies from other industries to fund promising new ideas (BCG.perspectives, 2012).

8

2.3 DEFINITION AND CONTEXT

Corporate venture capital (CVC) can be defined as:

The investments of corporate funds directly in external startup companies. Our definition excludes

investments made through an external fund managed by a third party, even if the investment

vehicle is funded by and specifically designed to meet the objectives of a single investing company.

It also excludes investments that fall under the more general rubric of “corporate venturing”—for

example, the funding of new internal ventures that, while distinct from a company’s core business

and granted some organizational autonomy, remain legally part of the company. Our definition

does include, however, investments made in start-ups that a company has already spun off as

independent businesses. (Chesbrough 2002)

Analyzing the definition of Henry Chesbrough, one of the first scholar who studied the phenomenon, it is clear

that CVC is a catch-all name that includes a wide variety of equity investment programs. The choice of not

being more explicit is due to the wide scope of corporate investments, most of which specific to the type of

corporation.

Figure 2.1 – CVC phases (BCG, 2012)

9

However, with the aim of avoiding misunderstandings and overlapping of meaning due to the wideness of the

definition, further specifications were defined. In order to better frame the phenomenon, Chesbrough expli-

cates in an empirical research with Christopher L. Tucci the key criteria for inclusion and exclusion, along with

a more precise definition:

Corporate Venture Capital investments are defined to be equity investments made by non-finan-

cial corporations in young, early stage companies, not made solely for financial gain

Key criteria for inclusion are:

• The ventures receiving the investment are separate legal entities from the corporation

making the investment.

• The purpose for the corporate investment is not purely financial, but includes a strategic

purpose as well. However, these investments are NOT intended to be subsidized, and are

expected to produce a financial gain as well.

• The form of investment in the ventures is equity, rather than debt or other consideration

(a common form of corporate venturing used for R&D development may be structured by

way of a collaboration agreement whereby the larger corporate provides funding in return

for royalty rights or the right to share in the foreground intellectual property generated

during the R&D collaboration).

• The corporation has defined a process to make such investments again in the future. This

could be either through a separately structured fund, or an internally managed program.

Key criteria for exclusion

• An investment made in an internal division of the corporation

• An investment made for purely financial reasons.

• Mergers and acquisitions of other public companies.

• A strategic alliance

• A business development fund

• An offering from a financial services company

• A non-profit organization activity

(Chesbrough & Tucci 2002).

10

Nowadays, conversely, practitioners prefer not to give a too narrow definition of CVC and have then removed

most of the exclusions and boundaries specified in the previous decade. According to them, further confining

CVC would for sure exclude some investment programs that could give valuable insights to the industry (BVCA

– British Venture Capital Association, 2012). Nonetheless, practitioners made a clear distinction between CVC

investments and another phenomenon that goes under the name of Corporate Venturing3.

Bearing in mind this issue from practitioners’ side, this paper will adopt as reference the following syntheticalal

definition proposed by Dushnitsky:

CVC is defined as a minority equity investment by an established corporation in a privately-held

entrepreneurial venture. Three factors are common to all CVC investments. First, while financial

returns are an important consideration, there are often strategic objectives that motivate CVC

activities. Second, the funded ventures are privately held considerations and are independent (le-

gally and otherwise) from the investing corporation. Third, the investing firm receives a minority

equity stake in the venture. (Dushnitsky, 2008)

To be more precise on the space CVC covers within the corporate management activities, it is useful to under-

stand how a CVC program sets itself in the framework that comprises all the possible ways of creating new

business opportunities. As depicted in figure 2, CVC is distinct from internal corporate venturing activities –

3 Corporate Venturing can refer to (1) an internal business development activity within the parent company that identifies, incubates and accelerates ideas, technology and innovation for key business lines (the regular R&D) and / or (2) an eco-system-building activity that directly or indirectly affects core business, but does not involve an equity stake (Volans, 2014).

Figure 2.2 – business opportunities framework (Volans, 2014)

11

here all included under the R&D department – and M&A activities, even though the connection between these

three approaches can be strong within a single corporation. In some cases, corporate venturing can act as a

pipeline for later-stage investment by corporate venture capital funds. CVC may also connect with M&A strat-

egy, as portfolio ventures could eventually become fully acquired by the parent company (Volans, 2014).

2.4 CHARACTERISTICS OF CVC PROGRAMS

Today, as aforementioned, the approach to CVC is different from the past. It became an organic and comple-

mentary strategy necessary to guarantee a company’s success, assuming in turn a new form with new charac-

teristics (2015 - Corporate Venture Capital Compensation, CVI² 2016):

- CVC programs are adopted by corporations from around the world and from a wider variety of in-

dustries (e.g. automotive, logistics, manufacturing, CPG, and energy) pursuing investments globally.

- The CVC groups are staffed differently depending on their objectives – strategic or financial, as fur-

ther explained below.

- CVC participate in early and – not or – later stage investments. Early stage investments enable to

fulfill the innovation mission by giving visibility to new technologies and business models, while late

stage investments enable CVCs to identify strategic partners to their corporate business units

Evidences of the CVC transformation and of the CVC ecosystem becoming a stable reality can be seen also

form the point of view of human resources employed by parent corporations: CVC jobs (vs. titles) are now

standardizing, legitimizing industry-wide CVC career-path development; high-performance CVC teams now

source up to 50 percent of their teams from outside their parent companies (2015 - Corporate Venture Capital

Compensation, CVI² 2016).

2.4.1 CVC OBJECTIVES

Given the current approach of defining CVC as a more open phenomenon, it is indeed important not to confuse

CVC with private or independent venture capital (VC or IVC). The General Partners (GPs) of VC fund assess and

invest in high growth potential businesses by deploying funds raised from external investors known as Limited

Partners (LPs). They hold the committed capital in a fund for 10 years (typically) dispersing returns gained from

the sale of investment businesses both during and at the conclusion of the fund’s lifetime. The sole objective

of such a fund is financial return. CVC differs in two main ways. Firstly, CVC activities may comprise the GP or

the LP role (some corporations do both as part of their activities). Secondly, whilst the sole objective of a VC

fund is financial return, CVC performance will likely be assessed on both strategic and financial metrics (BVCA

– British Venture Capital Association, 2012):

12

- Financial objective: providing financial return for the corporation. With increasing cash on balance

sheets, financially-driven CVC investments are looking to take some risk in exchange for high returns.

In this situation CVC and VC overlap (Volans, 2014).

- Strategic objective: developing capabilities, access and / or markets of the parent company, aligning

with long-term strategy. Multiple CVC units may be created to focus on different aspects of the strat-

egy – and they often adapt and evolve over time. A strategic CVC investment will identify and amplify

synergies between itself and the venture. To do so, it will provide management skills and other forms

of expertise to the investee (Volans, 2014).

At the end of the day, financial objectives are necessary to maintain internal support, while CVC’s ability in

meeting strategic objectives will be vital to long-term success.

Strategic CVCs that have been formed in the last four years, such as Dell Ventures, are more likely to employ

partners with institutional VC experience and flourish; older strategic CVC groups, such as Verizon Ventures,

are more likely to still employ only corporate executives and perish if compared to fully strategic programs

(Evangelos Simoudis, 2014).

2.4.2 CVC STRUCTURE AND TYPOLOGY

Given the different objectives a CVC program can pursue and the intrinsic characteristics of the corporation

that implements it, the CVC models can be synthetized under three main models, which will be in turn included

in two wider and more general categories. Four primary aspects of the fund are described, as shown in figure

3, for each of the three model. In addition, a fourth hybrid model will be added to the following three.

Figure 2.3 – CVC models categorization (BVCA, 2012)

13

Let’s go deeper in each of the three main CVC models:

1. CORPORATE DIRECT INVESTMENT: given the direct nature of the investment, where the money

outflow is accounted as a balance sheet invoice, this type of investment program is closely linked to

the company’s value chain and business divisions. It is an in-house venture program, managed by in-

ternal corporate talents and clearly addressed to support the company in pursue its strategic goals.

Financial performances are therefore secondary compared to the strategic ones.

2. INTERNAL DEDICATED FUND: The corporate VC is set up as a separate unit of the parent corpo-

ration with an independently defined budget. The fund is managed by internal employees of the com-

pany as well as newly hired people, usually from the VC world. The management team is to all extents

the General Partner of the fund that usually carry interests to produce financial returns. Because of

the greater autonomy of this model respect to the first one, there are less internal pressures to invest

in startups where the prospects for a financial return are secondary to other corporate interests. It is

clear how the financial and strategic goals of investment coexist in this situation.

3. EXTERNAL FUND: The company invests in an external fund, such as an independent VC, and act as

a Limited Partner. This solution is almost merely financial as the company has a low influence on the

investment decision taken by the GP of the fund. For this reason, this model of CVC is not suitable to

be a strategic approach of open innovation.

The aforementioned classification is part of a broader one that sees two general classes of investment ap-

proaches:

- direct / on-balance-sheet investment: investing money of the company through an annual budget. The invest-

ment is hence listed as an expense line (first model, figure 3). The investment activities is managed by the

company’s personnel. It is relevant to mention a further sub-classification proposed by Ben Haj Youssef4 and

adapted by Lantz, Sahut and Teulon5, which includes in the direct form of CVC investments also joint-ventures

with other companies, spin-offs and step-by-step investments (occasional investment carried on without stra-

tegic nor financial, but for marketing and brand-awareness reason, to underline a company’s presence in an

industry). Despite these are minority equity investments, the occasional nature excludes them from a current

definition of CVC program.

- indirect / off-balance-sheet investment: investing involves a third party or separate fully-owned fund where

money is committed for a longer period of time. The fully-owned fund is a 100%-captive fund where the com-

pany creates an independent subsidiary to invest its own capital only (second model, figure 3). The third party

fund can be either a semi-captive fund where the company opens the fund to other investors or an external

4 Le capital risque entrepris par les sociétés non financières, (Ben Haj Youssef, 2001) 5 What is the Real Role of Corporate Venture Capital? (INTERNATIONAL JOURNAL OF BUSINESS, 16(4), 2011)

14

VC fund where the company is just a LP (third model, figure 3). In both cases, the investment activities is

managed by external personnel (subsidiary or VC).

Besides the three main models of CVC, shown above in figure 3, another hybrid model can be identified.

4. SYNDICATION: this fourth model consists in a co-investment of the company with other investors

to reduce the risk and increase the capital invested. In the technical language, this type of investment

is called Syndication and can be done indirectly through a subsidiary fund or directly with an invest-

ment out of balance sheet. This last model can be clearly noticed by the investment trajectory graph

(figure 4) where the CVC area overlaps with VC (and sometimes PE, when deals are bigger). The frame-

work below shows how the different investors distribute their investment over the lifecycle phases of

the investee.

2.5 FOUR INVESTOR COMPANY ARCHETYPES

The dual focus of CVC was clear since the very beginning of the phenomenon. In his paper, H. Chesbrough

classifies CVC investments under two dimensions: the objective (strategic or financial, deeply discussed above)

and the degree to which the operations of the investing company and the startup are linked (loose or tight).

According to this classification, four archetypes of companies can be identified:

Figure 2.4 – Investment trajectory (Volans, 2014)

15

Clearly, neither of these two dimensions of corporate investing is an either-or proposition. Most investments

will fall somewhere along a spectrum between the two poles of each pair of attributes. Still, overlaying the

two dimensions creates a useful framework to match each corporation’s objective with the right investment

to pursue it.

1. Driving investment – strategic / tight

This type of investment is characterized by a strategic rationale and tight links between a start-up and

the operations of the investing company. The CVC arm, in this case, works closely with the company’s

existing businesses (Chesbrough, 2002).

A driving investment, despite the core role in supporting the current strategy of a corporation, has a

limit that is intrinsic to its nature. The bond with the current strategy makes a driving investment fun-

damental to sustain a business, but not sufficient to create a disruptive innovation able to change the

rule in the market and assure a future for the company.

2. Enabling investment - strategic / loose

In this mode of VC investing, a company still makes investments primarily for strategic reasons but does

not couple the venture tightly with its own operations (Chesbrough 2002). The idea at the base is that

a successful investment will enable a company’s own businesses to benefit without necessarily keep a

strong operational link with the start-up. This approach lays on the concept of network externalities,

where a company’s core business is sustained by the development of a growing product ecosystem

around it – suppliers, customers, and third-party developers that make goods and services that stimu-

late demand for the company’s own offer.

Figure 2.5 – CVC investments map (Chesbrough, 2002)

16

Enabling investments have their limits too. These vehicles will be justified only if they can capture a

substantial portion of the market growth they stimulate (Chesbrough, 2002) compared to the compet-

itors, which will equally benefit from the growth of the ecosystem.

3. Emergent investment - financial / tight

A company makes these kinds of investments in start-ups that have tight links to its operating capabili-

ties but that offer little to enhance its current strategy (Chesbrough, 2002). A company may sense an

opportunity in a strategic whitespace, a blue ocean – new market with a new set of customers – but

exploring the potential of such a market is often difficult for a company focused on serving its current

market. Investing in a start-up willing and able to enter this uncharted territory – selling real products

to real customers – provides information that could never be gathered through a conventional market

research.

This approach based on what scholars call Real Option theory reveals a hidden opportunity for the com-

pany that undertakes it. If the business environment shifts, if a company’s strategy changes or if the

new market seems to hold potential, such a new venture might suddenly become strategically valuable.

This gives it an option-like strategic upside beyond whatever financial returns it generates. Thus, while

the immediate benefits of such investments are financial, the ultimate return may result from exercising

the strategic option. Under the real option light, emergent investments perfectly complement the ben-

efits of driving investments, designed only to support the company’s current strategy.

Like the other approaches, emergent investments have their limits as many options never become val-

uable and never represent a shift in strategy. For this reason, it is fundamental to manage these invest-

ments balancing financial discipline with strategic potential (Chesbrough, 2002). This key aspect is as

crucial as difficult to achieve for a corporation: the risk of wasting money is as high as the one of losing

strategic opportunities and a potential first mover advantage. Partnering with a private VC or following

their lead in a syndication is one way to impose financial discipline on the process while mitigating the

risk of losing opportunities.

4. Passive investments - financial / loose

In this type of investment, the ventures are not connected to the corporation’s own strategy and are

only loosely linked to the corporation’s operational capabilities. (Chesbrough, 2002) Consequently, the

corporation lacks the means to actively advance its own business through these investments. It is clear

that the only objective achievable is of financial nature. Thus, in passive venturing, a corporation is just

another investor subject to the volatility of financial returns in the private equity market.

This approach is no longer seen as positive by the shareholders of a company. According to the current

financial portfolio theory, shareholders could diversify their own portfolios and did not need corpora-

tions to do it for them. Indeed, diversification is no longer viewed as a positive benefit – evidences of

17

this trend are clear in the stock exchange market, where companies are valued with a diversification

discount rather than a diversification premium.

Seen in this light, passive and emergent investors, bond to a financial return of their investments, are directly

influenced by the market trends – reason why in the past the investment trends were cyclical and distributed

in waves linked to external market performances. Passive investors tend to head for the exits when the mar-

kets turn down, while similarly the emergent investors are more likely to be active when the economy is boom-

ing.

By contrast, enabling and driving investments have more staying power. Serving the present business of a

company, they are more likely to happen regardless of external macro-trends fluctuation. As already discussed

above, these two approaches are indeed the trends risen at the beginning of the current wave (after the re-

cession in 2002) that are today clear and sound worldwide and transversal across many industries.

Whether growth is desired in present or future businesses, a company needs a clear-eyed view of

its strategy and its operational capabilities. Regardless of the type of investment, as a general rule,

a company should manage its investments to capture the latent strategic benefits in its portfolio

rather than chasing the evanescent promise of high financial returns in the venture capital market

(Chesbrough 2002).

3. OPEN INNOVATION AND CVC: A LOOK TO THE FUTURE

As Accenture punctually reported in the executive summary6 of YEA’s – Young Entrepreneurs’ Alliance – sum-

mit held in Turkey the last year, in an increasingly digital and connected world, large enterprises and small

entrepreneurs alike are exploring the value that can be created by closer and deeper collaboration with each

other. Enterprises gain access to new skills, ideas, talent and markets, while entrepreneurs tap into large com-

panies’ distribution networks and customer bases. The rewards of getting collaboration right are considerable,

especially in broader, more open ecosystems. We found a statistically significant correlation between collabo-

ration, innovation and growth, among both large companies and startups, in all the G20 countries that we

analyzed (Accenture, 2015).

The continuous innovation paradigm has become an imperative, a rule rather than an opinion of few: most

innovations fail. Yet, in the long run, the risk of not innovating is greater than that of innovating. Companies

that don’t continuously innovate will die. It is nowadays manifest that innovating is not an option, but a ne-

cessity. It is likewise clear that innovating internally is not enough to guarantee a company’s success – a small

6 Accenture-G20-YEA-2015-Open-Innovation-Executive-Summary

18

startup with an innovative business model, backed by the right VC, can disrupt an entire industry in few years

and scale up its operations to secure a big slice of the market outperforming old-style competitors.

This is a rather old concept, clear and sound since the explosion of the dot-com bubble. It was indeed back in

2003 when Chesbrough, in his book “Open Innovation: The New Imperative for Creating and Profiting from

Technology”, first defined the concept of open innovation as a way to enlarge the boundaries of the old, and

not anymore sufficient, closed / internal innovation.

Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal

innovation, and expand the markets for external use of innovation (Chesbrough, 2003).

In figure 6, it is graphically represented the shift from closed to open innovation as initially proposed by

Chesbrough in 2003.

Later in time, a remark had to be added to this definition to make clear the openness of this strategic approach

towards innovation:

The actors in the network have access to the inputs of others and cannot exert exclusive rights

over the resultant innovation (Appleyard and Chesbrough, 2007).

Although the advantages of open innovation over closed innovation are well known and widely accepted, and

many large companies claim to have embraced “open innovation” since the concept came to prominence

more than a decade ago, the world is far to make open innovation a standard strategic approach. As discussed

during the G20 YEA’s summit, in most cases, such innovation is focused on executing predetermined goals:

”How can I get others to help me do what I already want to do?” That mindset is not equal to the challenges

and opportunities of the 21st century. For this reason, open innovation is still a hot topic and the years coming

will be fundamental to create the right conditions to put it in practice worldwide. Using Josh Lerner words:

You know those baby sea turtles that get eaten by birds and crabs on their way from the nest to

the water? It’s like that. A good idea faces so many obstacles en route to market today that it’s a

wonder we have any innovative products at all.

Figure 3.1 – open innovation paradigm (Chesbrough, 2003)

19

Corporations have narrowed the focus of their R&D by pressing for clear, short-term wins; venture

capitalists are too quick to get caught up in the latest, hottest thing; and even the vaunted crowd-

funding option is pretty limited: It’s great if you’re an internet star, but try getting a crowd excited

about an innovative idea in industrial machinery. It doesn’t have to be this way. Effective means

of boosting innovation already exist, but not enough companies are making use of them (Lerner,

2013).

One of the means Lerner mentioned is corporate venture capital. It can cover the blank area left untouched

by VCs and crowdfunding, seen their lack of interest in industrial – not exciting – projects, and by R&D labs,

which move too slowly, inefficiently and ineffectively. On the other side, entrepreneurs can see their ideas –

sometimes too complex and industry-specific for the regular venture capital market – well supported and open

to a large stable customer base.

3.1 R&D AND EXTERNAL INNOVATION

With the introduction of the concept of open innovation in the previous paragraph, it has been highlighted

how internal innovation alone is too slow, ineffective and inefficient to face the challenges of today’s volatile

market. This consideration opens a debate on how external innovation, necessary to overcome the limits of

internal innovation, affects internal one. In 2002, Chesbrough and Tucci published the result of an empirical

research they made to investigate how internal innovation – in particular R&D – is affected by the increase or

decrease in external innovation – in particular CVC programs.

What role do corporate venture programs play inside large corporations, beyond any financial

returns they generate? Do these programs substitute for more traditional corporate investments,

such as R&D spending, perhaps outsourcing some portion of a company’s innovation activities?

Or do they complement internal R&D spending, and effectively stimulate additional corporate in-

novation activities? (Chesbrough & Tucci, 2002)

To give an answer to these questions, the scholars examined the R&D spending activities of a set of US and

selected foreign corporations that have initiated CVC programs since 1980. The research clearly showed as

result that the existence of a CVC program is strongly and positively associated with the level of corporate R&D

spending.

With this empirical demonstration in mind, it is useful to understand the reasons behind the complementarity

between internal and external innovation. Increasing the range of ideas and technologies that could be ab-

sorbed by the corporation is for sure the main motivation in most of the cases. At the beginning of the century,

there were already signals of a change in the corporate context for innovation, but it is now clear and sound

that the locus of innovation shifted from R&D labs to a more diffuse knowledge environment where startup

20

companies, universities, and individual inventors possess valuable technology and know-how. Corporate ven-

ture capital, and other external innovation programs, are vehicles to enable corporations to access this dis-

tributed knowledge opening windows on new markets or technologies of interest to the corporation. Investing

in R&D to increase absorptive capacity is the only way to make sure the corporation itself has the internal

capability to pursue these new opportunities, which in turn would not have been discovered absent the CVC

investment. Increasing the absorptive capacity is therefore a second reason behind the necessary coexistence

between internal and external channels.

Whatever the reason is, it is nowadays undeniable how the two sides of corporate innovation – internal and

external – must be brought on together if a company wants to set up a strategy of continuous innovation that

creates competitive advantage.

In short, internal innovation alone is blind towards those future opportunities that are set outside the com-

pany, while external innovation alone is difficult to internalize without a strong internal innovation basement.

3.2 THE FUTURE OF CVC

Besides the key role of CVC in the innovation context today, it is important to understand what the future

evolution of CVC can be under the light of open innovation. According to the report of G20 YEA’s summit, CVC

represents just the first step for a large corporation to begin a strategy of open innovation. As shown in Figure

7, open innovation is a journey of four phases that sees the application of four different tools:

Figure 3.2 – evolution of open innovation (Accenture, 2015)

21

Corporate venturing, as a first fundamental approach towards the entrepreneurial world. It is the base

to set up a concrete and standardized program of open innovation, a necessary step to implement the

other tools and enter the following phases.

Incubators or accelerators, coming alongside CVC, are where large companies provide entrepreneurs

with trainings (typically in lean startup method, and the innovation process management), idea pro-

totyping, mentorship particularly during the development phase (including specific vertical industry

expertise), partner networks (including VCs) and facilities. However, the two models differ in two im-

portant ways. First, accelerators invest in their startups (typically $20-100K in each company) whereas

incubators do not. Second, accelerators support startups in groups, whereas incubators do so on-de-

mand. A corporation can start with a startup incubation model and progress to an acceleration model

(Evangelos Simoudis, 2014). In contrast to a typical CVC program, incubators and accelerators are

closely supporting the growth of startups, often at their beginnings, helping them commercialize their

products successfully. Through frequent interactions with entrepreneurs, incubators learn entrepre-

neurial lessons that in turn benefit the parent corporation to which they relate. Under the light of

open innovation, they open a door on new technologies for the corporation, which hold an option

over it (in case of future monetary commitment).

Joint innovation or co-creation, as a way to share knowledge or even specific operations (e.g. co-design,

co-creation or crowdsourcing). It is an official – or not – collaboration agreement between a large

company and one or more startups. The actors are considered as partners that work together towards

a common objective.

Ecosystem innovation, the last stage of open innovation, where multiple industry sectors as well as

citizens and governments jointly develop common solutions. At the same time, ecosystem innovation

does not simply mean throwing ideas into the waters of chaos and wait for a few to float to the surface.

The order is brought to market ecosystems through digital platforms, which enable companies of all

sizes to imagine, design, develop and deploy new products and solutions within a marketable business

model. Digital platforms, and platform-oriented companies, are a major enabler of ecosystem innova-

tion (Accenture, 2015). According to the Massachusetts Institute of Technology, “In 2013, 14 of the

top 30 global brands by market capitalization were platform-oriented companies—companies that

created and now dominate arenas in which buyers, sellers, and a variety of third parties are connected

in real time.” (It is not a case that MIT is delivering, from April 2016, a course called Platform Strategy:

Building and Thriving in a Vibrant Ecosystem).

However, the state-of-art of open innovation lays in the application of a cohesive strategy that include a mix

of these tools together. It is trivial to say that a company able to achieve ecosystem innovation has most prob-

ably already went through the previous three phases applying the respective tools.

22

4. HOW TO SET UP A STARTUP ENGAGEMENT SOLUTION

In the previous paragraph, it was pointed out how CVC programs are a powerful practice of interaction with

startups that also represent a way to do open innovation. It was also made clear that they are not the only

way to do that; there are other programs and practices to achieve open innovation that entails the interaction

with the startup ecosystem, such as accelerators and incubators or startup contests. However, it has not been

mentioned yet that next to these strategic startup interaction programs that enables open innovation, there

are other ways to interact with startups, which anyway won’t be considered in this study (the criterion of

inclusion will be explained in the section The Framework).

In this paragraph are outlined all the ways a company can choose to interact with the startup ecosystem. The

explanation will also highlight the main steps a manager should follow to set up a program of interaction with

startups, according to a study conducted by Nesta, Founders Intelligence and Startup Europe Partnership7; it

is a three-step approach that disentangles the most important objectives for corporate engagement and out-

lines how these link productively with suitable programs (Nesta, 2015).

4.1 STEP 1 – CLARIFY YOUR OBJECTIVES

To set up an effective startup interaction program, a manger should first ask himself what are the objectives

he wants to reach engaging with the startup ecosystem. The following four objectives tend to be the key rea-

sons for corporates to set up startup programs. Any program should be designed to deliver against these ob-

jectives.

Rejuvenating corporate culture

This objective is important if you ask yourself questions such as: How do we make our organization more in-

novative and willing to take risks? How do we create internal awareness of new market trends and emerging

technologies? Working with startups helps create an entrepreneurial mindset among employees who become

exposed to agile teams, lean approaches and fresh thinking. Startups also help corporates create awareness

of future trends and the potential of new technologies (Nesta, 2015).

Innovating big brands

This objective is important if you ask yourself questions such as: How can we recast our corporate brand in the

digital age? How can we position our company as an innovation-driven partner, customer or employer? Work-

ing with startups not only rejuvenates corporate thinking internally, but also modifies the external perception

of corporate brands among their customers, partners and future employees (Nesta, 2015). A company that

collaborates with startups is perceived as up with the times and clearly projected towards the future.

7 Winning Together: a guide to successful corporate-startup collaborations, June 2015

23

Solving business problems

This objective is important if you ask yourself questions such as: How can we solve key business problems in a

quicker and more cost-effective way? Developing new innovative solutions and products with startups rather

than internally is often much quicker, and less risky for your core business. Startups bring new technologies,

business models and talent to the table (Nesta, 2015).

Expanding into future markets

This objective is important if you ask yourself questions such as: How can we strategically expand into new

markets? How do we capture the power of cutting-edge, disruptive technologies? Startups can be an important

channel to expand business operations into new markets (Nesta, 2015). Here optionality becomes the main

necessity. Being able to move quickly in new markets whenever the time requires it is fundamental for the

survival of a corporation, and the ability of startups of working in new markets can be a precious advantage.

4.2 STEP 2 – CONSIDER THE PROGRAM OPTIONS

Once the core objectives have been decided, it is time to identify a suitable program among all the possible

options of startup engagement. In figure 8, the most common solutions are matched with the objectives the

management of the company wants to achieve (darkness of the field indicates stronger suitability to satisfy

Figure 4.1 – startup engagement programs (Nesta, 2015)

24

key objectives). Many corporates gradually build up a portfolio of programs, and mix or tailor different ele-

ments, to satisfy multiple objectives (Nesta, 2015).

One off events

Some corporates choose to attract startups through relatively self–contained events, that can have different

natures, but often take the form of competitions where participants are asked to solve specific challenges.

These tend to be good starting points to drive internal culture change by exposing employees to the entrepre-

neurial mindset of startups, provide new perspectives of emerging business trends and technologies, and also

foster external association of the corporate brand with innovation. However, it is important to understand

that these programs provide less immediate return in terms of business relationships and also require careful

consideration of the needs of the startups (Nesta, 2015). As aforementioned, these events can be light solu-

tions only aimed at bringing some fresh entrepreneurial air within the organization, but they can also be harder

strategic solutions where the company wants to set the foundation to continue the interaction overtime;

events that constitute the first step in a more structured program (of incubation or even equity-based invest-

ment) aimed at backing the current strategy or exploring new strategic paths.

Sharing resources

Sharing resources with startups can be a comparatively cheap way for corporates to build a more innovative

brand. However, it is important to understand that these programs, especially supplying free tools, provide

less immediate return in terms of business relationships (Nesta, 2015). The resources commonly shared are

free tools for startups and co-working spaces. In the first case, a company can give discounted or free access

to software, physical products or knowledge; sharing tools is also a way to create positive network externalities

for a company’s products. In the second case, a company gives a space where more startups can work together

in a common space, where they have free internet access and other tools to cover basic needs.

Business support

Corporates also operate various forms of business support programs, in particular incubators and accelerators,

that help the growth of early–stage startups and make them ready for investment, market entry and scale (see

paragraph 3.2 for more detailed information). These programs can be powerful tools to foster culture change

and internal learning by engaging employees as mentors or advisors. However, whether these programs

should be run directly by corporates or only in partnership with third parties is a hotly debated topic. In any

case, business support programs have to be designed with the startup needs in mind, and not solely oriented

towards the growth of the corporate host (Nesta, 2015).

Partnerships

Business partnerships can take many different forms, and may sit on a spectrum from the relatively short–

term, transactional engagement to the long–term, committed relationship (Nesta, 2015). The most common

partnership programs are product co-development and procurement. While product co-development takes

25

more time and requires big efforts from both the parts, procurement is a quicker and easier program – for the

company it is a way to access a new technology on the market, and for startups is a quick way to scale up its

operations (even though can be quite risky). partnerships do not involve any equity investment as they are

just commercial agreements. These programs, when done with multiple and diverse actors, are a powerful

tool of open innovation and they can be put under the category Joint Innovation outlined in section 3.2.

Investments

Investing in equity is one way to develop a company’s business strategy. As already explained in the previous

sections, CVC programs, in their various forms8, are the way a corporation can invest in startups.

Acquisitions

It is the logical extension of corporate venturing that, as previously said, serves as a pipeline for future M&A’s.

Acquiring startups can be a quick and impactful way of buying complementary technology or capabilities that

solve specific business problems and enter new markets. It often happens that acquisitions are just a way to

hire new ready-made talents. Acquisitions with this strategic objective are called acqui-hiring (Nesta, 2015).

4.3 STEP 3 – CONNECT POTENTIAL RESOURCES

Each corporate, be they medium–sized or large, has resources it can leverage to bring a startup program to

life. Figure 9 gives a generalized overview of the resource commitment different program types tend to re-

quire. Resources can include a variety of things such as:

Cash – to pay for events, program costs, investments etc.

Employee time – from the executive level to employees who make engagement decisions, provide

mentoring in programs and product feedback, or attend events.

Products – technologies or services that are provided for free or at a reduced price through programs.

Intangible assets – specific strengths such as market access, customer networks. These resources can

be further leveraged with external resources through partnerships with other organizations (other

corporates, accelerators, consultants etc.) (Nesta, 2015).

8 See section 2.4 for further information.

26

Figure 4.2 – resource commitment through the various programs (Nesta, 2015)

27

THE FRAMEWORK As mentioned in the introduction, this paper has as first objective the one of mapping within an original frame-

work all the Italian companies that are currently implementing strategic programs or practices of open inno-

vation with startups. Among the different solutions that a corporation can implement to engage with startup,

the framework will consider just CVC programs, incubators/accelerators and startup competitions. In the sec-

tion 4 of the Literature Analysis, the study shown how different can be the ways of interacting with startups

for a corporation. Given the variety of ways of interaction seen, and the consequent variety of objectives that

lies underneath the choice to be implemented (financial, strategic, commercial, etc…), it is necessary to draw

the boundaries of the research.

In the following paragraphs of this section is explained the criterion of inclusion that rules the selection of the

startup engagement solutions that are consistent with the objective of the research. In addition is outlined the

framework in which the selected startup engagement solutions are framed and organized.

5. CRITERION OF INCLUSION

The study targets all the open innovation solutions driven by strategic purposes: the ones aimed at supporting

the current strategy through innovation, or the ones aimed at securing options on future strategic directions.

In few words, these solutions must be aimed at internalizing the power of creating disruption by bringing an

entrepreneurial approach within a stiff corporation. In addition, to exclude all those occasional practices, the

research focuses on the solutions that are institutionalized, structured and systematically implemented over-

time under a continuous commitment. If for heavy solutions – called programs – it is legit to assume that a

company systematically implements a defined plan of interaction, regarding lighter solutions – called practices

– it can’t be always said the same.

Having said that, the underlying question is: among the six different ways a company can interact with startups,

what are the programs or practices that surely relate to those characteristics listed above? it is fundamental

to define a subset of startup engagement solutions coherent with the objective of the study. Taking as refer-

ence the six startup engagement solutions introduced in the Literature Review section9, follows below an anal-

ysis of each of them, where it is verified the compliance with the criterion of inclusion:

One-off events – as light solutions, most of the times one-off events are not organized systematically. They can

be better addressed as practices than programs. And even when methodically planned, they might not have a

strategic nature at the base. Taking a startup competition as example, a corporation might organize it just to

9 See section 4. HOW TO SET UP A STARTUP INTERACTION PROGRAM

28

make news and relaunch the brand instead of to actually start a program of strategic interaction. As seen in

figure 8, these non-strategic solutions can be also aimed at brand revitalization (involving startups in an event

is “trendy” nowadays). Needless to say, these practices won’t be included in the research, as not related to

open innovation. Conversely, whenever a solution is implemented, systematically overtime, as a pipeline for

further investment or further strategic existing programs (i.e. as a first selection/screening step of a wider

program) the study will include these practices in the research.

Sharing resources – the resources commonly shared are free tools (usually the ones that the company pro-

duce) and co-working spaces. Even if more long-term oriented than a one-off event, these solutions cannot

be considered strategic and not even open innovation programs. As seen in figure 8, giving resources is a

practice that can be used to rejuvenate corporate culture or revitalizing a brand, but it’s very hard to adopt it

to support innovation or create optionality. There is not much a company can learn by implementing this

practice and for sure no power of disruption is internalized. Obviously, when sharing resources is a service

offered within a wider program (of incubation for instance), there is a strategic intent at the base, which, yet,

is related to the wider program and not on the activity of sharing resources. In addition, it is very hard to keep

track of these kind of interactions, as it can be personalized in infinite ways. For all these reasons, they will be

excluded from the research.

Business support – corporates also operate various forms of business support programs, in particular incuba-

tors and accelerators, that help the growth of early–stage startups and make them ready for investment, mar-

ket entry and scale (see paragraph 3.2 for more detailed information). Under the light of open innovation,

besides bringing advantage to the current strategy through innovation, they open a door on new technologies

for the corporation, which hold an option over it (in case of future monetary commitment). In many cases,

incubation or acceleration programs serve as a pipeline for future equity investment by the corporation. These

solutions are strategic and, by nature, structured and systematically implemented (as more resources need to

be committed by the company). For these reasons, they will be included in the research.

Partnerships – the most common partnership programs are product co-development and procurement. These

solutions don’t entail any equity investment and the company has no stake in the startup (the startups within

this programs can develop partnerships also with other companies). Therefore, they are good for business

development and innovation as shown in figure 8, but not to guarantee optionality. In this case, as partnerships

are a wide category, it is necessary to make a clear distinction between programs that fall under procurement

and the ones that can be defined as co-development. The first programs are basically commercial agreements

similar to the ones that can be done with any other company; they do not bring any exclusive advantage to

the company and therefore they cannot be considered as strategic solutions to internalize the power. As con-

sequence, partnerships based on procurement won’t be included in the research. Conversely, co-development

programs can be a good way to support internal innovation with external ideas, and, even if still not suitable

29

to generate business optionality, they can be a way to create disruption through open innovation if imple-

mented as Joint-innovation with other actors (as presented in section 3.2). Consequently, the only partnership

programs included in the research will be the ones based on Joint-innovation.

Investments – As already explained in the previous sections, CVC programs, in their various forms10, are the

way a corporation can invest in startups with a continuous commitment and systematical procedure. Making

minority equity investments in startups is one of the heaviest practices to make open innovation, but is for

sure the best way to guarantee optionality business flexibility, giving the chance to expand in new markets as

first mover. CVC programs are also an effective way to revitalize a brand and to bring back in a corporation an

entrepreneurial attitude towards work. It is clear that implementing these heavy solutions, a company can

succeed in internalizing the power of disruption embedded in startups, that is why CVC programs are to be

included in the research. However, it is important to highlight how other types of investment, which are occa-

sional and not supported by a continuous procedure of screening, evaluation and selection, are not to be

included in the research as they can’t be deemed as part of a defined plan, but rather as the seizing of an

extemporary opportunity.

Acquisitions – acquiring a startup is a heavy solution, a choice that always impacts strategy as it always has a

strategic reason to happen. Excluding extemporary acquisitions, which can be treated as bare M&A’s, the con-

tinuous programs of acquisition are the highest form of open innovation. Yet, they are not strictly a program,

but they instead assume a program at the base, where the acquisition represents just the top of the iceberg,

the final goal if everything goes as planned. Many times, a company that continuously – and not occasionally

– acquires startups, has also an incubation/acceleration or CVC program at the base, which is responsible of

screening and selecting the right candidate. Therefore, even though systematical acquisitions represent a way

to do open innovation, the program on which they are built has been tracked by the research already. The

research will exclude acquisitions from the research.

6. STRUCTURE

Now that the rule of inclusion at the base of the selection has been introduced, it is possible to move more in

details on how the information collected is framed and organized. As previously mentioned, the complexity of

the phenomenon and the variety of expressions it can assume – many are the types solutions a company can

adopt; they can be even unique, specifically costumed for the objective to be achieved – made it necessary to

build a multidimensional framework. Under this framework, all the Open Innovation solutions that include an

interaction with the startup ecosystem – CVC programs, Incubators/accelerators, partnerships and startup

contests – will be mapped, and their characteristics outlined through the multi-leveled dimensions of the map.

10 See section 2.4 for further information.

30

At the higher level, the framework displays four categories of dimensions:

6.1 GENERAL INFORMATION

This category identifies the Open Innovation solutions – or solutions, if more than one – and the com-

pany that backs it. It includes 2 dimensions:

Backing company: the name of the company, or holding, that is running the program.

Program name: the official name of the program, if it exists.

6.2 SOLUTION CHARACTERISTICS

This category includes all the dimensions necessary to describe a startup engagement solution, from

the type to its characteristics. The first four dimensions relate to all the types of solution, while the

last six dimensions relate to any of the four models of structure11 a CVC program can refer to.

Solution category: this dimension describes the type and the structure of the Open innovation

program. Bearing in mind the previous analysis of the types of solution available in light of the

criterion of inclusion that this study holds, 4 solutions are to be mapped: CVC programs, part-

nerships, incubators/accelerators, startup competitions (all of them to be considered in light

of the criterion of inclusion). The CVC programs will be categorized under the four models

known. Remark: the research will include just the programs that are still ongoing.

11 See section 2.4.2 CVC STRUCTURE AND TYPOLOGY.

SOLUTION CATEGORY

1 CORPORATE DIRECT INVESTMENT direct investment accounted on balance sheet

2 INTERNAL DEDICATED FUND indirect investment through a subsidiary fund

3 EXTERNAL FUND investment in an external fund, acting as a LP

4 SYNDICATION direct or indirect investment made in syndication with other investors

5 PARTNERSHIPS Joint-innovation co-development programs

6 ACCELERATOR / INCUBATOR acceleration or incubation program, or both

7 STARTUP COMPETITION competition where the company awards one or more winners with a monetary prize and/or with any kind of support for further development

Table 6.1 – STRUCTURE, dimension of the framework (personal elaboration)

31

Target industries: in which market areas the company is converging its efforts; where it looks

for startups to interact with or invest in.

Target Startup Growth Stage: at which growth stage of a startup the company prefers to inter-

act or invest. There are four growth stages.

TARGET STARTUP GROWTH STAGE

Pre-seed Stage Seed Stage Early stage Late Stage

6.3 NOTES

Here the framework displays all the additional information that might be necessary to explain the

solutions, as in many cases they are unique.

Additional information: what can’t be said through numbers. This dimension contains all the

peculiarities that characterize the Open Innovation solution.

Contacts: email contacts of the solution.

Links: the link to the website of the solution, if the company has a dedicated webpage.

Table 6.2 – GROWTH STAGE, dimension of the framework (personal elaboration)

32

METHODOLOGY In the previous section, the explanation of the criterion of inclusion and the presentation of the framework

through which the main Italian companies committed in strategic startup engagement solutions will be

mapped were two fundamental steps to accurately define the boundaries and dimensions of the research.

These assumptions were necessary seen the complexity of the phenomenon deeply discussed in the Literature

Review.

Before entering in the core results of the research, it is necessary to explain how data were collected. This

way, it will be made clear how it was possible to give an answer to each of the two research questions set as

objective of this paper. The following paragraph presents the main tools used for collecting data, making dis-

tinctions between the first objective – The Map – and the second one – The Critical Analysis.

7. TOOLS FOR DATA COLLECTION

Seen the novelty of the phenomenon in Italy, and since no previous researches were done on it, it was neces-

sary to implement and combine different approaches to have a more complete understanding and to better

tackle the dual nature of the objective.

7.1. SECONDARY SOURCES INVESTIGATION

Regarding the creation of The Map, it is necessary to identify among all the Italian companies the ones with at

least one active startup engagement solution. It is obvious that the most exhaustive way to do so would be

directly approaching all the Italian companies. However, due to the large width of the dataset and the difficul-

ties of getting in contact with companies (the difficulties will be furtherly deepen in the Conclusion) the most

viable solution is the investigation through secondary sources.

This method, while not efficient in terms of time, is good to gather high-level information. Needless to say,

this approach is not sufficient to collect exhaustive data regarding for instance the capital invested by the

companies, or the startups a company started an engagement program with. Secondary sources investigation

is done through the scanning of the articles of the main Italian journals and magazines of innovation and fi-

nance. Once a company is identified, the information gathering is done directly on the company’s website or

the website of the specific startup engagement program/practice (if available). Therefore, the information

mapped in the framework are not taken from secondary sources, but verified and double-checked through

the analysis of official corporate channels.

33

7.2 DIRECT PERSONAL INTERVIEWS

While The Map is just a methodical, organized presentation of information, The Critical Analysis is meant to

be a subjective interpretation of the phenomenon, aimed at presenting the reasons behind the results ob-

tained, the benefits stemming from the implementation of startup engagement solutions, the limits of the

diffusion of this phenomenon and possible opportunities for future development. Therefore, regarding this

second part of the research objective, a more direct approach is required; the tool chosen is the direct personal

interviews.

in-person surveys are necessary to collect qualitative information, which is in turn a crucial element to com-

plete the picture of the phenomenon, as it gives the guidelines to interpret numbers and figures previously

collected with other tools. Therefore, in the same way the second part of the objective serves as complement

for the first one, this tool is complementary to the secondary sources investigation. While hard to extend on

a large scale, interviews give back precious knowledge to interpret the phenomenon as a whole.

It follows the structure of the in-person survey as it was submitted to the interviewees; it is clearly divided in

two parts: the quantitative section, where questions are addressed to reinforce the investigation aimed at

mapping the startup engagement solution, and the qualitative section, where questions are asked to support

the second part of the objective.

7.2.1 THE SURVEY

STRUCTURE

1) Which of the following startup engagement solution does your company implement?

Corporate direct investment

Internal dedicated fund

External fund

Syndication

Partnerships

Accelerator / incubator

Startup competition

TARGET INDUSTRY

2) Which industry does your solution target?

INVESTMENT FOCUS STAGE

3) Which stage of the lifecycle of a startup is your solution targeting?

Pre-seed stage

34

Seed stage

Early stage

Later stage

OTHER INFORMATION

4) Can you give us additional information on:

fund opening/closure (if available)

fund availability (if available)

investment policies (minimum and maximum investment, other screening policies)

QUALITATIVE QUESTIONS

5) Referring to the ideal state-of-art of the solution, at which percentage of completion do you think your

solution is set?

6) On a scale from 1 to 10, how satisfied are you of the startup engagement solution implemented?

7) Which is the greater advantage obtained by implementing this startup engagement solution?

8) Which is the biggest problem encountered during the implementation of this startup engagement solution?

9) Do you think there is clear awareness of the potential of CVC or other startup engagement solution in Italy?

10) As you are a pioneer in this field in Italy, what do you think the industrial ecosystem needs in order to

improve the interaction with the startup ecosystem in Italy?

11) What do you think are the problems related to the low diffusion of the startup engagement solutions in

Italy?

35

RESEARCH AND ANALYSIS In this section will be shown the core of the paper; what the empirical research brought to the surface. As

mentioned at the beginning of the paper in the introduction, the objective of this study is deployed over two

subsequent steps:

The Map – Map within an original framework all the Italian companies that are currently implementing pro-

grams or practices of open innovation with startups, with the aim of internalize the power of disruption that

these new ventures bring within themselves. Among the different solutions that a corporation can implement

to engage with startup, the framework will consider CVC programs, incubators/accelerators, partnerships, and

startup competitions, following a defined criterion of inclusion.

Critical analysis– Give, in light of the research previously conducted, a critical interpretation of the level of

adoption of the interaction among corporations and startups in Italy as a strategic solution, presenting the

reasons behind these results and the obstacles that hinder the diffusion, alongside with the benefits stemming

from the implementation and possible opportunities for future development. This critical interpretation of the

phenomenon will be outlined through qualitative interviews with the managers in charge of the most promi-

nent and structured corporate startup engagement programs (CVCs).

Each of the two steps of the objective is outlined in details in the following paragraphs 8 and 9, which together

constitute the original contribution of this paper.

8. THE MAP

The Italian solutions of disruptive open innovation with startups are mapped and framed following the struc-

ture explained in the section The Framework. In paragraph 8.1 is presented the full map of the Italian compa-

nies with an active solutions of startup engagement together with a synthetical table containing the aggre-

gated results of the research. It follows in paragraph 8.2 a deeper description of the map, where are given

further fundamental remarks and insights stemming from the map.

8.1 MAP

The complete map of all the disruptive open innovation programs with startups backed by Italian companies

is here presented. As outlined in the section The Framework, the solution types to be mapped are four (CVC

programs, incubators/accelerators, partnerships, startup competitions), while the solution categories under

which the solutions are mapped are seven (the first four solution categories all fall under the type CVC):

36

CORPORATE DIRECT

INVESTMENT

INTERNAL

DEDICATED FUNDEXTERNAL FUND

SYNDICATION

(CVC MODEL)

ACCELERATOR /

INCUBATOR

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COMPETITIONPARTNERSHIP

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39

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43

Let’s give a synthetical look at the information previously exposed in the map:

COMPANY N° of SOLUTIONS IMPLEMENTED

N° of TYPES OF SOLUTION

Unicredit 5 3

Enel 4 2

Intesa San Paolo 4 2

Zambon 3 2

Telecom 2 2

Italeaf 2 2

Banca Sella 2 2

Gruppo Gala 2 2

Buongiorno 2 1

Chiesi Group 2 1

Mediaset 1 1

Edison 1 1

RCS 1 1

Wind 1 1

Gruppo Espresso 1 1

Uvet 1 1

CLN Group 1 1

Meple 1 1

Che Banca! 1 1

Whyscout 1 1

Cardif 1 1

Gruppo Maccaferri 1 1

TOT 40 31

Table 8.2 – COMMITMENT OF THE COMPANY in terms of number of solutions and types of solution implemented (personal elaboration)

44

SOLUTION CATEGORYN° OF SOLUTIONS

IMPLEMENTEDTYPE OF SOLUTION N° OF BACKING COMPANIES

CORPORATE DIRECT INVESTMENT 4

INTERNAL DEDICATED FUND 6

EXTERNAL FUND 3

SYNDICATION 5

ACCELERATOR / INCUBATOR 17 ACCELERATOR / INCUBATOR 13

STARTUP COMPETITION 5 STARTUP COMPETITION 5

PARTNERSHIP N/A PARTNERSHIP N/A

13CVC PROGRAM

Table 8.3 – SYNTHETIC TABLE of the number of solutions (category and type) implemented by Italian companies (personal elaboration)

Graph 8.1 – PARETO CHART of the distribution of open innovation programs/practices. In red, the cumulative line as a percentage of the total (personal elaboration)

45

8.2 REMARKS AND INSIGHTS

Here it is a critical analysis of the information framed in the tables and graph of section 8.1. First, some remarks

must be done regarding the mapping, as some problems had come up along the process. Second, the insights

stemming from the extensive map and the synthetical tables are presented and discussed.

8.2.1 REMARKS

Fundamental is to make a consideration regarding the category Partnership. The synthetical table reports as

result “NA”, not available, as no such programs were framed in the map. This outcome does not mean that

there are no partnerships with startups aimed at joint innovation in Italy, in fact, there are some companies

currently investing in co-development programs with startups, but some difficulties made it hard to frame

them in the map. First of all, partnerships are very hard to be spotted when they are the only solution a com-

pany implements to engage with startups; they are strategic practices that a company often do not want to

disclose. Therefore, even if it is legit to assume that a company already implementing a program of interaction

with startups also implements partnerships, it will never be possible to frame all the companies in Italy imple-

menting this program. In addition, partnerships with startups can be implemented in infinite ways, suited and

personalized depending on the actors involved; this makes it hard to keep track of them, as it is not easy to

distinguish clearly which ones are aimed at joint innovation. For these reasons, given the fact that is not pos-

sible to present a complete picture of all the active partnerships aimed at joint innovation with startups, this

solution has been omitted from the mapping. Just to bring a remarkable example of open innovation program

through partnership, it can be cited Enel. The company invest a lot in incubation and acceleration programs

through its channel Enel for Startups, and the aim of the selection and incubation of startups is in most of the

cases the collaboration. Enel even successfully changed its processes (and culture) to make collaboration with

startups making it more streamlined, shorter, and simpler. This streamlined process required disciplined tim-

ing. To ensure adherence, the CEO made it clear that commitment came from the top, and that senior man-

agement were taking an active role in the new process. Secondly, the firm provided incentives for staff to

respect the tight deadlines, by providing innovation managers and other internal functions (e.g. legal) with an

annual bonus if they performed in a timely manner. Third, Enel created a ‘preferential lane’ for innovative

agreements, involving a dedicated legal team specialized in contracts with startups, as well as a fast-track

procurement process for startups (which in some cases includes upfront payment, rather than the terms of-

fered to normal suppliers).

8.2.2 INSIGHTS

As presented in table 5, in Italy there are twenty-two Italian companies implementing disruptive open innova-

tion solutions through forty different programs or practices. Given the exclusion of partnerships, as remarked

above, these forty program or practices refer to three types of solutions: CVC programs, accelerators/incuba-

tors, and startup competitions.

46

From table 5 is easy to see that out of the twenty-two companies committed in open innovation with startups,

just ten of them bring on more than one solution (program or practice). This unbalanced distribution is even

more evident from graph 1, where the red cumulative line of the Pareto chart shows that the four most com-

mitted companies account for the 40% of the total practices/programs of open innovation with startups imple-

mented by corporations in Italy. They are: Unicredit, Enel, Intesa San Paolo, Zambon. Another evident insight

is that Unicredit is the only company in Italy implementing all the three types of open innovation solution (and

it is also the one with the highest capital availability committed12).

Let’s now analyze each type of solution in relation with the program/practice practically implemented by Ital-

ian companies. Which insights come to surface from the analysis of the type of solutions implemented by the

set of companies?

CVC PROGRAMS – Table 6 synthetically shows that there are thirteen companies making equity investments in

startups. They diversify their investment strategy along the four models of CVC program, implementing eight-

een different programs of CVC. In details, 4 corporate direct investment programs, 6 internal dedicated funds,

3 investing in external funds and 5 investing in syndication with other investors. The fact that thirteen compa-

nies implement eighteen different programs of CVC make it clear that some companies choose different CVC

models to invest in startups.

It can be noticed from the Map that the clear majority of the companies that adopted one of the four models

of CVC program bring on also at least one other type of solution (accelerator/incubator, startup competition).

This can be explained with the fact that, being CVC the most demanding and heavy solution to implement, a

company might have built its relation with the startup ecosystem also in other ways beforehand. It has been

already said corporations and startups talk completely different languages and work on a different pace; im-

plementing a lighter solution before getting involved in a heavier one could be a good way to reduce the

chances to fail. Another reason of this evidence could be that a company is investing in startups coming out

from a competition, incubated in its corporate incubator or that are collaborating within a partnership agree-

ment. As said in the literature Review, light programs can serve as a pipeline for future investments. Finally, as

different startup engagement solutions are aimed at different goals, one company might get a wider range of

advantages when implementing more types of solutions.

Focusing the attention on each of the four model of CVC, some interesting insights come out. Internal dedi-

cated funds and corporate direct investments are implemented by companies across different industries and

they target startups on different growth phases, without any particular logic of occurrence. However, clear is

12 As it will be specified in the conclusion, it is not possible to define the exact availability of all the Italian companies with a CVC program. Anyway, among the ones with a dedicated fund that disclosed information, Unicredit has the high-est capital committed: €200M excluding the corporate direct investments (for which a capital availability cannot be defined).

47

that internal dedicated funds are more focused on early/later stage investment, while corporate direct invest-

ments are more focused on pre-seed/seed stage; the greater is the investment, the more a company prefers

to invest through a vehicle instead of accounting the investment on balance-sheet. Regarding the external

fund model, it can be seen that only banks (Unicredit and Intesa San Paolo) are implementing it; for an industrial

corporation, it is always valid the trend for which shareholders prefer to differentiate their investments them-

selves instead of having their company doing it for them. A last consideration must be done on the choice of

implementing a model of syndication. In four out of five cases, the syndication is done through corporate direct

investment; just in one case through an internal dedicated fund. The four cases of syndication through corpo-

rate direct investment are targeting at most early-stage startups – where capitals invested are not too high –

while the only case of syndication through an external fund is targeting later stage startups to lower the risk

of a high investment (it is the case of Chiesi Venture, which asks for co-investors when the investments are

more substantial). Therefore, syndication turns out to be a good way to reduce the risk of an investment or to

receive some help from other investors when the company is not experienced in startup equity investments.

INCUBATOR / ACCELERATOR – Table 6 synthetically shows that there are thirteen companies implementing an

acceleration or incubation program for startups. Seen that the incubation/acceleration programs implemented

are seventeen, it is clear how some companies are implementing more than one program of incubation/accel-

eration (Enel, Buongiorno, Zambon).

The only insight that can be drawn from the analysis of the characteristics of the programs implemented is

that, in many cases, accelerators/incubators are run in collaboration with other actors of the Italian venture

capitalism or industrial partners. This fact shows the importance of collaborating with players coming from

many different fields to get the most out of an open innovation program. As seen in the Literature Analysis,

the power of Open Innovation comes from the interaction among parties with different backgrounds, which

can learn and teach one another generating shared knowledge and mutual advantage.

STARTUP COMPETITION – Table 6 synthetically shows that there are five companies implementing a practice of

startup competition for startups. Each of these companies bring on only one startup competition.

The only insight that can be drawn from the analysis of the characteristics of the practice implemented is that

in three cases out of five they are standalone competitions, while the remainder are practices to select startups

for further equity investments or partnerships. In the first case, the one-off competitions are probably aimed

at partnership on a specific topic or occasional – hence not to be mapped – equity investments. The backing

company is looking to solve a precise (and explicit) problem or investigating a circumscribed issue; they are

also aimed at learning through open innovation, bringing an entrepreneurial approach in the organization cul-

ture, as they are often organized in collaboration with other actors of the Italian venture capitalism (e.g. VCs,

Incubators, etc.). They all appear to be continuous in time, as they have been organized systematically in the

last years. In the second case, the startup competitions are basically a first step of screening and selection, to

48

be followed by an incubation/acceleration program. Curious and worth to highlight: the backing companies of

these two cases are Unicredit and Intesa San Paolo, two banks.

9. CRITICAL ANALYSIS

Even though the study with its results is useful in itself to shed light on the phenomenon in Italy for both

practitioners and researchers in the field, trying to first understand the results compared to other countries

and then the reasons behind such outcomes, together with the benefits, limits and opportunities of the phe-

nomenon under investigation, can be of help for all those Italian companies that are willing to get their hands

dirty and start a program of interaction with startup.

9.1 RESULTS

Considering the results shown in the previous section, it is easy to understand how underdeveloped this phe-

nomenon is Italy, and, when the Italian situation is put in comparison with the one of other countries, the

situation is even more negative. To present a critical evaluation of the results, here follows an overview of the

corporate venture capital investments worldwide. Even if other startup engagement solutions are not included

in this evaluation13, it will be easy to understand how Italy is performing just considering the CVC programs,

which can be here taken as proxy for the generic corporation-startup commitment.

The following report14 is published yearly by CB Insights and represents the reference report for the invest-

ment in startups in US and worldwide15.

2015 saw corporate VC investors participate in $28.4B of funding across 1301 deals ($6.2B just in China, from

$910M totalized in 2014). In 2015, as in the previous years, the average deal size of CVC is significantly higher

than the one of VC’s.

13 There are no researches available about other solutions different from CVC programs. 14 The 2015 Global Corporate Venture Capital Year in Review, March 2016 - CB Insights 15 When not clearly specified, the CVC programs the following report is referring to are just of the type internal dedi-cated fund.

49

North American startups took over half of the deals with CVC participation in each of the five quarters ana-

lyzed. However, North American deal share steadily dropped throughout 2015, with no. 2 Asia and no. 3 Eu-

rope both seeing upticks in deal share. (CB Insights, 2016)

Figure 9.1 – global quarterly CVC financing history (CB Insights, 2016)

Figure 9.2 – global quarterly CVC financing history (CB Insights, 2016)

50

A record 185 corporate VC firms completed an investment in Q3’15, representing a 31% year-on-year increase

and a jump of 97% from the 94 firms making an investment in Q3’12. 85 new corporate VC units globally made

their first in investment in 2015, including notable names such as Twitter Ventures and Workday Ventures.

These numbers refer to dedicated fund only, and not corporate direct investments. (CB Insights, 2016)

Intel Capital led all CVCs in global activity, investing in more than 75 companies, roughly 18% more than sec-

ond-place GV. They have been aggressively investing abroad, with about 32% of their 2015 investments made

in companies outside the US. (CB Insights, 2016).

Beyond dedicated venture arms, corporations themselves are also funneling dollars through corporate direct

investments. Led in activity by Chinese heavyweights like Tencent and Alibaba, corporates participated in 668

deals that represented $26.9B of funding in 2015; quite as much as the CVC dedicated funds.

Even if the objective of the study conducted in this paper is not collecting data regarding the capital invested

in equity by corporations, it is easy to understand how the magnitude of the relation corporations-startups

aimed at open innovation is poor in Italy. If all this report was not enough, just think that Silicon Valley is more

active than whole Europe, and, in turn, half of the investments in Europe are done by UK (London), followed

by Germany and France. Italy clearly plays a very small part in the Global – and European – venture capitalism.

Figure 9.3 – global corporate VC vs. Corporation financing (CB Insights, 2016)

51

9.2 BENEFITS, LIMITS, AND OPPORTUNITIES

After the comparison, here comes the heart of the interpretation of outcomes. While the results in chapter 8

represent “what” are the numbers, and the comparison between the phenomenon in Italy and in other coun-

tries gives an overall understanding of “how” Italy is performing, trying to investigate “why” this happens is

the natural and consequent step that is necessary to deliver a critical and insightful analysis. Indeed, If the

mapping process punctually depicts the modest magnitude of the phenomenon in Italy, the qualitative re-

search – carried through direct interviews with the executive directors of the most prominent companies with

an active CVC program – helped understanding the reasons behind these poor results, and made possible high-

lighting limits and the opportunities of this phenomenon in Italy.

It has been asked to the interviewees what have been the main advantages of carrying on such a program of

interaction, and the reason why, according to their experience, the few companies with an active CVC program

often invest outside Italy (the interviewees selected run a program that does invest in startups, but that in

most of the cases has invested in mainly foreign startups, as anticipated in paragraph 8.2). Let’s analyze their

answers, always bearing in mind they run a structured CVC program through which they intend to achieve

disruptive results.

THE BENEFITS OF INVESTING IN STARTUPS – It was clear from all their answers that interacting with startups

through a CVC represents a successful way to open their perspectives on new technologies and discover new

approaches to their business. To give a synthetical solution, according to the managers of the programs, the

advantages can be of two types depending on the types of investment rationale.

The ones stemming from investing in a venture that is close to the current strategy of the company,

and that therefore represent a present advantage, an implementable innovation;

The ones coming from investing in a venture that is not currently close to the strategy of the company,

but that can represent an opportunity, an option, in the future.

The two types of investments are nothing more than the Driving and Emergent investments that Chesbrough

identified and that have been introduced in the literature review section. It is undeniably clear how interacting

with startups represents an advantage for a company. Whether it is a present advantage or a future one, im-

plementing this practice is worthwhile.

However, when it’s hard to innovate along the current strategy and the only advantage a company can have

is the one connected to a future option, it is not a strange decision not to open any negotiation with a startup;

the possibility of not exercising the option in the future makes the risk of investing higher, and it is understand-

able a company does not want to run the risk. It can be said that optionality is the only objective achievable in

those industries where there is not big room for further innovation (still, creating future options and strategic

alternatives is a great achievement).

52

THE LIMITS OF DIFFUSION IN ITALY – All the interviewees agreed on the utility of the practice in itself, but

different were the answers when asked for opinions on the difficulties of diffusion of the practice in Italy. Why

do just few Italian companies invest in startups or interact with them? Many have been the reasons suggested,

but it’s possible to synthetize them in two main categories: 1) the reasons depending on the investors, the

companies, and 2) the reasons depending on the investees, the startups.

LIMITS DEPENDING ON COMPANIES – The managers that run Italian companies, but also the shareholders, are

in many cases Italian and therefore heirs of that risk-averse business culture that hinders the adoption of the

continuous innovation paradigm. It is then for sure a problem of culture, which still hardly accept the change

– as in business, as in life – and that still fears what is new, believing in the mantra that says “chi lascia la

strada vecchia per quella nuova sa quello che cerca, ma non sa quello che trova”16. Among the reasons de-

pending on the investors, it can be also noticed a lack of preparation in the field. Italian managers and share-

holders are in many cases unaware of the potential that the interaction with startups has as a strategic prac-

tice. It is something relatively new for Italian managers, which has got to know more about it just in the last

two or three years. With no doubts, Italian managers in charge of this practice can be called pioneers.

LIMITS DEPENDING ON STARTUPS – According to the interviewees, besides these internal problems for which

an Italian company does not implement a program of interaction with startups, there are also external reasons

depending on the context. Under the general assumption for which a company, in order to gain a strategic

advantage from the interaction with a startup, needs to be physically and geographically close to it, it’s easy

to understand that for an Italian company, it is fundamental to be side by side with an active and valuable

startup ecosystem to succeed in creating a profitable interaction. In this light, the problem moves from the

investors to the investee; from the corporation to the startup. Given two identical companies, one based in

Italy and the other one in San Francisco, which one is more likely to implement a successful CVC program? For

sure the one that operates closer to a prosperous and booming ecosystem: the one in San Francisco.

With this in mind, it can be analyzed which are the problems related to the Italian startup ecosystem that make

it difficult for an Italian company to implement a successful program of interaction with startups.

First, it’s a problem related to a too poor venture capitalism; a suboptimal funding that triggers a low-value

startup ecosystem. There is no positive track record for Italian corporate investors and it’s hard to strategically

invest in startups when no corporation in Italy has never done a series of positive exits from a financial and

strategic point of view. Not even VC’s or other investors have significantly positive track records. Unfortu-

nately, this absence of capitals for ventures creates a closed loop.

16 It is an Italian stock phrase, which literally means “who leaves the old road for the new one knows what is looking for, but doesn’t know what will find”. This phrase implicitly says not to abandon what is known for something new. It is usually said for suggesting to someone not to go through change.

53

If Italian investors are unwilling to invest heavily, Italian startups, as a consequence, don’t receive

enough capital to grow their business and it is hard for them to become potentially competitive

on the market and therefore valuable for a future acquisition; this, in turn, discourage Italian in-

vestors to invest in Italian ventures, and both the parties keep spinning endlessly in this closed

loop, which is hard to break.

(Michele Padovani, Corporate Venturing Manager at CLN Group)

For what just said, it is clear how at the base of the scarcity of investments in Italian startups there is also a

problem related to a narrow and low-quality startup ecosystem in Italy. Both the issues are part of the same

closed loop. For an Italian company, it is hard to invest in startups when the Italian ones are usually not so

valuable (i.e. it is hard for them to make a future exit or in general become competitive on the market, there-

fore strategically appealing for a corporate). Italian startups often have a low customer base, an unskilled

management team, they are often at an early phase of development where their business model hasn’t been

tested on a large scale.

The reasons behind the underdeveloped situation of the Italian startup ecosystem are many, as well as many

are the studies that tried to get a complete overview of the ecosystem. In this study, this topic won’t be fur-

therly investigated. However, it is meaningful to understand how the responsible of a CVC program sees this

situation. What are the reasons, from the point of view of a venture capitalist that mainly invest outside the

Italian ecosystem, for which Italian startups are not worth investing? According to Marco Berini, head of

Unicredit EVO, it can be both a matter of preparation and of culture.

The Italian instruction system is good at the academic and theoretical level, but lacks heavily on

the practical and technical level. Taking the students of American Universities as benchmark, Ital-

ian students have a richer holistic theoretical background, but when it comes to build a product or

prototype they clearly lose the match with their transatlantic colleagues. Besides this problem of

in-field practical grounding, there is also a matter of culture. Italians are very creative and brilliant,

but when it comes to face a problem they often try to find a way to get around it instead of trying

to solve it directly. It seems to me there is a cultural attitude that goes against the true and suc-

cessful entrepreneurship. Both the issues make it hard for Italy to develop a generation of young

and talented entrepreneurs, and it is consequently hard to see the arising of a valuable startup

ecosystem.

(Marco Berini, Head of Group innovation at Unicredit)

After the analysis carried, it can be noticed that there is a connection between Italian companies not investing

in startups and the fact that the few that invest are doing it outside Italy. In the light of the previous analysis,

it is not a case that the Italian companies with the most active programs of CVC are often multinational com-

54

panies. These corporations have their headquarters also outside Italy and, thanks to their international distri-

bution, they can widen their reach to the European startup ecosystem. Where the venture capitalism has a

greater magnitude, it is consequently easier for a corporation to find valuable ventures to invest in17.

OPPORTUNITIES OF IMPROVEMENT – What can be done then? To move this stuck situation and break the

closed loop, some investors must succeed in closing very profitable deals, so that a new cycle of investment

can boom and the venture capitalism as a whole can grow and become more substantial. Another suggestion

is to attract international investors, so that foreign capitals can give a first boost to the ecosystem (some posi-

tive examples already exist as the agreement between the Italian government and Cisco, which will commit

€100M in 3 years to boost the Italian startup ecosystem through Invitalia). These are just examples of external

interventions but, besides the problem of the startup ecosystem, companies should overcome the cultural

barrier of risk aversion, typical of Italy, for a real change to happen; years of continuous commitment, dedica-

tion by Italian companies and of course a bit of luck are also fundamental, as the percentage of successful

deals on the total is generally very low. It’s not much, but the bright side of an underdeveloped context is that

there is major space for improvement. The situation will change eventually. Italy can still play all its aces in the

hole, growing its venture capital ecosystem until reaching a relevant position in Europe.

17 E.g. Unicredit EVO investing in Germany and US, Ad4ventures investing in Spain, TIM Ventures investing in Israel and UK, or Enel in different European countries/Latin America and Israel.

55

CONCLUSIONS A fierce growing competition and a rapid technological progress continuously make current solutions to cus-

tomer’s problems obsolete. Tweaking existing offerings, taking over rivals, downsizing, or moving into devel-

oping countries is no more enough to survive. Corporations have realized that any player that is not continually

developing, acquiring, and adapting to the changing business environment, may be out of business within a

few years. These changes have highlighted the need for companies to become more entrepreneurial (Dess,

Lumpkin and McGee, 1999; Brazel and Herbert, 1999). Nowadays, corporations should institutionalize entre-

preneurship reaching this way a higher status, where they can create disruption themselves instead of suffer-

ing it and trying to repel it. For corporations, interacting with startups with an open innovation approach is one

management practice to achieve this goal; either adopting a heavy solution that entails equity investments,

such as a CVC program, a partnership, or a lighter solution, as the choice of opening an incubator/accelerator

or promoting a startup competition. At global level, as presented in section 9.1, the interaction with startups

is a diffused practice, widely adopted by the most prominent corporations worldwide. Thanks to the research

conducted and presented in this paper, this phenomenon has been analyzed in the Italian context for the first

time. In this conclusive section, the results of the analysis – already extensively reported in the section Re-

search and Analysis – will be outlined under a more synthetical view. But let’s review the initial objective of

the research first:

The Map – Map within an original framework all the Italian companies that are currently implementing

programs or practices of open innovation with startups with the aim of internalize the power of dis-

ruption that these new ventures bring within themselves. Among the different solutions that a corpo-

ration can implement to engage with startup, the framework will consider CVC programs, incuba-

tors/accelerators, partnerships and startup competitions, following a defined criterion of inclusion.

Critical Analysis – Give, in light of the research previously conducted, a critical interpretation of the

level of adoption of the interaction among corporations and startups in Italy as a strategic practice,

presenting the reasons behind these results and the obstacles that hinder the diffusion, alongside with

the benefits stemming from the implementation and possible opportunities for future development.

This critical interpretation of the phenomenon will be outlined through qualitative interviews with the

managers in charge of the most prominent and structured corporate startup engagement programs

(CVCs).

Before giving a synthetical view of the findings, it is important to highlight the main assumptions at the base

of the study, which also constitute an original approach of investigation of this phenomenon, and to mention

the difficulties encountered during the empirical research.

56

Regarding the main original assumptions of the study, it must be mentioned the methodological choice of

confining the programs to be mapped following a precise principle of inclusion, which gave as results a set of

4 different types of solution: CVC programs in its four forms, partnerships, Incubators or accelerators, startup

competitions. This was fundamental to exclude all those solutions different from Open Innovation programs,

as well as to exclude other startup engagement practices that are spotted rather than part of a structured and

continuous program of interaction. Second, the methodological choice of matching the personal interpreta-

tion of the outcomes coming from the mapping with the interpretation of some of the actors in the Italian CVC

ecosystem, who gave their precious contribution to understand the findings through their interviews, and who

can be precious also in future studies.

The research that brought to the results outlined in the section Research and Analysis was not devoid of diffi-

culties. It was hard to find signs of the use of this practice in Italy as it is at an embryonal stage; even when a

company implements a program of interaction with startups, it is in many cases rather unstructured (remem-

ber, occasional practices are not to be included in the research). In addition, the few companies that are

adopting a CVC program among the different types of practice of interaction with startups are not always

willing to disclose information on their investments – as the study tackles the strategic solutions of open inno-

vation, the programs or practices that a company implements are to be hidden from the competition. In addi-

tion, many solutions adopted are not promoted through public channels (websites, social network), as they

are meant to autonomously look for startups to invest in – or collaborate with – instead of doing it through a

public open call. Another obstacle faced along the empirical research is the impossibility of drawing a complete

picture of the phenomenon regarding certain types of solution. Just think about the issue encountered when

mapping partnerships (see section 8.2). For the nature of this type of program itself it is not possible to keep

track of all the corporations in Italy that do it; when a big corporation implements partnership, it makes news,

but when instead a small enterprise does it, no one hears about it.

With the fundamental assumptions of the study in mind and aware of the difficulties encountered, it is now

time to synthetically report the findings of the study conducted in this paper. Following the order of the two

main parts of the objective:

The Map – the overall view sees twenty-two Italian companies implementing disruptive open innovation solu-

tions through forty different programs or practices. Just ten of them bring on more than one solution (program

or practice). Under a deeper view, the four most committed companies account for the 40% of the total prac-

tices/programs, where Unicredit is the only company in Italy implementing all the three types of open innova-

tion solution. Analyzing the type of solutions implemented by the set of companies, it is possible to draw the

following conclusions: thirteen companies are making equity investments in startups, implementing a total of

eighteen different programs of CVC. the clear majority of the companies that adopted one of the four models

of CVC program bring on also at least one other type of solution. Regarding the models of the CVC solutions,

57

it can be noticed that internal dedicated funds are more focused on early/later stage investment, while cor-

porate direct investments are more focused on pre-seed/seed stage. The external fund model is implemented

by banks only (Unicredit and Intesa San Paolo). About investments in syndication with other investors, in four

out of five cases the syndication is done through corporate direct investment. Moving to incubators/acceler-

ators, thirteen companies implementing an acceleration or incubation program for startups, and some com-

panies are even implementing more than one program of incubation/acceleration (Enel, Buongiorno, Zam-

bon). It should be highlighted that accelerators/incubators are run in collaboration with other actors in order

to get the most out of open innovation. Finally, five companies are implementing a practice of startup compe-

tition for startups. In three cases out of five they are standalone competitions, while the remainder are prac-

tices to select startups for further equity investments or partnerships.

Critical Analysis – when the results stemming from the map are put in comparison with the level of adoption

of the open innovation with startups by companies in the world, it comes clear Italy is far behind the most

developed countries, and is experiencing an underdeveloped situation. Through the interviews held with some

of the Italian corporate venture capitalists, it was possible to investigate the reasons behind these results and

the obstacles that hinder the diffusion, alongside with the benefits stemming from the implementation and

possible opportunities for future development. Adopting a solution of strategic interaction with startups (in

the case of the interviews, CVC programs) brings always an advantage in terms of improvements of the current

strategy or of optionality for the future strategy. Regarding the limits and the reasons at the base of the low

diffusion of the solution of open innovation with startups In Italy, it came out that the phenomenon is under-

developed due to both problems related to the investors (the companies) and problems related to the inves-

tees (the startups). The former are related to an old and risk-averse management culture coupled with a lack

of preparation in the field; the latter are related to a low-value startup ecosystem in the country triggered

(also) by a suboptimal funding by all the investors (institutional and private). Where the venture capitalism has

a greater magnitude, it is consequently easier for a corporation to find valuable ventures to invest in. There-

fore, given a good preparation and the right culture inside the company, the more valuable the startup eco-

system where the company is set, the greater the advantages a company can gain from the interaction. Said

so, however, from this underdeveloped situation some opportunities of development can still emerge if the

right intervention are taken; Investors must succeed in closing very profitable deals, the government should

favor and attract international investors, a change of mindset is as well needed to overcome the cultural bar-

rier of risk aversion, and, at last, a continuous commitment by all the players in the Italian venture capitalism.

The results found (together with the difficulties encountered) in the research might not leave space for further

investigations – it is clear this phenomenon is still too underdeveloped in Italy to refine the research and

deepen the analysis – but the methodology adopted for the study that brought to them can instead set the

foundation for a better evaluation of the overall quality and attractiveness of the Italian startup ecosystem.

The choice of directly getting in contact with the heads of Open Innovation programs with startups added

58

positive, unexpected insights to the study. A new perspective over the quality of the Italian startup ecosystem

came to light when some qualitative questions were asked to them. As said before, many studies have been

done to critically analyze the quality of the Italian startup ecosystem, but every time the answers to the re-

search questions were based on information retrieved from two main actors: VCs and entrepreneurs. If, in-

stead, corporations were considered as part of the game, it would be noticed that there is huge room for

enriching the study with another, different point of view; the one of whom is interested in a venture for its

strategic and technical provision. This point of view is completely uninvestigated; it is an unprecedented op-

portunity. it was clear after the interviews carried on during the research that some professionals in the field

of CVC have not just a good knowledge of the poor situation of the Italian startup ecosystem in terms of in-

vestments, but they have also a clear picture of the quality and the value of the ecosystem as well. This is

because their interest is not merely financial, but it’s above all strategic. When corporations look for a startup

to invest in – if the CVC program is well structured, they can scan up to 600 startups per year, such as CLN

Group does – they evaluate whether and how each single startup fits with their strategy. It’s therefore funda-

mental for them to deeply evaluate the quality of the startup from the point of view of, for instance, the

technical knowledge or the immediate marketability of the product. They do not consider just the inner po-

tential of generating a future gain, as inevitably a VC does. Therefore, if corporations with an active CVC pro-

gram are included within the group of actors playing a role in the startup ecosystem – and they are conse-

quently asked for information and opinion during the many research on the field – a more complete pictures

of the phenomenon can be drawn. It would be then easier to understand where to act in order to improve the

quality of the ecosystem itself. Thanks to Italian corporate venture capitalists and open innovators – even if

not many – the criticalities at the base of the unattractiveness of the Italian startups to investors can emerge.

A VC can reject a deal because a venture is moving in a market that is considered unprofitable in the long term,

because it is currently unable to have a certain level of revenues, or because it is set in a business area consid-

ered not “trendy” or “hot” enough; but why would the CVC arm of a corporation avoid a deal? What are the

problems they encounter when it’s up to analyze the worthwhileness of an Italian investment? Do common

issues come to the surface? These are just some examples of the questions from which to start a new investi-

gation on the Italian startup ecosystem, which can possibly bring to further updates that embeds new and

precious insights.

Next to this opportunity, the first part of the study, The Map, can reach a further completeness if it could be

possible to enrich it with the capital invested by the companies. Even if hard to map, having an estimate of the

total amount of capital invested by Italian corporations can bring to surface even more interesting insights

regarding the underlying dynamics that rule and move Italian corporate venture capitalism and open innova-

tion. You can’t improve what you don’t fully understand.

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