Since launching in 2020, High Alpha Innovation has partnered with innovation leaders at many of the world’s leading organizations.

It’s our belief that, over the next decade, scaled organizations' success will be determined by the quality of their engagement with startups. Many will either have their own captive venture studio or a program for partnering with external venture builders.

Startup creation can lead significant — even world-changing — results.

And our venture-building playbook presents a natural way for organizations to explore new business models and build entirely new companies that solve big problems.

Before we begin building together with a partner, though, we lay the groundwork for success.

That means helping them learn exactly where they are on the venture-building 'readiness' scale and whether they have the necessary buy-in, resources, and infrastructure to create new, transformative startups.

Discovering your venture-building readiness: A 3-step process for your corporation

High Alpha Innovation doesn't just work with large-scale enterprises to build new companies. We also partner with leading universities, state governments, and non-profit organizations to co-create advantaged startups that solve big problems.

For the sake of this post, though, we cover how corporations, in particular, can discover their venture-building readiness and set the stage for scaled startup creation.

1) Align your innovation strategy with your corporate strategy

Your corporation's innovation strategy defines how it must evolve to compete in existing markets and access new products and enter new markets.

As it relates to venture building, a useful innovation strategy starts with the question, “How much innovation do we need, and how soon do we need it?”

The challenge for corporate innovation leaders at your company is that each part of their innovation strategy requires different goals, metrics, and tools.

As described in “Dual Transformation,” to avoid disruption, corporations must invest in “Transformation A” initiatives that protect and expand the core business.

Then, they must use a portion of those profits to fund “Transformation B” initiatives that experiment in new and adjacent markets to disrupt the core business.

• Transformation A initiatives often focus on existing product support and near-term product development. They are best funded from the P&L, and defined by near-term metrics (i.e., ROI and contributions to business growth).‍
• Transformation B initiatives focus on new and adjacent markets and/or enabling technologies — accessing them organically through net-new products and services or inorganically via mergers and acquisitions, outside investments, or channel partnerships.

The latter initiatives are best funded from the balance sheet defined by long-term metrics (e.g., unrealized gains from innovation equity investments in startups, revenue generated per product, time to break-even) and supported by leading indicators (user adoption, speed to $100k ARR, etc.).

In addition to exploring adjacent innovation efforts, though, many corporations are also adding venture building to their Transformation B programs.

Doing so at your corporation requires you to them to examine how building new companies ties into your overarching innovation strategy and long-term business vision.

Related to the question above, also ask yourself: "Is venture building a near-term need for our business, or do other innovation efforts take precedent today?"

2) Take a portfolio-driven approach to corporate innovation

The scope of an innovation leader’s mandate is broad. That's because there is no silver bullet to address the 'growth gap.' Instead, they must adopt a portfolio-driven approach to innovation, transforming their identity from being an “‘innovator” to being a “portfolio manager.”

The most successful corporate venture capital portfolio managers set their investment strategies using a specific set of guiding principles:

‍Selecting the right asset class

‍Good portfolio managers develop investment strategies by selecting asset classes based on desired risk-adjusted returns. They consider metrics like magnitude of capital invested, investment timeframe, likelihood of return, and expected ROI.

Just as a personal portfolio manager would not put 100% of assets in stocks, an innovation portfolio manager must consider asset class selection when allocating capital.

Creating optionality for their corporations

‍Good portfolio managers place multiple bets on the most critical initiatives. Much like a hedge fund manager would take a long/short strategy, innovation portfolio managers must consider using partnerships and investments to hedge against internal R&D.

When taking this approach, it’s best to not over-constrain investments.

For example, taking a majority stake in an external innovation initiative guarantees that the corporation must remain solely responsible for funding that initiative the entirety of its existence, since other sources of capital are likely to view a majority position as controlling.

Instead, when investing externally, consider acquiring minority stakes in early-stage startups with pro rata rights that enable future investment or divestiture based on strategic relevance over time.

Learning from their investments — the hits and the misses

‍The best portfolio managers also extract the learnings from one area of the portfolio to alter their investment theses in other areas.

Just as a personal portfolio manager would invest in stocks when they noted that bonds were going down, an innovation portfolio manager might glean a surprising customer insight by working with a startup in one market that is also applicable to a similar persona in a different market tied to another R&D initiative.

Understanding magnitude beats frequency of correctness

Successful portfolio managers remember that long-term venture capital investments follow power-law distributions. That means one “good” investment often more than pays for all the other “failures."

When working with power-law asset classes, variance is the objective. You achieve variance by placing as many bets as possible.

Innovation leaders should follow the pattern of venture capitalists who strive to build a portfolio of many small bets to boost the likelihood of achieving an outsized return. 

3) Identify opportunities for external innovation

A portfolio approach typically segments initiatives into R&D (near-term, existing markets), M&A (mid-term, adjacent markets), and startups (long-term, adjacent markets).

Within the startup segment (traditionally the smallest capital allocation) there are three common strategies used by corporations (likely even yours): 

• Partner. Use a channel partnership or co-branding opportunity to increase the corporation's reach into new markets via an existing startup.
• Invest. Take an equity position in an existing startup with the intention of partnering and creating optionality for a strategic or financial outcome.
• Build. Address a new market opportunity by taking an equity position in a startup that does not yet exist.

High Alpha Innovation partners with innovation portfolio managers focused on generating results in what is deemed the toughest area of the portfolio:

Building external startups

Our most successful partners are innovation portfolio managers who have a well-defined innovation mandate from corporate strategy, clarity on how they plan to close the “gap,” a hypothesis of the adjacent market on which to focus their initial innovation thesis, and a business-unit leader serving as the project champion. 

That said, not all corporations have well-defined innovation agendas.

In this case, we partner with innovation leaders and portfolio managers to ID an initial external innovation thesis and refine as we go.

From there, our process will:

• Combine our VC lens with partners' understanding of growth and opportunity areas
• Rapidly co-generate ideas and identify latent concepts from within the organization
• Develop a portfolio of concepts and triage to other corporate innovation initiatives
• Rigorously vet and validate concepts through critical assumption testing
• Identify investable business opportunities and make capital allocation recommendations
• Launch and support startups while providing portfolio management capabilities

In other words? Our venture-building approach ensures we provide advantage to partners and eventual startup founders who take the reins of their companies.

Working with a venture builder to determine next steps

Our team specializes in helping our partners learn if they have the foundation in place to create new companies at scale.

Whether you're ready today or need a framework to enable you to get started months from now, working with a venture builder like High Alpha Innovation can help build a blueprint for long-term startup creation that aligns with our organization's mission and vision helps you achieve your goals.

• For universities, it could mean  positioning their school as a leader in innovation.
• For states, it might mean building a stronger entrepreneurial ecosystem in their area.
• For corporations like yours, that may mean future-proofing the business with new revenue streams and business models that can help you unlock growth.

Whatever your goals, just know that you don't have to (and shouldn't) go it alone with your venture-building efforts.