Corporate Venturing: A Great Way to Innovate and Learn

Amanda Setili explains how UPS uses 'corporate venturing' to innovate and learn.

This excerpt of Fearless GrowthThe New Rules to Stay Competitive, Foster Innovation, and Dominate Your Markets by strategy consultant Amanda Setili explains how UPS uses “corporate venturing” to innovate and learn. 

Even small and mid-size companies can employ this technique to tap into the skillsets, technologies and ideas of startup companies seeking investment funds. Corporate venturing can bring “knowledge returns” far beyond the monetary returns tied to such an investment.

The top executives of shipping giant UPS know that their business needs a constant infusion of new ideas from outside of the organization.

With more than 444,000 employees around the world and $60 billion in annual revenue, UPS is great at managing efficiency – down to the nanosecond – and it has deep internal expertise in logistics and distribution.

To augment its internal knowledge and learn about emerging technologies and business models such as 3D printing, drones and collaborative consumption, UPS invests in startups.

Rimas Kapeskas is managing director of the UPS Strategic Enterprise Fund, the private-equity strategic investment arm of UPS, which was founded in 1997. The Fund is a corporate venture capital group that focuses on developing partnerships and learning from investments in technology companies and emerging market spaces.

Prior to his role managing the Strategic Enterprise Fund, Kapeskas was in UPS’s research and development group. Given his R&D background, focusing the Strategic Enterprise Fund on learning came naturally to him.

“UPS looks for ‘knowledge returns’ as much as it does financial returns,” says Kapeskas. “While we do make money on our investments, the more important goal is learning. By investing in startups, we enable UPS leaders to make better decisions, which is invaluable.”

Continues Kapeskas, “Warren Buffet says to invest in what you know, but we try to invest in things we do not know. We need to have ways to learn about things in the marketplace that will affect us and our customer base.”

Here is a sampling of UPS’s Strategic Enterprise Fund investments:

CyPhy Works is an innovative producer of unmanned aerial vehicles (UAVs), otherwise known as drones. While the relationship is still in its infancy, the objective is to collaborate in the development of UAVs built specifically for assisting with package delivery. The use of UAVs for package delivery fits a number of service profiles. For example, an autonomous vehicle could be used in rural locations to reduce the cost and energy needed to reach the customer or in hard-to-reach locations to deliver humanitarian supplies.

Kabbage’s innovative small-business lending model uses real-time data such as shipping volume and activity on eBay, Amazon, Square and Quickbooks to make credit decisions. The synergy between UPS and Kabbage is strong: Kabbage’s small-business customers share UPS shipment data as evidence of their ability to repay loans, while UPS uses Kabbage algorithms to decide how much credit to extend to its own small-business customers.

Fast Radius uses 3D-printing technology, sometimes called additive manufacturing, to make everything from museum pieces to rocket parts. By co-locating at UPS’s Louisville air hub, the company can make and deliver parts and products – overnight, if necessary. This arrangement benefits Fast Radius, UPS and their customers.

Peloton Technology is a connected and automated vehicle technology company focused on improving safety and efficiency in the trucking industry. UPS is the first carrier to test “platooning” capabilities for its extensive fleet of tractor-trailers, whereby braking, acceleration and safely systems are linked between two or more trucks. Benefits include a reduction in collisions and related expenses and fuel savings from improved aerodynamics.

UPS is actively engaged with the startups it invests in. At minimum, a UPS leader sits as an observer on the board of the startup, and sometimes UPS takes a full board seat. Perhaps more important, though, is that UPS collaborates with the startups.

Says Kapeskas: “We look for interesting use cases that we can engage with the startups to leverage and apply what they are doing.”

Kapeskas introduces startup leaders to relevant groups and individuals within UPS so that these groups can partner with the startups on projects, embark on growth initiatives or just interact informally. UPS people who are involved with the startups become a channel to the rest of the UPS organization, providing a window into how new technologies are evolving.

“Interacting with startups gives us exposure to new types of thinking,” says Kapeskas. “Entrepreneurs iterate quickly. We can learn from that. It helps us figure out how to introduce more flexibility into our culture and ways of working.”

Startups appreciate the chance to gain access to UPS expertise and resources such as its client base, public relations presence, global network and more.

For example, Fast Radius’s founder and chairman, Mitch Free, frequently visits UPS field locations, where he speaks to UPS salespeople and customers about how Fast Radius’s 3D-printing capability can enhance customers’ speed in producing and shipping high-value, low-volume parts, products and prototypes.

Ultimately, says Kapeskas:

“It’s not how much you invest – it’s whether you invest at all. Even if a corporate venture fund only invests a modest amount of capital, it can still gain insight into new innovations and can better understand the way startups think and operate.

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It’s not how much you invest – it’s whether you invest at all.

“I see companies making the effort to learn from particular startups. But if they don’t invest in those startups, they don’t get the full learning value. If you don’t invest, your interaction with the startup often ends up being a one-time event. You go back to the office and try to tell your colleagues what you’ve learned, but those learnings don’t stick.

“Investing in the startups that you want to learn from ensures that you stay involved with them for the long haul, through the ups and downs. As a result, you learn far more than if you did not invest.”

Corporate venturing is a very capital-efficient model for learning about things outside of your corporate status quo. Without investing in equipment or engineers, you can take a peek at potentially disruptive technologies, and new ways of engaging customers.

And it is not just UPS that is using venture capital to learn. Corporate venture capital funds account for almost 17 percent of total venture capital dollars invested. In 2014, this amounted to $5.4 billion in investments, spread among 775 different deals.

GV – formerly known as Google Ventures, the venture capital investment arm of Alphabet, Inc. – has to date invested in more than 300 companies.

Why? To, in the words of GV, “push the edge of what’s possible” in the fields of life science, healthcare, artificial intelligence, robotics, transportation, cyber security and agriculture.

And to learn.

Setili’s book can be purchased from Amazon , Barnes & Noble , Google Play and iTunes.

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Amanda Setili is managing partner of the strategy consulting firm Setili & Associates, whose clients include Delta Air Lines, Home Depot and Walmart. She previously held positions with Global Food Exchange, McKinsey & Company, Asia Connect in Malaysia, and Kimberly-Clark. She lives in Atlanta, Georgia.

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