In my previous CURE post Intrapreneuring:  Building an innovation eco-system with the “School for Intrapreneurs” we discussed how to overcome the barriers to innovation within large organizations through intrapreneuring (see also CURE post Why large organizations struggle to innovate). “Angel Investing” or internal corporate venturing is a different disruptive approach to develop and implement disruptive ideas – and it proved extremely successful when I implemented it in a FORTUNE Global 500 company.

“Angel Investing” typically refers to early and moderate funding by benevolent relatives or friends in support of an entrepreneur starting a business. These “Angels” accept a high risk of failure and losing their investment, so the motives and expectations for angel investors are often philanthropic and not necessarily seeking to maximize the return of their investment as venture capitalist would.  Applied within a company, I call this approach “internal corporate venturing.”

Investor’s Perspective

So, how does internal venturing work?  Look at ideas from a venture capital perspective: you have limited resources to invest in one of many ideas. Within an organization you look for a promising disruptive idea with a huge return or game-changing potential for future business that otherwise would not be implemented or even considered by the conventional organization.

As an internal investor you invest in people foremost, the intrapreneurs, who you believe are able to deliver realistically on their dream. If a particular dream fails, no problem, as intrapreneurs are likely to come up with something better and make it work. Within the organization you help them implementing their idea against the resistance of the organization, the “organizational immune system,” a phenomenon you find in large, mature organizations.

What is ‘disruptive’ with a big potential you will have to define for your organization under consideration of its culture. For example, you could go for ideas that have been previously rejected because they appeared just a bit too risky for the established project portfolios. Ideally, disruptive ideas pay off at least a ten-fold (10X) or change the business entirely: “small elephant” projects with the potential to grow very big! In a FORTUNE Global 500 company, we realized an ROI of over 100X across the project portfolio. This high aim is necessary to pay also for projects which don’t succeed so to balance the risk across the portfolio.

Underlying Psychology

Branding these projects as “experiments” or “proof-of-concept” (POC) tends to prevent triggering the organizational immune system, since they pose no apparent threat to the status quo and established practices.

What intrapreneurs need are a few resources and a sense of approval to get started on their project. The lean decision process we developed allows for nimble decision-making within a diverse and cross-functional governance board that approves funds typically within a day or two. Not as gate-keepers but leaning to fail forward instead, the team gives disruptive innovation ideas a chance while cutting through bureaucracy and ‘red tape.’

What makes this work is the psychology of acting as the “first investor” by committing to fund the project in full. Nobody wants to invest first. When, however, someone put money on the table, others want to join. So I go to the manager of the intrapreneur and get them to join by splitting the cost or even pay for the project entirely. It works so well that I frequently overcommit my budget but come in under budget: 46% last year! Most important, the funding now comes from the business, which now has skin in the game, and validates the strategic business alignment of the project.

Key Learnings

    • The search for high-potential, disruptive ideas requires accepting risk and acting as “Go keeper” instead of “Gate keeper.”
    • Branding the program as experimental or “proof-of-concept” helps to buy time to develop the idea to a presentable state. It circumvents early resistance from the organizational immune system and creates leeway to cut through the bureaucracy’s “red-tape.”
    • Acting as “first investor” puts a project in motion. Seeking business buy-in validates alignment with business needs; the business now has a vested interest.
  • “Angel investing” becomes a beacon of hope for employees. Many see it as an alternative way to set ideas in motion, which –over time and with success stories shares- has the potential to change the organizational mindset and culture.

By Stephan Klaschka