Angel Investing within the Company - Insights from an Internal Corporate Venture Capitalist
Copyright by Stephan Klaschka 2010-2025
Breaking through the crust
In my (past) global role as the Director for Global Innovation Management and Strategy in a large global enterprise, one of my favorite and most successful approaches to building a powerful intrapreneuring ecosystem was internal corporate venturing! Another name for it is what is known as ‘Seed Investing’ or ‘Angel Investing’ in the entrepreneurial and start-up world.
Internal corporate venturing is an exquisite tool to cut through the crust of ‘red tape’ that bureaucracy builds up over time. The approach allows for nimble decision-making with a lean process to give disruptive innovation ideas a chance again in a large company (see also How to grow innovation elephants in large organizations and Overcoming the Three Big Hurdles to Innovation in Large Organizations).
Seed-funding promising ideas
How does it work? Think of becoming a venture capitalist within the company: You invest in ventures within the organization and help building ‘intraprises’ in contrast to funding start-up enterprises outside the company. The difference is that you don't venture for your own profit but for the better of your organization.
And similar to a venture capitalist, you don’t have to come up with and risk your own money. While offering small amounts to get things started, I hardly ever had to fund anything! The key is to convince the department(s) that will benefit from the successful idea to fund the project, which also assures strategic alignment with company goals.
The basic idea here is to seed-fund promising disruptive ideas that otherwise would not be implemented or even seriously considered. Often enough, these opportunities were brought up by a bright mind in your organization previously but got rejected by the ‘corporate immune system’, when the employee with the idea approached their line manager or a governance committee of sorts requesting approval to ‘try something out.’
(See also Innovation Killers: The Corporate Immune System Strikes Back!)
POC over ROI
Often enough, there is no clear return on investment (ROI) predictable at this early idea stage. What you may be looking for is rather risky and experimental, so what you need first is a proof-of-concept (POC). to demonstrate the idea could work and ‘has legs’.
The metrics for payoff and ROI of disruptive ideas do not follow the same approach we are accustomed to when measuring the more predictable returns of common cost reduction and incremental improvement projects. Disruptive POC projects often don’t have an ROI projection when you explore technology of sorts or its application that may become a game-changer for our future business.
In my experience, communicating the POC nature of the project over focusing on ROI can actually help! Trying something out rather than promoting radical changes can prevent the 'organizational immune system' from kicking in early on. - Why? Just ‘trying out’ something small is no threat to and does not compete with the 'big elephant' projects over significant amounts of governed resources following the conventional processes of the company’s machinery.
Instead, hey, we just try something out! It's a little experiment that doesn’t change anything, so it poses no threat to established practices, investments, or the power base of individuals defending their fiefdoms.
(See also How Intrapreneurs avoid “No!”)
Aspired returns
Having said this, there is of course a commercial end to all projects. After all, we have no resources to waste and will have to demonstrate that our ‘experiments’ pay off somehow big down the road. Our working assumption is that the disruption should lead to a ten-fold (10X) payoff - at least.
I prefer aiming at a bold 100X ROI target; two orders of magnitude of the original investment, that is. It sets an ambitious target and if things work out it’s a great success story and cover for initiatives that may fail. It’s a powerful point to make for disruptive innovation as part of our innovation ecosystem and shifting the mindset within an organization. Sharing these success stories with executive stakeholders is crucial for future support as well as with employees for future ideas. In the end, you would want to build a robust and sustainable ‘idea pipeline’.
(See also 10X vs 10% – Are you still ready for breakthrough innovation?)
Governance and Authorization
Interestingly, what employees are looking for more than funds is authorization to do what is right and worthwhile for the company. Often, the obstacles are perceived and only exist in peoples’ minds. These barriers are formed by many factors over time, such as the management style they experienced and organizational silos that mold a company’s culture as well as the employees’ personal mindset.
In this particular company, we established a lean oversight board to make our VC funding decisions. It was composed of a diverse and cross-functional team of more forward-thinking executives and a very lean decision process. The team vetted ideas and acted as an enabling ‘go-keeper’ to accelerate innovations instead of pushing the breaks as a ‘gatekeeper.’
The little money offered for trying something new only helped smoothen the path for functional innovators in the company, i.e. the departments that would benefit from a successful implementation. The most important part is making them feel empowered and ‘authorized’ to take action that overcomes complacency, inertia, and organizational paralysis. On the spectrum of strategic innovation roles, the board serves as a ‘sponsor’ and sometimes as a ‘coach,’ when an idea aims to overcome internal barriers to increase efficiency, for example, and the ideator needs some advice on how to approach the challenge.
(See also Innovation Strategy: Do you innovate or renovate?)
Dealing with Risk in the Project Portfolio
The purpose of our governance board was to enable the exploration of disruptive ideas by giving internal innovators a chance. The focus is on projects that can be characterized as early-stage experiments to explore transformative enabling technologies and value-adding services of higher risk or less predictable outcomes than conventional project portfolios in the mature organization would feel comfortable with.
Naturally, this approach comes with an elevated risk of failure when projects do not produce profitable outcomes or simply prove infeasible or poorly timed. This ‘price’ is accepted as long as it generates learning.
The potential damage is low since we are talking about swift and low-cost experimentation: try often and fail fast. Thus, these risky projects complement regular and more conservative project portfolios in the various businesses of the organization. In addition, the innovation project portfolio is somewhat risk-balanced, which avoids having too many high-risk projects that may jeopardize the likelihood of profitability across the portfolio. The reality is that also the disruptive innovation project portfolio has to demonstrate tangible returns over time, so the mature organization sees the economic benefit of experimenting and does not shut down this ‘playground.'
Branding the projects as experiments with a proof-of-concept (POC) endpoint helps to calm the ‘organizational immune system’ and to argue that these risky ‘small elephant’ projects complement the other ‘big elephant’ project portfolios across the organization.
(see also How to grow innovation elephants in large organizations)
Getting Funds
Here are my experiences as an internal corporate venturer or ‘angel investor’: First of all, I don’t have much money to spend. The budget I had allocated for this kind of venture is pathetically meager by design – and I overcommitted it all the time! Nonetheless, I never exceeded it and usually came in under budget by 46%. It sounds like an oxymoron, and since I don’t have a money tree growing in my backyard, how does this work?
The secret is in the psychology of acting as the ‘first investor.’ Think of it this way: when someone wants you to invest in their idea first with nobody else having made any investment before you, you are skeptical and most hesitant to put down your money, right?
All I do is to commit paying for an idea in full to overcome this initial threshold and to get things started. What happens next is that I approach an executive or decision-maker from the business function affected by or potentially benefiting from the intended project. They hear of my investment, get excited, and usually reconsider and want to get on board too so not ‘to miss the train’ - as a second investor. Once the 'innovation guys' have put money down first, the investment in the idea appears less risky to the business executive, so either we split the bill or the business takes on the cost completely (this was the usual outcome)!
I’ve seen it happen many times with managers turning around 180 degrees after they had rejected the idea previously. This is how to deal with them: to save (their) face, don’t point out their earlier resistance but rather thank and recognize them for their support and foresight as valued contributors to change and success for the organization. Celebrate them as enablers, win them over as allies, and keep the connection open for future collaborations!
Alignment and validation
Don’t be mistaken, funding by the business is not only crucial given the fact that my funds are skimpy. It is even more important because it validates that the idea makes sense to the business. It aligns with the strategy and goals of the organization but also helps implement it once the business has 'skin' in the game! Otherwise, even if I funded a project alone, the intrapreneur running it would have a hard time getting it implemented without the support of a business sponsor and the idea may not be what the business actually needs.
So all it takes is making it easy for business executives and decision-makers to invest in good ideas by making them feel comfortable not to invest first, which reduces their perceived risk and lowers their threshold to act.
Key Learnings
A lean innovation governance board is an instrument for reasonable oversight that benefits from diverse perspectives.
The ‘Go-keeper’ instead of ‘Gatekeeper’ process is crucial as is the willingness to accept the risk of failure for disruptive projects.
The model proves highly effective in getting around a convoluted ‘red-tape’ bureaucracy as well as generating a surprisingly high return on investment (ROI) - even without the latter being the primary focus.
The ‘first investor’ psychology validates the alignment of ideas with business needs and strategy while opening the flow of funds from the businesses and facilitating the implementation.
This internal corporate venturing or ‘angel investing’ approach became a beacon of hope for employees and a very profitable innovation engine for the organization that started to change the organizational culture for the better.
Stay tuned for my next post: The Art of Innovation: How to Become a "Partner of Choice" (Interview)