Redefining The Joint Venture: Accelerating Innovation And Growth

By Robert Cummings, Global Head of Financial Services Industries, SAP

Growth and innovation are perennial imperatives for any business of any size in any industry, and financial services is no exception. To say that capital plays a vital role in making this possible is an understatement.

As low interest rates and quantitative easing keep money flooding the market, the world is currently awash with capital chasing yield. There has never been more investment capital available for ventures than perhaps at any other time in history.

For startups, this means an incredible opportunity to bring investors onboard and raise unprecedented funding. But, for large multinational companies, aside from traditional approaches to financing such as raising equity, bank loans, bonds, and commercial paper, how can they raise capital for specific innovations and initiatives?

Maybe corporate investment itself is ready for innovation.

Personalizing Investment Strategies to Support Innovation

Venture capital has little trouble seeking and finding smaller companies and startups in which to invest. However, let’s consider the difficulty of allocating capital investments to specific parts of a multi-line business.

How can bigger companies take advantage of the abundance of capital to accelerate innovation, development, and growth of a product or initiative?

Lets assume I’m a retail investor who would love to buy stock in Amazon Web Services, Google Cloud Platform, or Microsoft Azure because I believe they have great potential for long-term growth and want to concentrate my investment in that specific line of business, I have no option but to buy stock in the whole of Amazon, Google, or Microsoft.

Or, let’s say I want to invest in a new shoe line at Nike that seeks to leverage innovative design and produce shoes made from recycled materials that focus on leaving no environmental footprint other than the imprinted pattern of the shoe’s sole. Again, I have no other option but to invest in Nike as a whole company.

How can we enable investors to get closer to an actual corporate initiative or product line to make specific investments? This would not only allow investors greater access to specific initiatives, but also give the corporation more resources and spread the risk of new ventures.

The instruments available today for such initiatives focus more on credit lines and make the investor a lender rather than a partner in the venture.

Perhaps there is another way? 

Redefining the Joint Venture as a Specific Investment Vehicle

Joint ventures are probably as old as business itself. Traditionally, companies enter a joint venture to mutually benefit from combining and leveraging complementary assets to achieve synergies.

For example, Volvo and Uber join forces to develop autonomous driving technology, or Fujitsu and Siemens team up to develop digital manufacturing.

But what about using a joint venture as a specific investment vehicle? SPACs (Special Purpose Acquisition Companies) are increasingly popular in the Pre-IPO arena. Could there be such a thing as a SPJV (Special Purpose Joint Venture) as a new vehicle for democratizing investment?

For example, SAP recently announced a strategic partnership with Dediq, forming a dedicated Financial Services Industry Joint Venture called SAP Fioneer.

Is it time for a new look at the joint venture as a corporate venture investment vehicle? This may not be a typical use of a joint venture, but it indicates that this may be a way to tap into the capital markets and open the Venture Capital markets to large companies to accelerate innovation in partnership with investors.

The Retail Investment Boom: Harbinger of New Opportunities?

Consider the rise of retail investment. Sure, there are the meme stocks that retail investors have banded together to rescue from the stock bargain rack to spite the hedge funds that have written off and shorted them.

But the fundamental concept driving retail investment is that individual amateur investors exercise greater choice and control over their own stock portfolios, researching and selecting each stock rather than investing in a portfolio selected and managed by someone else. 

This has also given rise to the explosion in passive ETFs (Exchange Traded Funds). It’s an investor’s version of clean eating, where you eat whole and unprocessed foods and seek to know all of the ingredients and know exactly what you’re consuming.

Maybe it’s time to innovate and reinvent the joint venture as well as broaden the field for who can invest in what and how. This opens new possibilities for recasting the joint venture as a new kind of investment vehicle–a special-purpose joint venture.

Could this accelerate products and initiatives in big companies that address climate change, social justice, and other corporate social responsibility initiatives? These initiatives may seem too risky or costly for larger allocations internally but can open the opportunities for individual investors to support directly.

Consumers already vote with their money when paying for products and services. Why not grant them access to vote by investing their capital to accelerate parts of the business they believe in?

The same millennial and Gen Z customers who prefer digital transactions also place high value on aligning with companies that help them live out their values by supporting initiatives important to them, from sustainability to diversity and inclusion to transparency in data management and security practices.

Who knows, maybe dissolving boundaries in multi-line corporations and continuing to democratize access to specific investment opportunities just might help larger companies stay competitive and drive greater innovation.

Find out more about the joint venture between SAP and Dediq to form the new FSI Unit: SAP Fioneer.