October 26, 2021

Why it's wrong to think VCs get better returns than corporates

Yes, you read that right. Corporate investors can get higher returns on their innovation investment, even while taking lower risks

William Owen

4 min read

William Owen

I read in Sifted that, in looking for returns from digital innovation, corporates set their sights too low, stifling the potential they could achieve. Corporations are often more risk-averse than VCs who typically get 80% of their returns from 20% of their portfolio.

Failure rates like this would not be acceptable in most corporate settings. But does that mean corporations should have lower expectations of returns than VCs, who seek (but rarely find) returns in excess of three times investment over 10 years?

Actually — no.

Benchmarking data can be notoriously difficult to find for corporate innovation, but we have over 100 case studies garnered over 14 years and we’ve closely examined two dozen of these with attributable returns in terms of market, operating or financial performance. These indicate that corporates can expect returns on average as high — or even significantly higher — than VCs.

A corporate innovator’s task is easier than a VC’s. We’re not starting a company from scratch

It depends a little on the type of project. We tend to classify projects in one of three categories.

First, there are projects that optimise the business within the constraints of the existing business model. These are lower risk and lower return.

Second, there are projects that extend: create new value and capture new customers by leveraging existing capabilities — and we expect to do this by stretching, bending, even subverting the existing business model (increasing both risk and return).

The third category is projects that innovate: invent new classes of product, service and business model that satisfy unmet customer needs in new ways, with minimal or zero constraints applied by existing business. It’s much higher risk, but in the case of a burning platform or as one part of a portfolio of reasonably good bets, that might be acceptable.

Made by Many innovation framework

The framework is designed to encourage clear thinking about means and ends, rather than focusing solely on the cost: What are we trying to achieve here in terms of business impact? Does success require a change in the business or operating model? What’s the resulting risk and how do we mitigate it? What kind of overall return can we expect?

An 'optimise' project has an average ROI of 3x

When we looked at the returns for these different categories, the results surprised us. Even an “optimise” project, where a digital product or platform is used to extend or improve an existing operating/business model yields between 1.5x and 8x ROI over three years, with an average of around 3x. (These returns are based on direct costs and exclude indirect/in-house corporate costs.)

That’s a really high number, well in excess of VC performance, but it’s also a bit of a wake-up call as to how easy it is to improve business performance — dramatically — through the intelligent application of a digital lever.

It is partly because, in one sense, a corporate innovator’s task is easier than a VC’s. We’re not starting a company from scratch (or from Series A or B). We work with big global corporates and have a huge well of assets to draw on and exploit. But remember there’s one big caveat: this work was done by experienced, talented teams, keeping an iron grip on customer need and business value, and with a lean and agile approach to both design and technology delivery.

In situations where the goal is to extend — to capture new markets, exploit new channels or switch the point of value capture — the case studies tell us that the returns are similar but the risks higher.

Two out of five innovation projects produced negative returns — still better than a VC hit rate

There are no negative returns in our entire portfolio of optimisation case studies, yet two out of ten “extend” cases failed: to get to market in one case or to scale in the other. However, the eight instances of positive returns were absolutely critical to business success, including helping a startup over the line to win £120m Series C funding and transforming the fortunes of a global fashion brand, with a return in excess of 20x.


Two out of five innovation projects produced negative returns — still better than a VC hit rate — in both cases because leadership misapplied old business model measures to innovation investment decisions. However, the successes were dramatic, including a health and household consumer packaged goods project that took a strategic position in the quantified health market and an innovative casual dining brand that scaled from 12 to 94 stores to achieve a valuation of £1.3bn.

The message is clear. In an established corporate context, the greatest risk to digital transformation is the hierarchy, silos and mindset created to serve the existing business model. Experienced teams can navigate across these, so long as there’s close collaboration and high fidelity communication — and also a clear investment framework. The returns then available are in the order of multiples, not increments, with a hit rate well in excess of anything VCs can achieve.