AI Innovation Fund and Venture Factory

Designing a Business Plan for a $100m Innovation Fund and AI Venture Factory

Challenge

Our client, a software development organisation in the financial services sector with a global customer base faced significant challenges in growing its top line, especially from AI-driven competitors with significantly lower cost to serve and pricing. Most of its customers were engaged on legacy user-based annual software licence contracts. Previous attempts to transform the business by focusing on core capabilities had not delivered required outcomes, including selling non-core businesses and improve profitability through price increases. The company acknowledged that it lacked an efficient innovation capability and culture to compete in the AI era. Their differentiating capability was extensive sector data – going back 15+ years. Technology Connect was part of a team of venture capital and AI innovation specialists engaged to design a corporate venture accelerator to drive new growth vectors and position the client as a global AI leader in its sector.

Approach

Working with the client executive team, the main outcome was a board-level business plan to launch an InvestCo entity comprising a CVC/VC style investment management organisation and AI Venture Factory. This entity would be a separate business unit within the client organisation governed by the client Board to ensure they had autonomy and flexibility to focus on investable ventures, whilst building an innovation culture and capability that also provided “give-backs to the mothership” for new product development. Underpinning this structure, we developed an investment thesis and associated funding model to establish a $100m fund to build portfolio of pre-seed and seed ventures. The fund would be open to external LP participation. We designed an AI Venture Factory operating model to efficiently manage the venture flow from ideation to scale. Detailed playbooks for Incubation and Acceleration were developed to ensure innovative AI solutions were embedded in every step across the venture building process to reduce time to MVP, revenue and cost to serve. We developed a venture assessment and scoring rubric to facilitate appropriate and consistent assessments of new venture ideas and graduations into venture cohorts. We developed a dynamic financial model to ensure board and investment committee obtained full transparency of how ventures would drive capital realisation events and new business growth.

Result

The business plan providing a pathway to an IRR of 19% on $100m, including the following critical elements:

• Designed a Venture Factory Operating Model spanning 5-pillars (Organisation, Processes, Data & Technology, Engagement and Governance), including detailed playbooks for Venture Incubation and Acceleration to rapidly scale new AI-driven ventures.
• Designed a Corporate Venture-Capital (CVC) framework, structure and processes to govern venture investments across the end-to-end venture pipeline and portfolio to efficiently execute in accordance with the investment thesis and funding model.
• A dynamic financial model comprising a funding model comprising 20+ ventures, 2 spin-ins, a 2/20 management fee and carry model, across a 10-year investment horizon, spanning both the venture investment management and factory components.

Tom Dissing is the founder and Managing Director of Technology Connect. He has deep expertise in helping companies digitally transform and scale their businesses through better, faster and smarter use of emerging technology and optimising value from ecosystems. Tom is a trusted advisor to business and technology executives and senior management teams. He has advised senior executives in Financial Services (Banking, Insurance, Wealth and Superannuation), Media & Entertainment, Construction & Engineering, Technology Services and Government (Federal and State) in Australia, New Zealand, Asia and Europe.

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