FEATURE side project and don ’ t invest enough . That ’ s a surefire recipe for failure . Just 38 % of respondents are investing 20 % of their growth capital , suggesting that nearly two in three are leaving potential value on the table .
We also looked at the share of investment required for new ventures to deliver the total revenues desired by their parent organisation . On average , respondents expect to derive 24 % of their revenues from new ventures in five years ’ time . But to achieve that , many companies will need to meaningfully increase their investment . We found that the companies that do achieve that kind of revenue share from new ventures have invested on average 2.4 times more than those that don ’ t .
Venture-building begins at home
Paul Jenkins , Senior Partner , McKinsey
The financial strategy case for venture-building
Let ’ s dive into the finances on this and see the link between venture-building and Return On Investment ( ROI ). This is really the key finding : our research suggests that companies that invest 20 % of their growth capital or more into building entirely new ventures end up seeing revenue growth that ’ s two percentage points higher than companies who aren ’ t investing in venture-building .
This trend is even more pronounced with larger companies : when organisations with over US $ 1 billion in annual revenues invest 20 % or more of their growth capital in venture-building , they gain revenue growth 2.5 percentage points higher than those who aren ’ t investing . To put that in context , the mean growth rates globally for those large companies are 5.2 %, so a 2.5 % uplift translates to 50 % additional growth . If you compare to the median growth rate of 3.7 %, the incremental uplift is even greater .
At the same time , that 20 % investment figure is something of a sweet spot when it comes to getting the greatest ROI . Invest less , and you don ’ t get a correspondingly lower ROI – in fact , you get much less ROI . By the same token , if you invest more , you don ’ t always get greater ROI . The rate of return starts to peter out after 20 %. This provides a compelling counterpoint to an issue we often see , which is that companies approach building a new venture as a bit of a
In short , venture-building can form the basis of a successful , growth-orientated financial strategy , driving strong ROI and enabling sustainable business success . But if that ’ s the case , where should the C-suite be looking for venturebuilding opportunities ?
First off , for most companies , there ’ s plenty of opportunity to build new ventures out of existing assets . Nearly nine in 10 of the leaders we surveyed said their organisations have at least one asset whose commercial potential hasn ’ t been realised . Most often , that asset is some form of data , intellectual property or novel technology .
The potential for turning existing assets into new ventures varies by industry . For example , healthcare , consumer goods and retail companies most often say they ’ ve developed products for internal uses that could be sold externally , while those in financial services point to data assets that could be monetised . In advanced industries and technology , media and telecommunications , respondents often say intellectual property or new tech could form the basis of a new venture . So , for senior leaders , the first question to ask is : ‘ What are we sitting on already ?’
AI and sustainability ventures driving growth
That ’ s just the beginning , though . Businesses can also look to fresh ideas and offerings . In 2023 , our research showed that data , analytics and AI platforms were the top form of new venture respondents expected to build in the next five years . This year , the findings show
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