Global business consultancy service firms, be forewarned. You have competition coming from unexpected quarters.
Venture building – a new business restructuring model – is slowly but steadily gaining currency with the corporate world in the Middle East.
A new crop of venture funds (VCs)-turned venture builders are partnering with leading companies to set up start-up ventures to identify and solve various pain points in their businesses.
Unlike the global consultancy giants which work on business advisory projects for a fee, venture builders put in their own money to partly fund to map, ideate and scale up the new start-ups, which will be later sold to the partner company at a pre-agreed price.
“We are transitioning away from very early stage start-ups and ecosystem seeding, scale ups, and going back to our roots which is venture building. In two years from now, we intend to emerge as the biggest independent corporate venture builder in the Middle East,” Lars Buch (pictured below), CEO – MENA & Russia of Rainmaking, told Arabian Business.
“We will have at least 10 active ventures between the UAE and Saudi Arabia in the next two years,” Buch said.
“All the new ventures will be executed in collaboration with the right corporate partner for the right pain to solve and we have more than a dozen corporate in warm dialogue around co-creation already now,” Buch revealed.
He declined to name any of the companies with which Rainmaking is currently in discussion for setting up new ventures.
Buch said Rainmaking, which is known for its ‘Startupbootcamp’ accelerators, has already set up a few ventures in the UK under the ‘venture builder’ model.
“Outside the UK, the Middle East and North Africa (MENA) is the first region where we will be venturing into for the venture building business as we believe that this region has huge potential for the success of this model.”
Buch said besides solving business issues through live ventures, the new model will also help companies financially.
“The venture builder cost for mapping, ideating and forming a new venture could be between 15-20 percent of what corporate consultancy firms charge by way of fees,” he said.
Middle East testing ground
Industry analysts said with the new found focus by governments and companies in the Middle East to build alternate businesses, especially in the new age sectors, in line with their strategy to lessen the dependence on the oil and gas sectors, the region could be the best testing ground for pushing the new ‘venture builder’ model.
Buch added: “Our ‘venture builder’ concept is not really a part of the traditional venture capital… We are rather pulling financing from R&D budgets for corporate venture and intend to sell back successful ventures to the corporate partner with pre-agreed success triggers and pricing models.”
Investment experts said the ‘venture builder’ model could prove to be a winning model for the corporate sector.
“This trend is now catching up with corporate and enterprises, who want to build specific new initiatives and do innovation but are challenged by the legacy organization, hierarchy, structure and extreme processes to execute those initiatives with speed and agility,” said Anvita Varshney, managing director of AV Capital Partners.
Varshney, who is also the former managing director of Rocket Internet, one of the largest venture builders globally, also pointed out that VCs, having seen several business models and trends, get an understanding of a particular opportunity and instead of waiting for a start up to come across, they can incubate the idea internally, orchestrate the capital, founding team, and therefore act as an enabler for major corporate expansion and restructuring.
Consultancy majors
Executives at leading consultancy majors, however, said they are not unduly perturbed over the emerging competition from venture builders.
“Maybe, it could even compliment our business as the new model could lead to further expansion of the market,” a senior executive with PwC India, who did not wish to be identified, told Arabian Business.
The PwC executive said if the competition increases, consultancy firms may have to tweak their current fee model by splitting it into a ‘fixed fee and a success fee’ model.
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