Why You Should Run Your Department as a Tier 1 VC

The VC Mandate

VCs have a clear mandate to raise funds from investors, known as Limited Partners (LPs), to invest in early-stage startups. Guided by a well-defined investment thesis, their goal is to generate returns exceeding 2x the initial investment within a 7 to 12-year timeframe.

In other words, they are in charge of sourcing, funding, accelerating and selling a portfolio of innovative projects to make a solid financial profit.

Your role in Technology and Innovation Departments mirrors that of VCs. Jonathan outlines the similarities between innovation functions and VCs as follows:

1. Commit: You sign off your mandate, by defining what your raison d’etre is and what success looks like.
2. Strategize: You define your innovation strategy and the path to achieve your company’s goal by a certain time horizon.
3. Scan: You scan markets to map opportunities and understand where to invest next.
4. Source: You identify thousands of early-stage ideas/startups per year within these areas.
5. Select: You invest only in 1% of them and strictly follow your innovation strategy, like VCs investing within their investment thesis.
6. Diversify: You leverage the law of large numbers to derisk returns thanks to a large and diversified portfolio.
7. Accelerate: You support each project team to increase their probability of success, from early to late-stage.
8. Measure and Adjust: You optimize your resource allocation across your portfolio based on performance. You can’t just keep funding each project equally. You need to double down on what’s working and kill zombie projects as fast as possible.
9. Sell: You then “exit”, meaning you sell the project to the next department to scale it and integrate it into business as usual.

Running Your Innovation Department Like a Tier 1 VC

1. Commit to Success

You can’t perform without a clear mandate and definition of success. You just can’t. Unfortunately, many innovation functions have been created in the last 10 years without one.

This is by far the biggest mistake Jonathan has seen from both top management and corporate innovation leaders.

Large companies rushed to create innovation functions to show how urgent it was to innovate in a more agile way. Several years down the road, many innovation functions haven’t managed to deliver solid results and earn trust from executives, or the rest of the workforce for that matter. And they are questioned, sometimes dismantled, especially in tougher times.

In Venture Capital, this just doesn’t exist. Jonathan explains, “You can’t create a VC firm or raise a new fund with LPs without clearly stating your purpose and committing to generating returns.”

You need to define what’s in and out of your scope, and commit to delivering impact. This is the way—as the Mandalorians would say.

2. Design a Clear Innovation Strategy

Just as VCs are guided by an investment thesis, corporate innovators should establish a clear innovation strategy that aligns with overall business objectives. This strategy should define the areas you invest in, the criteria for selecting projects, the types of innovations to pursue, and the desired outcomes.

For example, a food and beverage company may focus on sustainable products, while a tech firm might prioritize disruptive technologies.

3. Scan the Market for Opportunities

VCs scan markets every single day. They identify new trends, investigate new technologies, map verticals and sub-segments, and anticipate risks. Then, they identify the most promising opportunities to invest in. That’s when they start looking for the best startup within each opportunity.

Within your innovation team, you need to understand your market cold. And not just today’s market, but more interestingly how your current market may evolve in the next 5 to 10 years. “You have to be in the driving seat, anticipate what can happen, and bet on the most promising opportunities given your company’s DNA and strengths,” says Jonathan.

4. Source Startups and Meet with Founders

One of the top VC superpowers is the ability to find and meet with startups addressing a specific opportunity with different angles and value propositions.

As corporate innovators, this involves gathering all possible solutions—ranging from internal ideas and external partnerships, including collaborations with startups and M&A opportunities. It means exploring every promising option identified during your market analysis.

Jonathan highlights an important difference to VCs, in that corporates can and should staff internal ideas with the best possible teams. “The person who came up with the idea is not necessarily the best founder for the project,” he emphasises.

5. Select the Most Promising Projects

Venture Capitalists are some of the most selective people on the planet. In 2015, the VC Newfund invested in Braineet, founded by Johnathan and later acquired by ITONICS in 2024. That year, Newfund reviewed 3,969 startups but invested in just 10, a 0.26% selection rate.

To achieve that level of selectivity, VCs adopt a disciplined approach to managing their deal flow (equivalent to a pipeline in a corporate context) and execute what is referred to as due diligence: the VC equivalent of an innovation process with defined stages and gates.

Johnathan suggests using a simple, clear process to manage your innovation pipeline.

“It should include defined stages, deliverables, collaborative evaluations with experts, and decisions to invest, continue, pivot, or stop projects,” he explains.

6. Diversify: Leverage the Law of Large Numbers

VCs operate on a principle of making calculated bets on a portfolio of “innovation projects”, which are essentially startups. They typically invest in many projects, knowing that only a small percentage will yield significant returns. This approach is often referred to as the “law of large numbers.”

For example, a venture capital firm managing a $100M fund might invest in 100 startups, confidently backing each one while fully understanding, based on experience, that only a select few will emerge as “fund returners”—the rare companies that deliver 100x returns.

To maximize your chances of success within your central innovation team, Jonathan recommends that you invest in between 50 and 150 of projects in your innovation pipeline. This means encouraging your teams to generate a wide range of ideas, even those that may seem unconventional. A diversified portfolio mitigates risk and increases the likelihood that at least a few initiatives will succeed.

For instance, a beauty company might explore various product lines, from skincare to haircare, testing multiple concepts simultaneously to gauge market interest before narrowing their focus.

7. Focus on Supporting Project Teams

Just as VCs provide mentorship and resources to startups to boost their chances of success, accelerate time-to-market, and maximize ROI, corporate innovation leaders should take an active role in supporting their project teams.

This includes providing access to expertise, network, funding, methodology, and strategic guidance. Not to forget culture—creating an environment where teams feel empowered to take risks and experiment can lead to more transformative outcomes.

It also means creating a continuous feedback loop. Set up regular check-ins and reviews to monitor progress and gather insights from various stakeholders. This iterative process allows teams to pivot or adjust their strategies based on real-time data and market conditions.

8. Measure Performance, Adjust Allocation

Establish clear metrics for evaluating the performance of each innovation initiative. “This could include quantitative measures such as revenue generated, market share captured, or customer satisfaction levels,” Jonathan says.

By defining success upfront, you provide teams with a target to aim for, fostering accountability and motivation. This can evolve over time of course, but everybody should be aligned on what success looks like at every milestone of every project in order to plan what’s next.

Over the past few years, ITONICS has collaborated with over 500 businesses, uncovering a key trait of successful organizations. “We’ve found that all these companies prioritize clear visibility into the health of their innovation portfolios and encourage strong accountability within project teams,” Jonathan explains. This winning formula enables innovation leaders to make informed decisions about project continuation and overall portfolio resource allocation.

9. Exit the Business

At its core, innovation inherently carries significant risk and uncertainty. When an innovation project matures it transitions at some point to a scale-up project and then to a business-as-usual project. The same as startups evolving into scale-ups then into an acquired business merged in something bigger.

Jonathan emphasises, “Corporate innovators should plan for this transition, identify what team is going to carry this over and get their sign-off.”

In other words, you need to sell the business to a (strategic) acquirer, exactly like VCs do.

How to Apply the VC Playbook

ITONICS’s more successful customers apply the VC playbook to their portfolio. Jonathan outlines what these companies have in common:

• Align their actions with the company’s strategy and business objectives
• Understand the current value of their portfolio and the health of each project
• Define clear decision points: continue, double down, pivot, or kill
• Establish a precise definition of success and provide visibility to management on achievements
• Practice strategic foresight by identifying new opportunities, technologies, and market trends

Additionally, there are three crucial yet often overlooked insights about VCs that can fundamentally reshape how you approach innovation functions:

• VCs are always hunting for home runs: For example, in a $100M fund where $1M is invested in 100 companies, the fund returner would need to deliver 100x returns. VCs operate with the belief that every single one of their investments has the potential to be a fund returner. However, in reality, around 70 startups will return 0 to 1x, 20 will return 1-3x, 7 will return 3-20x, and only about 3 may actually become fund returners. “VCs are wrong 97% of the time, but the 3% they get right drives their overall performance,” Jonathan says. For innovation leaders, this highlights the importance of making bolder bets.
• The best investments are often anti-consensus: Innovation leaders must stick to their strategy while also being contrarian, seeing opportunities others cannot. Following trends or reacting to hype will only lead to playing catch-up. Success requires being aware of real-time developments in your industry and beyond, understanding external forces, technologies, and scenarios that could impact the business over the next decade.
• Continuous fundraising is crucial: Just as VCs constantly raise new funds from existing and new LPs, innovation leaders should adopt the same mindset. This means consistently seeking new budgets from existing sponsors and identifying new internal sponsors who need innovative solutions to solve their most critical problems.

Driving Innovation with Strategy, Metrics, and Bold Thinking

Successful innovation requires clear metrics, accountability, and strategic foresight. By applying the VC playbook—defining success, aligning with business objectives, and making bold, informed bets—companies can better manage their portfolios and drive impactful results.

Jonathan reminds us: “Be willing to take risks, play the long game, and never stop earning the right to invest in what’s next.”