By Praveen Arivazhagan, Raju Sarma and Sachin Lulla
The largest US companies have a $9 trillion deficit in shareholder value. That’s the gap between the market capitalization of the bulk of the S&P 500 in January 2025 and the value those companies need to achieve first-tier total shareholder return growth of at least 15% annually through 2029, according to an EY-Parthenon analysis (Figure 1). This group excludes the Magnificent Seven tech stocks and their outsized growth profiles, as well as banks and real estate investment trusts (REITs), with their different capital structures.
Figure 1: The growth imperative: companies need to identify, approve and fund $9 trillion of intrinsic value.
1. Based on S&P 500 constituents as of January 14, 2024.
2. “Banks” includes Diversified Banks, Regional Banks, Investment Banking and Brokerage, Asset Management and Custody Banks, Consumer Finance, and Diversified Financial Services (Capital IQ sector classifications).
3. Magnificent Seven is a group of high-performing and influential companies in the US.
Source: EYP analysis, S&P Capital IQ
How can the remaining 432 companies make up that $9 trillion current deficit? Corporate venture building is an essential avenue to increase P&L growth and the market multiplier for the business.
Yes, building a new venture can be difficult. Companies need to find the right product-market fit, develop a go-to-market strategy, and enable a team with the right entrepreneurial mindset to distinguish themselves in the market and earn that higher multiple.
But established companies have an advantage over startups: the endowments, or differentiated assets, they have already developed, including customer relationships, intellectual property and their supply chain ecosystem. These endowments can help corporate venture builders establish a business that can quickly deliver outsized returns.
But the endowments can also vary from company to company, leading to distinct ways for corporate venture building to work.
Based on building more than 70 ventures, EY-Parthenon corporate venture builders have categorized new ventures into four archetypes (Figure 2), taking into account triggers that prompt the need to develop a new venture and a company’s specific endowments. Companies that embark on venture building should align their efforts to these four archetypes to help maximize their chances of success.
Figure 2: The four corporate venture building archetypes
The four archetypes
1. Corporate Launchpad
Trigger: The company identifies an internal problem and uses its endowments to solve it—and create solutions it can sell. By becoming its own first customer, the company can test the product or solution before launching it.
Endowments: Capabilities with commercial potential, such as talent, capital and industry intelligence; a ready “first customer” within its own corporation; the ability to pilot and incubate the venture internally.
Benefit: Solving its own challenge and creating a new P&L to boost growth. By testing internally, it can release the solution in the market with more certainty of success and a quicker path to growth.
Example: An industrials company saw that the lack of transparency and high costs in insurance pricing frustrated its customers. The company developed an insurance venture to address customer concerns about transparent pricing and high costs.
The company has access to such data inputs as customer behavior and equipment health, which helps it more effectively assess insurance risk and generate more accurate and transparent pricing than a competitor might. The new venture allows the company to improve product bundles, increase “stickiness,” capture a greater share of total cost of ownership, and lower that total cost for customers.
2. Tech Attacker
Trigger: To develop a disruptive tech-focused business that will lead its legacy competitors, the company is looking to enter a new business or region where it has little market share.
Endowments: The ability to pilot and incubate in the core business; customer and other owned relationships.
Benefit: The ability to use technology to disrupt a market where it has low market share.
Example: A manufacturer of residential and commercial industrial equipment sought new growth in smart connected product solutions, offering energy management, real-time monitoring, leak detection alerts and fleet management. The company used its well-established product heritage to innovate with modular electronic controls that had built-in connectivity.
It also used its customer partnerships to create digital revenue streams, such as subscription revenue from installers for providing high-quality leads for parts, service, maintenance and replacement. The large installed base also allowed the company to build new partnerships with demand aggregators and utility companies to offset loads during peak demand periods, generating new revenue from utilities and passing on the savings to their consumers.
3. IP Ignite
Trigger: The desire to increase market multiples by monetizing its technology or intellectual property (IP) into a new business that can command a potential higher multiple.
Endowments: Proprietary IP, research and development (R&D), products, pricing power, value chain expertise and data; capabilities with commercial potential.
Benefit: Repurposing IP, including dormant IP, to create a business that can command a higher multiple than the core.
Example: A global company’s growth rate was plateauing as contractors sought better pricing and service-level agreements. The company used its large procurement and supplier base, pricing power and substantial customer base to turn its procurement function into a revenue-generating B2B marketplace, with better pricing for contractors and committed volume for suppliers.
4. Customer X
Trigger: Signs of stagnation across current products.
Endowments: Deep customer and other owned relationships; channel and distribution partners.
Benefit: The ability to quickly scale new offerings by using existing customer and ecosystem relationships in new ways.
Example: A consumer products company faced a long-term decline in demand for its core products. But it had relationships with millions of consumers and thousands of retail outlets. Using these relationships, the company developed a new retail services platform, providing independent brick-and-mortar retailers with analytical tools and value-added services to help drive profitable growth and efficiency.
Archetypes may overlap
These archetypes are not mutually exclusive. Multiple archetypes can come into play for a new venture. A company could build a corporate launchpad and make itself the first customer, igniting existing IP to do so. Or it could use its existing IP in new ways, reimagining what it can do for existing customers.
Still, to successfully use venture building to find an entirely new P&L and increase total shareholder returns, companies can start by determining what those advantages are and what venture building archetype makes the most sense for them.
Learn more about how the EY-Parthenon Corporate Venture Building team helps companies originate, build and scale new businesses and reimagine their core business for growth.
Praveen Arivazhagan is Chief Venture Builder and EY-Parthenon Americas Corporate Venture Building Leader, Ernst & Young LLP.
Raju Sarma is a senior venture builder and LA Venture Garage Leader for EY-Parthenon, Ernst & Young LLP.
Sachin Lulla is EY Americas Consulting Industrial Products Sector Leader, Ernst & Young LLP.
Charlotte Clark, EY-Parthenon venture builder, Ernst & Young LLP, also contributed to this article.
The views reflected in this article are the views of the authors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.