September 9, 2013
What’s Behind 7-Eleven’s Venture Capital Business?
7-Eleven has launched a venture capital arm with the purpose of making small investments in early-stage companies in the retail and food spaces.
News of the investment subsidiary came after Belly, the Chicago-based customer loyalty and marketing platform, announced that 7-Ventures was a participant in its new round of VC funding that raised $12.1 million. Other new investors included New Enterprise Associates, Andreessen Horowitz, DAG Ventures, Lightbank and Cisco Systems (CSCO).
The first investment for 7-Ventures, launched earlier this summer, was an undisclosed coffee company as part of 7-Eleven’s efforts to improve its fresh food and beverage business.
"The reason for 7-Ventures is to go and find products and services in food and beverage, and new technology and business models that change how people interact with retailers and apply that back to the core business and corporate strategy," Raja Doddala, 7-Eleven’s former business development executive who is heading 7-Ventures, told The Dallas Morning News.
Another "obvious benefit," he told Upstart Business Journal, is using 7-Eleven stores to test startup ideas.
The new business also builds on other efforts to support start-ups, such as 7-Eleven’s recent effort to supply marketing and other support to lottery tracking mobile app, YooLotto.
A pilot program in 7-Eleven stores in the Chicago market led to 7-Ventures’ second investment in Belly, which allows customers to accumulate loyalty points from multiple merchants on a single card or mobile-phone app. Mr. Doddala told CNN Money, "Belly offers digital loyalty networks, and we want to learn how networks work as opposed to retailer-specific loyalty plans."
7-Eleven joins the growing number of large corporations with venture capital funds, including Google, Intel and Samsung, amid a decline in traditional venture capital investments.
"It’s a great marriage," Patty Burke, a founder and partner at Corporate Venture Agility, told The Dallas Morning News. "Corporate provides all the resources, knowledge and distribution, and the entrepreneurs provide the ideas, new technology and that agility to bring something to market quickly."
7-Ventures doesn’t yet have a target of planned investments per year or even major return expectations.
"Obviously we want to make money on these deals but that is not the primary goal," Mr. Doddala told Upstart Business Journal. "To learn…that’s the motivation."
In the retail space, Target, Nordstrom, Staples, Home Depot and others have opened labs to support innovation internally but also work with major and emerging technology players. Walmart has acquired several startups since establishing @WalmartLabs in 2011.
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Recent Discussions
Discussion Questions
What benefits do you see from 7-Eleven’s creation of a venture capital arm? Do you see any downside?
Poll
This is SO needed. As someone who has several start-up ventures underway, I just wish one of them was in the retail and food space. If we are at all serious about turning this economy into one of innovation and prosperity, we’ve got to realize that traditional financial institutions are not going to be of much help. It will take initiatives like this along with various crowd-funding vehicles. My admiration and gratitude goes out to the 7-Eleven folks and especially to Raja Doddala and the executives who had the vision.
All that said, their investments still need to be wise ones!
On the simplest level, the venture capital arm of 7-Eleven keeps the company positioned at the leading edge of technology and competitive growth. At the next level, 7-Eleven can evolve into an innovative and resourceful leader in the retail space. Aside from the possible misstep every VC faces, I don’t see the downside.
I like this idea. A lot. I imagine that the executives at 7-Eleven got sick of watching product and service companies hit big payoffs by selling through the retailer and realizing they’re only getting 2%. This isn’t dissimilar to the Kroger investment in dunnhumby, which hasn’t turned out too badly for them.
7-Eleven’s venture business moves should serve them well on several levels. As Joan noted, investing in technology should help keep them on the leading edge. Doing so via venture capital may not be cheap, but as noted several time in previous discussions, internal IT development is expensive and can be myopic.
On the product side it gives 7-Eleven first look at new items/categories. With those that merit investment, it also means that even if the product eventually gets wide distribution, it is likely that 7-Eleven will have it first and as an exclusive for a period of time.
7-Ventures is positive proof that at least one company has come to the realization they don’t know everything. I think this is a good idea. How better to study new ideas and learn before they become standard operating procedure and having to play catch-up? The down side is falling in love with an unproven idea and implementing it before understanding all the ramifications.
Interesting that the path to innovation remains start ups, not internal IT projects, and not coming from the traditional large software players. If you can’t beat them, own them?
In any business, risk is necessary to keep in front of whatever market a company competes in. Blunder and bust happens when investments are poorly planed and executed, or just plain out of touch with the market direction or needs.
Large and or multifaceted retailers are often populated with an executive leadership that is in conflict with itself as a single unit. International corporations have multiple camps at the executive level and within the board of directors as well. When these internal struggles occur, the development of new and much needed investments can slow or be put into action with conditions committed to failure. This is why the companies mentioned are creating their own capital investment groups.
The new struggle in this effort is autonomy. For the most part these “created” private capital venture companies are populated with traditional business people determined to become entrepreneurs in practice. Not an easy task.
7-Ventures is just the latest demonstration that corporate finance believes it is more likely to earn large returns on even risky capital adventures than it could possibly get by selling merchandise.
We’ve seen a similar syndrome played out at places like Sears and many years ago Woolco and EJ Korvette, where the return on the underlying real estate became much greater than the return on retail sales.
Today it seems return on innovation is the attraction, and innovation must come from somewhere outside. Retailers who have accumulated large enough capital troves should naturally look for places to invest it besides more buildings and inventory.
So while I applaud the innovative thinkers at 7-Eleven, I also see this is a somewhat sobering reality check on the retail business. It’s hard to get rich selling Slim Jims and Big Gulps.
Interesting…yes. The downside is that of any tying relationship: the coffee company, for example, should be free to pick the best venue to sell its products; 7-Eleven should be similarly free to pick the products it sells. But here each will be, if not forced, then at least “encouraged” to make use of the resources of the other. That’s fine if they’re truly a fit (and presumably the intention is that they will develop in a mutually beneficial way), but there’s no guarantee that it will be so. Think of the many examples of house brands that outgrew their home.
The smart move as investors in start-ups is participation in the development of critical technology in an era of rapid change. By investing early, strategies can be shaped by learning as they grow—good for both.
It’s a great idea as long as it’s understood that being a VC does not always mean winning immediately. The benefit of the knowledge gained from the businesses they will be involved with is immeasurable to their core business, as long as those insights get rolled out effectively.
The rolling out of the knowledge gained will be the challenge for 7-Eleven. Not an easy thing to do once you get over 1,000 units (especially with so many franchisees). But we shall see. Good ideas can spawn a lot of momentum.
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This is SO needed. As someone who has several start-up ventures underway, I just wish one of them was in the retail and food space. If we are at all serious about turning this economy into one of innovation and prosperity, we’ve got to realize that traditional financial institutions are not going to be of much help. It will take initiatives like this along with various crowd-funding vehicles. My admiration and gratitude goes out to the 7-Eleven folks and especially to Raja Doddala and the executives who had the vision.
All that said, their investments still need to be wise ones!
On the simplest level, the venture capital arm of 7-Eleven keeps the company positioned at the leading edge of technology and competitive growth. At the next level, 7-Eleven can evolve into an innovative and resourceful leader in the retail space. Aside from the possible misstep every VC faces, I don’t see the downside.
I like this idea. A lot. I imagine that the executives at 7-Eleven got sick of watching product and service companies hit big payoffs by selling through the retailer and realizing they’re only getting 2%. This isn’t dissimilar to the Kroger investment in dunnhumby, which hasn’t turned out too badly for them.
7-Eleven’s venture business moves should serve them well on several levels. As Joan noted, investing in technology should help keep them on the leading edge. Doing so via venture capital may not be cheap, but as noted several time in previous discussions, internal IT development is expensive and can be myopic.
On the product side it gives 7-Eleven first look at new items/categories. With those that merit investment, it also means that even if the product eventually gets wide distribution, it is likely that 7-Eleven will have it first and as an exclusive for a period of time.
7-Ventures is positive proof that at least one company has come to the realization they don’t know everything. I think this is a good idea. How better to study new ideas and learn before they become standard operating procedure and having to play catch-up? The down side is falling in love with an unproven idea and implementing it before understanding all the ramifications.
Interesting that the path to innovation remains start ups, not internal IT projects, and not coming from the traditional large software players. If you can’t beat them, own them?
In any business, risk is necessary to keep in front of whatever market a company competes in. Blunder and bust happens when investments are poorly planed and executed, or just plain out of touch with the market direction or needs.
Large and or multifaceted retailers are often populated with an executive leadership that is in conflict with itself as a single unit. International corporations have multiple camps at the executive level and within the board of directors as well. When these internal struggles occur, the development of new and much needed investments can slow or be put into action with conditions committed to failure. This is why the companies mentioned are creating their own capital investment groups.
The new struggle in this effort is autonomy. For the most part these “created” private capital venture companies are populated with traditional business people determined to become entrepreneurs in practice. Not an easy task.
7-Ventures is just the latest demonstration that corporate finance believes it is more likely to earn large returns on even risky capital adventures than it could possibly get by selling merchandise.
We’ve seen a similar syndrome played out at places like Sears and many years ago Woolco and EJ Korvette, where the return on the underlying real estate became much greater than the return on retail sales.
Today it seems return on innovation is the attraction, and innovation must come from somewhere outside. Retailers who have accumulated large enough capital troves should naturally look for places to invest it besides more buildings and inventory.
So while I applaud the innovative thinkers at 7-Eleven, I also see this is a somewhat sobering reality check on the retail business. It’s hard to get rich selling Slim Jims and Big Gulps.
Interesting…yes. The downside is that of any tying relationship: the coffee company, for example, should be free to pick the best venue to sell its products; 7-Eleven should be similarly free to pick the products it sells. But here each will be, if not forced, then at least “encouraged” to make use of the resources of the other. That’s fine if they’re truly a fit (and presumably the intention is that they will develop in a mutually beneficial way), but there’s no guarantee that it will be so. Think of the many examples of house brands that outgrew their home.
The smart move as investors in start-ups is participation in the development of critical technology in an era of rapid change. By investing early, strategies can be shaped by learning as they grow—good for both.
It’s a great idea as long as it’s understood that being a VC does not always mean winning immediately. The benefit of the knowledge gained from the businesses they will be involved with is immeasurable to their core business, as long as those insights get rolled out effectively.
The rolling out of the knowledge gained will be the challenge for 7-Eleven. Not an easy thing to do once you get over 1,000 units (especially with so many franchisees). But we shall see. Good ideas can spawn a lot of momentum.