Key Insights

  • According to a report released this week by consulting firm McKinsey, the average investment companies make to bring a new venture or business line to breakeven has dropped to $77 million this year, down from $125 million in 2024.
  • Despite the uncertain economic environment tightening overall funding for new ventures, the report found increased interest in AI or data-driven businesses, with 56% of respondents saying their companies plan to build data, analytics, or AI-driven businesses, up from 49% last year.
  • "People still view business building as a relatively affordable way to grow," McKinsey senior partner Jason Bello said in an interview on Monday. "However, we see that the willingness to give businesses a longer runway has declined... Companies expect returns from businesses earlier than they used to, and the average investment required to achieve those returns has also declined."

Deeper Analysis

Although data, analytics, and AI-driven businesses are the preferred type of business most respondents expect to build in the next five years, forecasts vary by industry. Technology, media, and telecommunications are seen as the sectors most wanting to leverage data, followed by financial services, healthcare, and pharmaceuticals. In contrast, in consumer goods and retail, more executives said they expect their companies to prioritize developing consumer-centric products or physical businesses.

There are multiple reasons for the decline in funding companies use to launch new businesses. Bello said part of it is caution about the uncertain macroeconomic environment, but companies are also using technology to make business building easier and more efficient, launching faster without waiting for a perfect "minimum viable product" (MVP).

For CFOs budgeting around such investments, Bello advises finance chiefs to fund these businesses differently from regular operations, which typically run on annual or semi-annual cycles.

"These businesses are most successful with milestone-based funding," he said. "You provide an initial tranche of funding to assess feasibility and test the 'go/no-go' hypothesis. Then you provide funding to design the business, what we call 'blueprinting,' to get it to a stage where it can start implementation. Then you provide funding to reach MVP, and then funding to scale. This is slightly different from how you fund other businesses."

Additionally, Bello emphasized that it is crucial for CFOs to view these businesses as a portfolio. He said that serial venture builders or companies that develop multiple businesses and make tough decisions tend to be more successful.

"One reason they succeed is that they manage it as a portfolio: shutting down businesses and concepts that don't work and shifting capital to those that do. The CFO's key role is to view these businesses with a portfolio lens, just like any other investment in the organization," Bello said.

Finally, he said new businesses often perform better when they receive attention from senior leadership and finance chiefs. This is because successful businesses often need to break rules or deviate from the norm, such as hiring different types of talent or using different marketing approaches. "To succeed, you have to challenge something, and an engaged CFO is critical to the success of these businesses," he said.

The results of McKinsey's sixth annual corporate venture report are based on a survey of more than 700 executives across 66 countries, including 295 C-suite executives, at companies with annual revenues of at least $100 million.