Partner or buy if you can’t DIY
This article summarises a panel discussion at the CMS annual Technology, Media and Communications Conference 2018.
There is currently no shortage of large global corporates setting up incubation and innovation labs worldwide as they search for growth and innovation that is increasingly hard to come by organically.
Whether it is early stage investment or outright takeovers of smaller start-ups, some of the world’s largest corporates have never been more committed to seeking out growth. Some are even calling it a “golden age” for strategic collaboration between large corporates and start-up companies. At the same time there is an enormous wall of money, or “dry power”, from private equity and venture capitalist funds looking to invest in the next future Facebook or Google. It is an exciting time but one also marked by growing concerns of future valuation bubbles and questions about whether corporates and venture capitalists are always the best partners for start-ups at early stage development.
Stacey Seltzer, a partner at Prehype, a venture development firm that works with corporations to co-create start-ups, says investing in future growth has become a matter of survival for larger companies. “We have seen that start-ups are eating the world. The lifespan of a Fortune 500 company on the S&P 500 index has halved in the last 40 to 50 years and now stands at 17.5 years,” he says. “So a company that is not thinking about how to be entrepreneurial and how to reinvent itself and find growth, is clearly missing a trick. What we try and do is work with the leadership of these companies to help them create the architecture within their organisation to achieve those goals.
There are a number of different ways to “architect” a solution for driving growth and innovation by partnering with start-ups. Matthew Price, customer connect program leader for EMEA at Oracle, says for the last 2 years Oracle has been running a programme to encourage specific start-ups, with creative ideas that will run well on Oracle’s cloud infrastructure technology, to become part of innovation conversations it is having with its large global customers.
“There are all manner of startup programmes – incubators, accelerator and venture schemes - out there but we didn’t just want to add to the noise. We wanted to do something different,” he explains. “We don’t take equity in the start-ups and all that we do is very R&D led. We are being curated and specific and our customers have had a very positive reaction but it is not always an easy process – it needs focus and it takes time.”
Many venture capitalists say collaborations with start-ups can be hugely beneficial to both parties, as long as the partnerships are properly structured. This means support for the collaboration has to come from the very top leadership in a corporate and there has to be a system that ensures fresh thinking and speedy decision-making when deciding which start-ups to back. Similarly, entrepreneurs driving the development of start-ups need to ensure they only get into conversations with the right people – who have a budget and decision-making power – at a large corporate.
Prehype’s Mr Seltzer says sometimes the hardest challenge can be ensuring there is the right mindset at the corporate partner that can foster growth at a start-up without trying to unduly influence or restrict its development.
Harry Keen, chief executive and co-founder of Hazy, a secure data sharing system, is a start-up that has forged collaborations with Notion Capital, a venture firm investing in enterprise technology, and Nationwide Bank. He says, for him, the experience has been hugely beneficial as in both entities there are internal advocates incentivised to help us. “There is also this perception that corporates moving slowly is a bad thing but at our stage of the business we have not found that difficult,” he adds. “With Nationwide in particular, it may be three weeks down the line before we get the next meeting in the diary but in that intervening time we may have prototyped something up or thought of something new we can show them.”