Compared to angel investors or VCs, corporations can offer more of the ‘smart’ in ‘smart money’ and longer time horizons, say the authors of the new book Corporate Venturing Dado Van Peteghem and Omar Mohout.
When a startup needs a specific asset or a capital-intensive infrastructure, corporations might even be the only option. For instance, a chemical company can open their R&D infrastructure in order to grant startups access to labs and testing facilities. Another example is the extensive data asset that an insurance company can offer to data analytics-driven InsurTech startups.
By accessing a corporation’s resources, scale, power, and the processes needed to run a proven business model efficiently, a startup can create an “unfair advantage” against its competitors, which the founder of Smartbear and WordPress platform builder WP engine, Jason Cohen, says is one that cannot easily be copied or bought. An unfair advantage is what every startup is looking for, to acquire or cement a leading position. The startup has none of what a corporation can bring to the table. While capital is always welcome, it is all the other support corporations can offer that should smooth the path to success.
Using motherships and speedboats as an analogy, we summarise the most frequently asked questions we’ve encountered during our presentations and workshops on corporate venturing:
1. How many startups should a business ideally work with?
There is no exact number as everything depends on the size and ambitions of the company. As a rule of thumb, there are two things to keep in mind: You should try to ‘chat’ and ‘date’ as much as you can with startups, but only ‘marry’ a few. Let’s say you ‘chat’ with 100 startups, ideally you ‘date’ (setting up a project, proof of concept, test ) with about 20 of them and you actually ‘marry’ (invest, acquire) two of them. That’s a conversion rate of two percent. Be critical!
Secondly. always focus on quality, not on quantity. Make sure you’re scouting work is building a valuable funnel of interesting startups and be critical where to invest time, especially the further you’ve moved in the ‘chat, date, marry’ funnel. It’s our belief that focusing and committing to a smaller number of startups to work with will create maximum value. After all, consider the law of diminishing returns and the Ringelmann effect (people become increasingly less productive as the size of their group increases).
2. What is the best moment to collaborate with a startup?
You need to differentiate between the chat, date and marry stage. During the chat stage, even pitching is a kind of (soft) collaboration. Any type of structural or commercial collaboration will lead you from the chat to the date stage. As for the marry stage, that’s simple: once a startup reaches product/market t and has a proven business model ready to scale. Are there exceptions? Yes, acquires or IP/ technology acquisition can occur prior to product/market.
3. Should you move startups to your offices or house them in a separate location?
Although it’s true that proximity counts, it’s also true that ‘speedboats’ need to keep a safe distance of the ‘mothership’. Nevertheless, to positively impact the mothership culture, frequent and meaningful exchanges are a must. So, the key is to invite both parties to visit each other often instead of merging them in the same location. If you set up a specific location (a ‘home for radical innovation’) to foresee housing for the startups you work with, make sure the location of the startups is not too far away from the company itself to allow a real connection between both worlds.
Do you want to read the rest of our key learnings? Drop your name and e-mail adress down below, get the e-book about our 10 tips and other Corporate Venturing insights for free!Download our e-book with the 10 tips for free!
If you want even more thorough insights, you can buy the Corporate Venturing book by Dado and Omar through these links.Click here to buy the digital copy of Corporate Venturing Click here to buy the paperback of Corporate Venturing
This was an excerpt of their book Corporate Venturing, which Dado and Omar recently wrote together and they’re launching it officially in Ghent on June 25th. You can still get your tickets here, but get them quickly, places are limited!