What is the State of Venture Client 2023?
5 key insights from our report to learn how companies benefit strategically from startups through Venture Clienting
Author: Sebastian Schäfer
Editor: Shiwangi Dawadi
Published in Deloitte TechPulse
In today’s fast-paced business landscape, staying ahead of the competition demands more than trend-watching. Apple stands out as a prime example of mastering this art. Just consider the iPhone and its FaceID feature, for instance. It was developed by PrimeSense during its startup phase and has become a cornerstone of the iPhone’s cutting-edge capabilities. Apple’s seamless integration of startup innovation showcases the immense transformative potential of the startup ecosystem.
It’s no secret that startups have been the birthplace of revolutionary ideas, from pioneering web browsers to next-generation databases and AI technologies like Open AI’s Chat GPT. However, for too long, incumbent companies have struggled to fully harness the power of startups. They’ve dabbled in various corporate venturing models, from Corporate Venture Capital to Corporate Accelerators, but have often fallen short. The problem? These models failed to deliver scalable startup technology that truly met their specific business needs.
That’s where Venture Clienting comes in. Coined and developed by Gregor Gimmy in 2014, (founder of 27pilots and since 2023, Partner at Monitor Deloitte) Innovation Manager at BMW at the time, the Venture Client Model offers a game-changing approach to leveraging startup ingenuity. Instead of investing in startup equity, which does not entail the transfer of startup technology, the Venture Client Model revolutionizes the process by directly buying and applying startup technology to solve a real problem. This innovative approach enables the problem owner (aka the Venture Client) to immediately obtain a strategic benefit — driving tangible business impact — through the startup’s product (see figure below).
Venture Clienting is a game-changer for companies aiming to leverage technology strategically. It’s all about actively exploring and evaluating startup technologies that align with company goals and strategies. It helps companies mitigate risk and optimize their innovation efforts. By getting involved with startups early on, companies can influence the direction of their solutions and make sure they align perfectly with their own needs. It’s like having a front-row seat in shaping the future of innovation for your industry. And let’s not forget about the talent. By engaging with startups, companies not only tap into their technology, but they also get a chance to tap into their talent pool. These individuals are passionate, skilled, and entrepreneurial. By inviting these individuals in, companies infuse their own ecosystem with fresh perspectives and expertise that can fuel their internal innovation engine.
By embracing this model and engaging with startups through Venture Clienting, companies unlock the immense potential of startup innovation, driving remarkable business impact and gaining a decisive competitive edge.
However, to fully realize the benefits of Venture Clienting, companies need to address certain challenges. Deloitte’s recent acquisition, 27pilots — the pioneering Venture Client Solutions Provider — recognized this need for comprehensive insights and best practices around Venture Clienting as more and more incumbent companies set up Venture Client Units and deploy Venture Client Processes in one way or another.
Therefore, 27pilots launched the first-ever State of Venture Client Report. It provides an actual-state inventory of the current Venture Clienting landscape. Moreover, 27pilots brings invaluable expertise from over 5+ years of experience in setting up and running Venture Client Units at renowned companies. The State of Venture Client Report serves as an invaluable resource providing deep insights and best practices for both Venture Clients/corporations and startups.
5 key insights from the State of Venture Client Report 2023 and how you could make the most of Venture Clienting at your company:
1) Establishing a Common Language and Standardizing Startup Terminology
One key focus of the report is the awareness and understanding of Venture Clienting within the corporate world and the startup ecosystem. Only 47% of companies are familiar with the term “Venture Client,” and among those, it is rarely used internally. This is not surprising, given that the term was coined by Gregor Gimmy and primarily employed within a corporate context at BMW in 2014, and within academia starting from 2017. Consequently, half of the startups have never come across this term. This lack of awareness and absence of unified terminology present a significant challenge to the widespread adoption and implementation of Venture Clienting. Establishing a common language and understanding is paramount to clarifying the unique relationship between Venture Clients and startups, setting it apart from other forms of corporate venturing.
And what about startup terminology?
According to the State of Venture Client Report 2023, most Venture Clients define startups based on three key attributes: Company age, Venture Capital (VC) funding, and the fact they are founded by entrepreneurs rather than incumbent companies.
A standardized definition of the term “startup” across the company sets the threshold for the Venture Client Unit. It defines specifically what type of company the Venture Client Unit is looking for when aiming to solve strategic problems with unique technology. Moreover, a clear definition of startup sets the baseline for a thorough and comparable assessment of startup solutions.
Therefore, we propose the following startup definition:
A startup is a privately held, non-listed company (= “legal entity”) controlled by its founding entrepreneurs (i.e. persons, not companies) that solves strategically relevant problems with a scalable product based upon proprietary and protected Intellectual Property (IP). Startup companies are generally VC-fundable, VC-funding, however, is not a necessary attribute of a startup (see also Gregor Gimmy’s article What is a startup?).
2) Streamlining the Venture Client Processes
All companies participating in the survey are Venture Clients, as all have purchased from startups on at least one occasion. These companies have embraced a multiple-step process in order to facilitate their purchase. According to our survey, the top 5 process steps commonly executed by Venture Clients are:
● Problem Definition (92%)
● Matching of startups with internal needs (92%)
● Scouting of startups (85%)
● Negotiating contracts with startups (77%)
● Assessing startups (77%)
With that said, there is a need for a deeper structure and a more systematic approach in this process. We recommend creating and naming a process specific for Venture Clienting. The following end-to-end Venture Client Process has been applied and proven at multiple global corporations. Each phase generates specific deliverables to streamline the identification of relevant problems and leads to the adoption of leading startup solutions that solve it best. The five steps are: Discovery of problems and relevant startups, in-depth assessment of identified startups, buying the best startup solution, validating it through a pilot in a real use case and, finally, the adoption of positively piloted technology through any kind of partnership or M&A.
This Venture Client Process accomplishes to solve both product- and process-related problems through leading startups.
3) Aligning Venture Client Strategy
While companies generally recognize the strategic advantages of startups, their primary focus lies on improving their processes (86%) and products (85%) with startups. Only 14% see Venture Clienting as a due diligence vehicle for Mergers & Acquisitions (M&A), indicating that purchasing from startups is currently more operational than driven by the strategic intent to own critical technologies from startups. However, a good Venture Client Model has the potential to leverage purchasing from startups as an integral part of a company’s innovation and inorganic growth strategy both by identifying strategic needs that startups solve best and by validating emerging solutions before acquiring them.
To achieve this, we suggest companies to design a Venture Client strategy aligned with the overall corporate strategy. By defining goals and areas of interest that align with the company’s vision, Venture Clients can effectively identify startups that are well-suited for solving strategically relevant problems. Venture Clients would boost their competitive advantage by aligning problem definitions with internal needs and using Venture Clienting as a startup-competitiveness vehicle. However, many companies lack a dedicated startup strategy. By strategically adopting a problem-centric approach, companies can successfully identify and engage with top startups through the Venture Client Model.
4) Building Venture Client Resources
Access to the right resources is crucial for maximizing the strategic benefit from startups through Venture Clienting. Currently, only a fraction of companies have dedicated Venture Client Units with dedicated resources such as team and budget. Moreover, involvement from other functional departments, such as legal and procurement, is limited. However, to ensure smooth and efficient operations, it’s essential to involve these functional departments as they expedite the process of issuing purchase orders, which is crucial for startups. According to our report, startups often lament the lengthy time frame from lead generation to purchase order. In fact, a staggering 39% of startup participants reported waiting up to 26 weeks. That’s far from ideal.
Our report also highlights the reliance on specialized Venture Client Solutions providers. Our research reveals that a significant majority of companies, around 75%, depend on these providers for Venture Client Solutions and Scouting/Sourcing services. These specialized providers bring their expertise, networks, and proven methodologies to the table, enabling companies to navigate the startup landscape with ease. By leveraging the expertise of these external providers and involving all relevant departments within the organization, companies can create a robust ecosystem that maximizes the effectiveness of their Venture Clienting initiatives.
Therefore, we recommend building a structure whereby the Venture Client Unit acts as an internal service provider to all other business units that need startup technologies to solve pressing problems.
Being close to the business, jointly identifying their strategic problems and solving them with leading startups is crucial. This also entails establishing a strong network and dedicated roles (Venture Client Unit Core Team, Venture Client Program Managers, Venture Associates) at your Venture Client Unit.
By having the right Venture Client resources and creating the correct structures, companies can boost the strategic impact from startups and generate a superior business impact.
5) Benefits of the Venture Client Model for startups and Venture Clients
The Venture Client Model offers benefits for both startups and Venture Clients:
For Venture Clients, it provides an excellent opportunity to tap into a vast pool of over one million startups that emerge each year. With an investment of over $500 billion per year in Venture Capital, these startups offer a wealth of fresh ideas and possibilities which lie beyond the scope of the Venture Client company itself. According to an analysis conducted by 27pilots using CB Insights Corporate Venture Capitalists (CVC) data, CVCs contribute merely 2–3% of the total investment amount. Additionally, only 10% of CVC portfolio startups manage to establish any form of partnership with the parent corporation of the CVC. In contrast, the Venture Client Model stands out as the corporate venturing alternative that offers the actual use of the startup’s product without investing in startups. Contrary to a “financial tool” like CVC, it offers a strategic benefit to companies by effectively testing startup technology before going into partnership or M&A.
For startups, the Venture Client Unit provides a fast track to revenue from reference clients. Or, in other words, a fast-track to product-market-fit. In addition, startups gain hands-on and real-world feedback about their technology, which is invaluable for improving their product, value proposition and business model. Startups value these advantages significantly more than corporate capital investments. A good Venture Client Model protects the intellectual property of startups. The Venture Client Model fosters the strategic use of startup technology at companies while addressing key concerns such as IP protection and problem-centricity.
Venture Clienting as a catalyst for strategic impact through startups
Startups are set to soar in relevance and prominence as the amount of Venture Capital invested in these ventures far exceeds traditional R&D expenditures, even in the face of setbacks caused by COVID-19 and inflation in 2022 and 2023.
In the ever-evolving landscape of business, startups are poised to redefine the rules of the game and reshape entire industries. With Venture Clienting as the catalyst, companies can unlock the immense potential of startup innovation in this fast-paced world. The State of Venture Client Report offers invaluable insights and best practices to guide companies in this transformative journey. Embracing Venture Clienting holds the key to unlocking potential for future success stories at your company.
As an ever-evolving field, there are even more exciting editions of the report on the horizon, highlighting the importance of staying up-to-date with the latest developments in Venture Clienting.
About 27pilots
27pilots is a Deloitte company and the leading provider of Venture Client Solutions. We enable companies to better buy from and acquire startups. 27pilots’ solutions center on building and operating impactful, world-class corporate Venture Client Units and capabilities. Our expertise is based upon extensive experience in setting up and growing 10+ Venture Clients Units at leading corporations.
How to set up Venture Clienting at your company? Learn more here.
