Corporate-Startup Dealmaking — End The Wheelspin With These Rules
No doubt that almost every industry and mainly the automotive industry is undergoing a massive transformation. With this change, the world of entrepreneurship sees more ambitious Startups innovating next to incumbent corporations. And corporations dealing with “Goliath-David” like disruptions of their business models. Time to unbundle what drives failure and success in Corporate-Startup dealmaking. With examples from the automotive industry and other observations.
My very personal Corporate-Startup Dealmaking process started in 2014 when one of Wildstyle Network’s portfolio companies, Compass.To in Brooklyn/NY, was connected to Qualcomm Technologies R&D department. Although the teams got to work quickly, the paperwork and legal process was an unexpected workload, kept entire teams busy and happened too early in the Startups life. However, the outcome was international, led to funding and global partnerships with Chinese Telecom, Vodafone and others.
Startups At The Short End Of A Deal
The process and dealmaking were always to the advantage of the corporate arm. While startups were most of the times undervalued and only got a short end of the deal.
However, we see a shift in this paradigm since the Corporate-Startup dealmaking matures and gets more and more professional with brokers, lawyers and VCs taking over the negotiations and dealmaking.
Coprates Unsexiness Lies In Their Slow Bureaucratic Processes
With long design cycles and bureaucratic processes, corporates can be slower to the table. Startups have speed, agility and higher risk tolerance, but they lack capital, reach and industry expertise of corporates. Accelerators have played an integral role in merging corporates and startups, enabling pilot programs, co-development and more.
Partnerships At Every Level Of An Organization But Not Exclusive
Every organizational level should start by fully understanding which parts of the business are at risk for disruption and prioritize opportunities for your innovation strategy.
From there these identified corporate units will have a tier one partnership with the startup.
Corporate leadership usually doubt that every arm of the company will have an impact of startup partnerships but even HR or legal teams should be accompanying startup partnerships since sooner or later they need to provide their services to the innovation initiative.
Stakeholder Support At Top Level — Daimler Becomes Role Model
Corporate Startup Dealmaking doesn’t start at a project manager’s level. It must be on the top management’s agenda.
Dieter Zetsche from Daimler Mercedes Benz is a role model for the automotive industry. Like no other, Zetsche became the face of Corporate Startup Dealmaking and earned a lot of trust in the digital and startup community with several programs to connect their innovation with startup culture:
- ME Convention in Germany (an SXSW co-op and spin-off )
- hiring long-time SXSW institutions and thought-provoking people like Guy Kawasaki as a spokesperson for innovation
- Startup Autobahn is a platform initiated by Daimler for the collaboration of startups and industrial companies with the goal of identifying innovative technologies and business models.
- Startup Intelligence Center — Daimler Financial Services is bundling numerous activities in the field of Innovation Cooperation Management and building on its success stories to date with car2go, mytaxi, Flixbus, Blacklane and AutoGravity.
- Startup Advance — This doesn’t look like an accelerator nor an incubator, but a co-development partnership, an opportunity to work with Mercedes-Benz Vans and help you turn your transport idea into reality. The partnership leads to granting up to €500,000 to co-develop a prototype with Mercedes Benz Vans. The program does not expect shares in return!
However, this is an example how stakeholder support and “every level support” could flow through a corporation.
Don’t Treat Startups Like A Vendor
Corporations and decision makers should develop some kind of empathy for the startup, understand their challenges, map them out and be patient with their MVPs — long before announcing a Startup or innovation program.
Innovation Hubs, Accelerators And Incubators
The acceleration industry is evolving rapidly, and it is becoming increasingly difficult to precisely define what an accelerator is.
$206,740,005 invested > in 11,300 Startups > by 580 accelerator programs (Gust Report 2016)
Europe is clearly leading the way with over 3,700 accelerator and incubator programs. I’d assume that 35% are driven by corporates.
However, statistics show that there are reasonable doubt of long-term results of corporate accelerators and incubators since there are only
178 exits reported by 77 accelerators in 2016.
Short-Term And Long-Term Perspective
The communication ladder and a program manager’s tasks should focus on getting excitement internally to delivering quick wins and results.
Competitors In Your Program
Corporations should not be afraid of “hugging the competition”. It’s a natural thing for Startups to cooperate with others.
Replace internal programs with an open innovation model
At Daimler, the Innovation Autobahn was also dealing with soluutions and ideas provided to Startups by competitors like Porsche.
According to Daimler’s Rasheq Zarif, dealing with that kind of openness was a challenge for the team and for Daimler’s legal department. It ultimately paid out in the long term.
Strategic Investments In Later Stages
“If you invest, do it in the later stage. Otherwise, it gets messy.”,
Candace Widdoes COO from Plug & Play LLC, a leading VC in Silicon Valley, says, the stress of dealing with an investment is significantly lower and better performing if the Startup is at a later, more mature stage. With more clarity about customers, markets, financial safety, it’s an expensice but safer bet.
Simple Rules Startups Need Before Connecting With Corporations
- Clear vision is needed — a corporation won’t help a startup finding the mission and vision. As a startup, a corporation won’t help you find that.
- No bullshit — a company would detect this in 15 minutes. Startups should not forget that they deal with professionals
- At least one key initiative or program at the startup to tackle the problem,
- Don’t promise too much for the future. Startups tend to promise that they can build everything the corporation wants,
- A business case and some basic (reoccurring) numbers
- S.H.I.T.S. — Startups, please don’t show high interest and then stall
About Steve Nitzschner:
As a 6x serial founder and angel investor in more than a dozen global Startups, I’m collecting my 10+ years of experience to support corporate Startup programs and innovation initiatives globally. My teams at Wildstyle Network help to analyze, concept and execute Corporate-Startup programs at scale.
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