FirstMark Capital’s Andrew Oved On Why Corporates Should be Working With Startups
Since their founding in 2008, FirstMark Capital has been a pillar of the New York City startup community. Led by Amish Jani, Rick Heitzmann, Matt Turck, and recently-added partners Catherine Ulrich and Beth Ferreira, the firm has invested in over 100 startups over the years, including standouts like Pinterest, Shopify, Riot Games, Tapad, StubHub, and InVision.
As part of their work, FirstMark operates a platform team tasked with helping their portfolio companies succeed post-investment. The platform team is responsible for a variety of tasks including connecting portfolio companies to knowledge and expertise, and helping them recruit and close top-tier talent. But another large part of FirstMark’s platform involves introducing the companies in its portfolio to potential customers, partners, and acquirers within the Fortune 1000.
We sat down with Andrew Oved, who leads this initiative on the FirstMark Platform team, to discuss how he bridges the gap between corporates and startups, why it’s important for corporates to work with startups (and vice versa), and what the potential pitfalls of these kinds of relationships are.
Can you tell me a little bit about your background?
For the past four and a half years, I’ve been working on FirstMark’s Platform team. It’s a four-person team that is fully dedicated to helping our portfolio companies succeed after we write them a check.
As a platform, we drive impact to our companies in three primary ways: connecting them to customers and partners, helping them identify, recruit, and close talent, and providing them with general expertise, which ranges from 100+ annual events we organize for our portfolio to ad hoc questions around trending topics such as GDPR.
On the corporate front, which is where I spend most of my time, our platform invests a ton of time and effort to actively connect our companies with strategic partners, customers, acquirers, and investors from the Fortune 1000.
We’re constantly asking ourselves: how do we bridge the gap between the Fortune 1000 and early-stage tech startups?
We’re constantly asking ourselves: how do we bridge the gap between the Fortune 1000 and early-stage tech startups? There are a lot of answers to that question. It could be M&A, it could be a customer relationship or a partnership, or it could be connecting them to a corporate venture arm, or it could simply be connecting them with potential users of the product for simple feedback or research purposes
Do corporates see working with startups as a priority?
Yes, many do. That’s a big change from the way things have worked in the past.
I think startups are increasingly becoming part of the corporate playbook.
I think startups are increasingly becoming part of the corporate playbook. We’ve seen tons of large companies transition from having mostly surface-level conversations with startups to taking action right after their initial meeting with startups and getting to pilots quickly or providing really candid, valuable feedback even if they don’t move forward.
Corporates used to take lots of meetings with startups and they wouldn’t lead to much, but most of the corporates we engage with are now following up immediately and moving quickly to deepen these relationships and enter PoCs.
What’s changed? Why are corporates having genuine engagements with startups now?
From the perspective of the corporates, I think it’s become an existential thing.
Startups across industries are gaining tons of momentum, resulting in large corporates losing market-share across the board, and I think this has become really worrisome. They feel like they can’t innovate quickly enough, and they feel the need to work with startups because they don’t have all of the right capabilities — such as top-tier engineering talent — in-house.
Folks at large corporates feel the need to either partner with, acquire, or become a customer of best-in-class technology startups because the company might suffer if they don’t.
On the flip side, I think a lot of corporates also want to work with startups because they see it as a way to build a true competitive advantage.
On the flip side, I think a lot of corporates also want to work with startups because they see it as a way to build a true competitive advantage.
For instance, the CIO of a Fortune 50 company recently told me that he only wants to meet with startups that are Series A and earlier. He believes so much in the competitive advantage to be gained by working with startups, that he is quite literally uninterested in working with companies at the growth stage, because at that point those startups will also be looking to work with his competitors.
This is extreme, of course, but it proves my earlier point. He wants to actively meet companies and adopt new technologies as early as possible in their life cycle, because getting in earlier than anyone else results in a competitive advantage.
What are the pitfalls of startups working with large corporates?
There are a few potential pitfalls.
Chasing large enterprise deals too early can be a mistake for a startup.
First, chasing large enterprise deals too early can be a mistake for a startup. Aaron Harris of Y Combinator recently wrote a great post on this called Big Deals. The basic premise is that a lot of startups will chase these huge enterprise deals thinking it will immediately make them a successful company, but a lot of times that ends up being a losing strategy.
Those contracts are hard to land — particularly given corporates and startups often have, as Aaron states, “mismatched expectations and goals” — and they can take years (yes, multiple years) to actually come to fruition. So you may be spending a lot of time and energy on something with a very low likelihood of success and therefore a low expected value.
Even if you do land the big deal, a huge chunk of your revenue will be tied up in one customer. That’s never a good idea — it’s much better to have a diversified customer base, lest you be fully dependent on a single entity.
So in general, chasing big deals too early or to the exclusion of everything else is pitfall number one.
Another big pitfall is talking to the wrong stakeholders internally.
Another big pitfall is talking to the wrong stakeholders internally. It’s critical to know who the right folks are. There’s a big misconception that the more senior contacts are always better.
The middle layer is often actually the decision-maker. For example, if you’re selling marketing software it might not always make sense to try to sell directly to the CMO. The CMO might be more of a strategy person who’s thinking high-level, whereas the VP of Analytics or Director of E-Commerce might be the one that’s actually going to be feeling the pain that your product is solving.
So don’t just rely upon the top C-Level contacts by default. Do your homework to figure out who the real stakeholders within the organization might be, and try to break in through them.
What are the pitfalls of corporates working with startups?
First, all else being equal, I think it’s beneficial to make sure you’re working with startups that have strong and supportive investors, so that you know they’re not going to go out of business the next day. We’re always very candid with our corporate partners — we’ll tell them exactly where a company is in their funding cycle to help them make the best decision possible about who to work with when.
Second, and really a corollary to the prior point, it’s also critical to make sure that the startup you’re working with can be trusted from a data and security perspective, especially right now given all that’s happening in the public eye.
There are many times where firms will begin conversations with startups and then they’ll go dark for months and months. That makes it very difficult to develop a healthy relationship.
Lastly, and this is probably a separate point, I think developing a reputation for wasting startups’ time is bad. There are many times where firms will begin conversations with startups and then they’ll go dark for months and months. That makes it very difficult to develop a healthy relationship.
We love working with corporates that have a reputation for providing real, valuable feedback and for moving relatively quickly, and we anecdotally have seen that these corporates are ultimately the ones who drive the most value from partnering with startups. So if you’re a forward-leaning corporate that is genuinely interested in exploring all the innovative technologies out there, make meeting and working with startups a serious part of your strategy!
Can you tell us anything you’re reading (books, articles, etc.) that make you better at your job?
I use Accompany every day. It’s an amazing app that syncs up with my emails and CRM to provide me daily updates at both the corporate entity and individual contact level. It also syncs with my calendar to provide me news on people I am speaking with on any given day.
One book I read recently that I thought was fantastic is called The Outsiders. It’s all about capital allocation. The premise is that the best CEOs in history — as determined by shareholder returns — were masters of rational decision-making with regard to capital allocation: understanding how and when to deploy their resources as efficiently as possible. When you consider the decision-making process of a top executive through that lens, things start to make a lot more sense.
As a real-world example, this lens has been very helpful for me to think through which companies outside of the traditional acquirers might be looking to make acquisitions given their relatively high share price (e.g. “unicorns” and “decacorns”, such as WeWork, can utilize valuable stock in addition to cash on their balance sheet, to acquire companies.)
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