Strategic Investors & Corporate Innovation Centers

Slack-Off with Christina Bechhold of Empire Angels & Samsung Global Innovation Center

Every other Tuesday we invite an industry expert into our Slack community to host an “Ask Me Anything” conversation about a specific topic. Recently, Christina Bechhold of Empire Angels and Samsung Global Innovation Center stepped in to answer questions about using strategic investors and corporate innovation centers to grow your business.

HIGHLIGHTS

• Strategic investors are looking for something that can benefit them both strategically and financially. Money isn’t the bottom line.
• Corporate innovation centers can be a start-up’s first step inside the door towards bigger partnerships.
• Always evaluate every opportunity against what you are trying to do and what is best for your business to avoid putting “all of your eggs in someone else’s basket.”
• Corporate innovation centers may be able to offer resources and expertise to help you grow and build your company at a rate you couldn’t do otherwise.

For the full transcript, please read below.

Christina Bechhold: I’m Co-Founder and Managing Director of Empire Angels, a member led angel group of young professionals investing in technology startups with a focus on supporting young entrepreneurs. I’m also investor at Samsung’s Global Innovation Center, based in New York, focused on early stage investments in software and services, particularly in mobility and emerging markets.

I’m a regular Contributor for the Wall Street Journal on startups and small business, a columnist for Inc.com, a mentor at The Brandery and Venture for America and a member of VFA’s Rise Committee focused on increasing diversity in entrepreneurship.

It seems like every big company now has an innovation group looking to partner with or invest in startups, and if you can identify the right ones to work with at the right time, they can be fantastic to work with. Let’s kick off the questions!

ON CORPORATE INNOVATION CENTERS

Can you tell us a little bit about the difference between an innovation center at a corporation vs incubators/accelerators like, say Techstars?

Every corporation has a slightly different way that it engages with early stage companies. Innovation Center is, now, a very broad term — it can mean everything from incubating ideas of employees, to running programs for outside entrepreneurs, to just executing on partnerships to making investments. Not many corporates run their own accelerator programs, a la Techstars, with a defined period of time and “classes”of companies. Some corporates will sponsor those kinds of programs, like Qualcomm or R/GA have with Techstars, for example. At Samsung, our Accelerator brings outstanding entrepreneurs in on a rolling basis, funds them, helps them build a team, and supports them through the build and launch of a software or service product in the market, over usually a 12–18 mo period.

As a SaaS we’ve definitely been thinking about partnerships, but we’re worried about platform dependency. How do we avoid putting all our eggs in someone else’s basket?

I was just discussing this with an entrepreneur yesterday! It’s a tough call. You have to weigh what resources executing on a partnership is going to absorb. If it’s going to take up a significant amount of time, require a lot of customization and support, and pull you away from executing on your core product roadmap, it likely isn’t a good fit, especially early in your lifecycle.

How often do companies source acquisitions through their innovation/early investing efforts?

Depends on the company. At the GIC, we don’t make investments with an eye towards acquisition, but that has happened on one occasion. We have an M&A team, and communicate with them regularly on what we’re seeing the market, but for the most part we keep our activities separate.

They are however very active themselves in sourcing.

Here’s an interesting article from last year on the rise of corporate innovation, with some helpful stats and graphics: https://techcrunch.com/2015/10/05/why-businesses-back-innovation-centers/

What constraints does Samsung put on its partners. We plan to do both android and iOS native apps (and Windows). Does Samsung want exclusivity for a certain period?

From an investments perspective, we never put any restraints, like exclusivity, on a portfolio company. Working with Samsung is not tied to an investment. All commercial agreements are negotiated directly with our partners in business units, and we help to facilitate those discussions. It depends on the kind of partnership (which could be as simple as a pilot or PoC to a full global launch) and what’s the best fit for both the company and Samsung.

What are some of the benefits of a corporate partner / working within a corporate innovation center?

For many startups, corporate partners can offer resources, distribution and market insight at a much deeper level and faster timeline than you may be able to execute on your own. They may also be natural customers for your product or service, and innovation groups are often the best way to find a direct line to decision makers within the right group or division to get you a clear evaluation and answer.

One of the biggest frustrations I hear from entrepreneurs is the runaround they get just trying to figure out the right person to talk to in a big company. Innovation centers are, in my opinion, the best entry point for startups.

How do you find out about these innovation centers? Do you know of any resources out there or lists of some of the bigger ones?

I haven’t found a comprehensive list, but generally if you google the name of the company + innovation, you’ll come up with something :slightly_smiling_face: That said, it’s worth keeping in mind that sometimes “innovation” activities can be handled by corporate development teams, too, so there may not always be a dedicated entity or group

How do you determine which innovation center is the right fit for your company? What are some key things to look out for when making the decision to apply or reach out? Depending on the company, there may or not be much online, but the first place to look is the company website; how do they describe their interactions with startups? how clear are they about what they’re looking for? Second would be to try and find someone who has worked with them before. If they’re investing, you should be able to find the portfolio companies on Crunchbase or CBInsights, and I’d highly recommend speaking with the founder of a portfolio company to get the low down on how they are to work with

Do you have any recommendations for companies that have great diversity initiatives? For example, I sold to IBM for my prior business and got HUGE support and the ability to bid on exclusive deals, because I was a certified WOB.

Great question! There are tons, depends on the vertical. At Samsung, particularly at the Global Innovation Center, we’re hugely focused on diversity — it’s one of the key areas for us in both hiring and sponsorships. (In fact, I’m hiring an Investments Associate in New York, if anyone has recommendations!) I’ve been personally impressed by the work of Microsoft on diversity more recently, as well.

I think you’d be hard pressed to find a tech company that isn’t eager to support and invest in more women entrepreneurs right now

ON STRATEGIC INVESTORS

What’s the difference between a strategic investor and a traditional VC investor?

Part of the difference is structural. Traditional VC funds are usually run by general partners who put in some of their own money and then money from institutional investors (pension funds, etc) and try to maximize return. They’re purely financially driven. Strategic investors are usually some balance of financial return (earning their money back + some) and indirect or non-monetary returns for their investors, who are usually a single or more than one corporate entity.

Strategic investors often have leeway to make an investment decision because it can lead to market insights, new product opportunities, etc. for the corporate entity they’re attached to, while financial investors have a fiduciary responsibility to try and make as much money as possible for their investors, and therefore have to only invest in companies that will provide the largest returns

How do you know if you should go the strategic investor route? What’s the benefit to the entrepreneur to work with these strategic investors?

Strategic investors are a good fit if your product, service or technology could be significantly enhanced through the insights and potential partnership provided by the investment. Whether strategic or financial, you should always ask yourself and a potential investor what they provide beyond money. There are lots of places to get a check, but many fewer who can add significant value to your specific business beyond that.

If you’re a consumer goods company selling stylish, eco friendly party supplies, a strategic investment from someone like Whole Foods or P&G would make sense. An investment from BMW probably would not.

Are there any differences in the pitch you would make to a strategic investor vs. a traditional VC?

Most strategic investors are still looking for similar things in an investment as a traditional one — great team, product, market — but they’re also looking for how a company can enhance their own business and they the company’s. You should always walk in with a clear answer to the question — “how could we be most helpful to you?” or “how would you want to work with us?”

That’s a question they have to answer themselves, and you have a compelling response, it makes it that much easier. If they have to spend a lot of time coming up with a clear strategic benefit, that’s not ideal.

Any resources/advice for founders interested in finding a partner — i.e. someone with capital who wants to take an active role in running the company?

It takes time to find the right investors, since regardless of whether they’re day to day, it’s a long term relationship. If you find one or a few that you gel with, I’d bring it up in conversation as you’re discussing potential investment and see if it’s of interest for them.

Can you give an example/ case study of how a start up would come up with a clear strategic benefit for an investor?

Look at the business lines of the investor’s corporate partner, and what they’re doing well and what they could do better. Could your product open up a new market for them? Enhance an existing one? Are there any known challenges the company is facing in a market, product or from a competitor that you could help to mitigate? Are there things they’re just not good at that you are? For example, if you have a marketplace product, and the corporate is on the supply side, could you give them a way to leverage their supply to satisfy new or increasing demand?

A theoretical example of that could be the investments by car OEMs in on demand ride share companies.

Are you aware of any others or are you interested in investing in companies that work with government? It seems that there is a stigma there.

True, there are many investors who won’t look at investments in companies that rely on government clients. It has to do with the long sales cycle and often uncertain budget/funding capacity.

If your business doesn’t solely rely on government though, investors will often look at it.

The one investor that might still look at pure government companies might be In-Q-Tel, a not-for-profit that looks for investments for government clients, particularly intelligence services.

ON INVESTORS

I’d love to get Christina’s opinion on how investors value a business plan, marketing roadmap and business model. Or is the focus on the team, the product and market opportunity and however that is expressed (as long as we express it well) is fine.

It depends on stage. If you’re pre-seed or seed, they’re not that critical; they’re all going to shift and change as you find product market fit, anyway.

If you’re further along, Series A or B, then investors are going to look at those things because they want to see what set of hypothesis you’re looking to test about your customer and market

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Every angel is different, but personally I first look for a great founder with whom I get along well and want to work with. Second would be broader team and product, then market opportunity.