How startups can get the most out of the corporate innovation boom
This is part of a series of blogs from Sapphire exploring the increasingly active relationship between the startup and the corporate ecosystems, and winning strategies each side can pursue to get the most out of their partnerships.
Startups today can tap into a welcoming landscape of global enterprises who are ever more motivated to collaborate with startup and VC ecosystems. In fact, corporations take up an increasing share of startup deal activity every year. In 2017, corporate investors accounted for 44% of all deal value in VC financings in the U.S., according to the latest NVCA-PitchBook Venture Monitor stats. But, as veterans will know, not all corporate innovation programs are created equal. Terms like “Silicon Safari” and “Technology Petting Zoo” were coined for a reason. There’s tremendous noise in the corporate innovation ecosystem and startups can often end up as unwitting entertainment features on the safari. Startups, with the limited resources they have, must be selective in how they invest time with corporate innovation groups in the Fortune ranks.
At Sapphire, we understand the hallmarks of quality corporate-startup collaboration. We’ve bridged hundreds of targeted connections between startups and enterprises since the inception of our Market Development function, which serves as a bridge between startups and the corporate IT and innovation ecosystems.
Six Questions to Assess Corporate Innovation Programs
In our experience, we’ve identified the following six questions that startups can use to assess the quality of potential partnerships with the corporate innovation community.
1.Does the corporate innovation team have C-level credibility at their company? There are a few signals that can clearly indicate the caliber and political capital of an innovation team within a company. These include reporting lines, frequency of CXO visits to Silicon Valley hubs and labs, and the clarity of goals defined by the group. Bank of America is one example of a corporate giant that has built a hyper-connected Technology Business Development program that is tasked with scouting startups and technologies that the bank can adopt, and has clear engagement at the highest levels within the company. Every year, Bank of America execs get together at the Technology Innovation Summit in Silicon Valley to lead a dialogue together with the startup and VC community.
2. What is their track record for engaging startups productively? The best innovation partners religiously track their startup funnel, the time investment needed for each evaluation and the roster of successful outcomes. They will also be open about sharing with the ecosystem what this track record has been. An effective innovation program will typically require no more than 6–9 months of lead time to determine the viability of collaboration with a startup, will track the volume of startups going through the funnel and the rate of conversion into partnerships, commercial agreements, and other concrete alliances. PepsiCo, another corporate behemoth, has developed the successful “90/90” program within the global HR unit to evaluate startups that can show ROI within a 90-day window — and regularly produces concrete partnerships that address core business needs.
Startups shouldn’t hesitate to ask enterprise innovation teams early on about their historical success rate of absorbing startup innovation. How they answer this question will tell you all about what your journey with them will look like.
3. Do they “get” the disruption in their own industries? The more informed the corporate innovation team already is, the better they’ll often be at helping you in getting to a quick “yes” or “no”. Corporate innovation teams that aren’t yet educated about disruptions and the latest technological developments in their own industries will often also lack the internal credibility it takes to make things happen. Your time as a startup executive is much too valuable and shouldn’t be spent tutoring enterprises on the fundamental tech topics du jour — if they don’t have the ability to help you bring ideas to fruition.
4. How focused are their innovation priorities? As an admittedly rough rule of thumb, less is generally more here. Corporate innovation units that will rattle off an alphabet soup of buzzwords to define the wide expanse of goals — are much less likely to have the focus and clarity of vision needed to move the needle within a giant organization. So, look out for ocean-boiling long lists of innovation priorities. Probe to see whether companies can go one step beyond broad categories (like consumer engagement and future of work) to articulate specific use cases and problem statements. Search the landscape for innovators that are as remarkable for what they *exclude* from their priorities as what they include.
5. Is there actual change underway in their business models? This is a bit harder to figure out but worth investigating. Getting an answer will also tell you if the innovation program is an island or an integrated part of the company’s fabric. A company that is willing to take some risks in how it compensates its salesforce, messages to customers, and structures commercial transactions with technology partners is one that is willing to do what it takes to realize the potential of innovative technologies.
6. Do they give startups the respect they deserve? Startups deserve a ton of respect, and truly impactful corporate innovators will see them in the right light: as partners and not merely as micro-vendors in a traditional supplier/buyer paradigm. At Sapphire’s annual CIO Summit, Sameer Jain, CIO of Barclays, pointed out that startups should not be thought of as vendors with a fixed menu of capabilities, but rather as partners on an innovation journey. He also called on enterprises to be mindful of the significant opportunity costs small startups take in exploring experimental project with enterprises — and to recognize the obligation they have to make these fledgling companies succeed.
Your Scorecard to Success
At Sapphire, we keep a close scorecard to make sure that the corporate innovation programs we invest time with are indeed additive to our portfolio and to our firm overall. Enterprises seeking to design new innovation programs should look to the questions above to carefully design initiatives that are poised to have actual business impact and are broadly attractive to the startup community. Startups would do well to develop their own scorecard to make sure they’re seeing the best of the corporate innovation boom.
Disclosures: The information set forth herein is not intended to constitute investment advice and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Sapphire Ventures. Sapphire Ventures does not solicit or make its services available to the public and none of the funds are currently open to new investors. Past performance is not indicative of future performance.
The portfolio companies referred to above do not necessarily represent all of the investments made or recommended by Sapphire Ventures, and were not selected based on the return on Sapphire Ventures’ investment in them. It should not be assumed that the specific investments identified and discussed herein were or will be profitable. Not all investments made by Sapphire Ventures will be profitable or will equal the performance of the companies identified above. View all of Sapphire Ventures’ investments here.