Start-up Partnership Models – Finding the Right One for You
There are many different start-up partnership models that corporates can take to identify and partner with start-ups. However, there is certainly no one-size-fits-all approach and most organisations will trial several different methods to find the one that works best for them.
It is important to keep in mind that these models are often just the starting point of the relationship, and as we’ve covered previously, there are lots of things that start-ups and corporates can do to give the partnership the best chance of success.
In this article we’ll explore some of the most popular start-up partnership models, outlining the pros and cons of each.
Start-up Partnership Models
The simplest method for identifying potential start-up partnerships is proactively scouting for relevant external companies. This can either be done via an internal scouting or partnerships team or working in conjunction with an external agency.
Scouting is a low-cost approach to start with, but it can be difficult to achieve significant results without a clear vision of the types of start-ups you’re looking for, and a strong network to help you surface the best companies.
The hackathon is a frequently used buzzword within corporations and innovation hubs. This approach enables the collaboration of people from multiple backgrounds with various skill sets, all with the same objective of solving a problem facing a corporation. For example, this could be from creating a new mobile application, the implementation of Virtual Reality or “hacking” away at old processes and ways of working.
This approach is typically used by internal teams, but there is tremendous value to be had by opening participation to third parties who can offer a fresh perspective to solving business problems or developing innovative new propositions.
Companies such as BeMyApp can help facilitate connections to a broader ecosystem of start-ups and developers, to help include a wide spectrum of skills and experience in your hackathon.
Challenge / Prize
In the “challenge” model, companies or organisations set out a specific challenge with well-defined parameters and open it up to the public to find the solutions, with a predetermined prize for the best submissions. As there is very little financial outlay for the corporation if the requirements of the challenge are not met, this is a very low risk approach for corporates.
Corporate challenges have been employed across various industries and can often provide innovative solutions to a specific issue which it has been impossible to solve internally. A challenge prize seeks third party guidance and direction, in some cases, providing monetary rewards and exposure/recommendations for the successful start-up.
There are numerous examples of companies that have used the “challenge” model, most famously perhaps is Netflix who offered $1m to the team that most improved their recommendation engine, or more recently, the challenge from HENRi @Nestle “tackling action to replace plastic straws”.
The corporate accelerator / incubator approach has become increasingly common over the past few years. In this model, start-ups are typically offered a place on a “fast-track” program, with a view to accelerating the start-up’s development. Many corporations differ in what the “fast track” program entails, but it could include coaching, investor networking, mentoring and the use of office space. A stumbling block for start-ups with this approach can be time constraints with the length of the program and in some cases exchanging a % of ownership for equity.
Some established corporate accelerators include:
- The UniLever Foundry
- Barclays Accelerator, powered by Techstars
- Wayra, by Telefonica
Corporate Venture Capital
Corporate venturing gives companies a mechanism to invest funds directly into external start-ups. In this model it is common for investors to look for later stage start-ups, which have demonstrated viability and generally have an established product with a strong market presence.
These investments can be based purely on expected financial gain, or more strategic in nature, such as interest in a particular technology. A start-up can benefit by leveraging the corporates brand, network of connections and ecosystem of developed products.
Two of the most active corporate venture funds are Intel Capital and Google Ventures. iZettle, a business focusing on mobile payments for small businesses, benefited from investment from Intel Capital. Prior to this investment, the Stockholm-based group was a loss-making company, however went on to be acquired by Paypal for over £1bn.
Likewise, another well-known beneficiary of corporate venture fund is Uber. Google Ventures placed a $258 million bet on Uber in 2013, an investment that is worth over twenty times that today.
Creating the best start-up environment
Finding the most suitable partnership model for your organisation will depend on your available resources, risk appetite and objectives. And with most of these it is possible to start small, test the waters and ramp up your efforts once you start to see success.
Many companies rush into elaborate programs with much fanfare, only to shut them down soon after when the results don’t materialise.
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