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Investing in startups is a real driver of innovation for more and more large corporations. Why? To witness new ideas and new corporate models take shape, which help existing products and services evolve. To do so successfully, however, large corporations who do invest need to stay flexible and adapt to the startup’s different stages of development. How should established corporations respond to the fast-moving startups and innovative products disrupting their legacy businesses? Battening down the hatches, slashing prices and relying on a well-known brand name to retain customers isn’t enough.
Instead, corporate organizations should step outside the beaten path and, rather than fearing innovative startups, reach out, work with and even invest in would-be disruptors.
It sounds counter-intuitive to support businesses competing for the same customers, but companies don’t survive without innovating. Investing in startups through corporate venture capital is increasingly essential for large organizations to keep their fingers on the pulse of innovation and learn from their disruptors as they develop.
“Startups are a very attractive place to focus because you're looking at the seeds of future businesses,” says Minas Apelian, Saint-Gobain’s VP of Internal and External Venturing. “You're looking at an environment where there is a rapid succession of ideas. It's a fertile ground to track trends and bring insights back into the company that can allow you to make better strategic decisions.”
From Google to Sesame Street to Kellogg's, just about every established company today now invests in startups. Saint-Gobain invests through its venture arm NOVA, which backs startups in the construction and building sector. Worldwide, corporate venture capital reached $53 billion in 2018, up from just $10 billion in 2013, according to market analyst CB Insights.
However, there are many different approaches to venture capital. Some companies may take a strictly financial route, where a dedicated legal entity invests capital on behalf of a company.
Other firms look for strategic investment in emerging and promising sectors for the company. This could mean backing startups that can optimize business processes or expose the core company to new ideas or businesses models. Others establish true partnerships.
By funding startups and helping them develop, large corporations can build momentum that generates new, innovative, efficient and inspiring ideas that bring in new business. But for this union of opposites to work, “traditional” companies need to learn how to adapt to the rythms and customes of their young partners.
Even if the time it takes to make a decision in large corporations is getting shorter and shorter, it still is too long compared to that of startups, where agility is essential.
This is perhaps why capital investment / venture capital arms of large corporations are accorded great flexibility, and a certain form of independence. Because it allows them to quickly make deals and easier adapt to the breakneck pace of the young upstarts they place their faith in.
However, corporate investors must also consider what they can offer young businesses beyond just cash. And they should learn or re-learn from each other. Indeed, even if many startups turn to large corporations in search of funds, it’s not necessarily indispensable! They are also looking for industry expertise, navigating the intricacies of regulatory authorities and government administrations, and most of all, the breakthroughs of their research and development departments.
Corporate investors should be focused on business sectors that are relevant to them and where they have deep expertise and can bring most value to a business.
Qualcomm Ventures for example, the venture arm of the chip maker, focuses on advanced technology in areas like AI, robotics, or virtual and augmented reality.
Qualcomm Venture serves a doubles function here: its expertise in developing new technology products helps startups navigate tricky early stages and pitfalls, while expanding uptake of such products also creates greater demand for Qualcomm’s core chip business.
However, when looking for promising partnerships, large corporate investors should simultaneously ensure they cast a wide net because technical or everyday disruption could come from any part of the supply chain and investors should be ready to go outside their core businesses.
Like so many industries, the construction and building sector is ripe with diverse opportunities for startups to deliver tech innovation and new efficiencies. That is why at Saint-Gobain, NOVA’s task is finding would-be disruptors within these sectors.
A large corporation financing or holding a minority position in a startup are not the only ways to invest in a startup. Distribution licencing can be ste up, and very specific partnerships can be developed. For example, within Saint-Gobain Distribution Bâtiment France, instant messaging between employees and clients was put into place thanks to a development from a startup.
How many corporate investments will transform traditional businesses or grow into billion-dollar businesses remains to be seen? But in an era when innovation is more vital to survival than ever, forging relationships with creative, innovative and disruptive startups and opening up established companies to new ideas is essential for any large organization.
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