inovo’s six principles · startup collaboration refers to a broad set of approaches by large...

Corporate/Startup CollaborationWhy and How Large Companies Should Build Startup Collaboration Into Their Innovation Systems

Copyright © 2018 The Inovo Group, LLC

November 6, 2018

Outline of the Document

Introduction01.

Importance of startup collaboration02.

Challenges and approaches03.

How Inovo can help04.

Copyright © 2018 The Inovo Group, LLC 2

Introduction

Startup Collaboration Refers to a Broad Set of Approaches by Large

Companies to Gain Win-Win Synergies with Startups

CVC has been around for more than 50 years, in two forms:› Strategic CVC: objective is to increase sales and profits by exploiting synergies with startups (access to new

technologies, markets or resources)

› Financial CVC: objective is to gain investment returns through startup “exits” such as initial public offerings (IPOs) or sales of stakes to third parties

Strategic CVC can be an enabler of startup collaboration but is neither necessary nor sufficient

Startup collaboration is a more recent phenomenon that seeks the same outcome as strategic CVC but in a more robust way

Startup collaboration should not be confused with corporate venture capital (CVC)

CVC can be viewed as a proxy for the level of corporate interest in startup collaboration


Startup Collaboration Should Be Viewed as a Subsystem Within a

Company’s Broader Strategic Innovation System

5Copyright © 2018 The Inovo Group, LLC

Strategic Innovation System ArchitectureA

› Business strategy› Innovation strategy

› Futures› Domains

› Startup scouts› Si Valley outpost› Matchmakers› Passive CVC› Collab. promotionST

AR

TUP

S

› Crowdsourcing› Voice of customer› Field research› Ideation events› Tech scouts

OR

GA

NIC

Opportunity Management

Platform

Sustaining Innovation

Strategic Innovation

Strategic InputsB

Opportunity Sourcing and ManagementC Portfolio ManagementD

DiscoveryE IncubationF AccelerationG

› Existing BU› New BU› External

Modes of Startup Collaboration

Investment/Equity Commercial Relations Co-Creation

Importance of Startup Collaboration

Six Key Trends are Pushing Corporate Interest in Startup Collaboration to

an All-Time High

Increasing cash reserves along with ongoing takeover pressure to utilize the cash productively

02.

Startups increasingly see the benefits of collaborating with corporations05.

Rapidly expanding startup ecosystem around the world01.

Increasing FOMO…fear of missing out…always a factor during a frenzy06.

03. Declining confidence in R&D for innovation outside the core› especially in digital technologies for non-digital product companies

New modes of collaboration are evolving that don’t require large capital investments04.


Corporate participation in deals up from $8B to $37B› 27% to 46% of total VC funding

› Could exceed $50B in 2018

Growth in “% of deals” up from 11% to 16% (2017)› 22% in 2Q 2018

Using CVC as a Proxy, the Level of Corporate Interest in Startup

Collaboration has More than Quadrupled Since 2010 (U.S.)


Corporate Participation in Venture Deals in the U.S.(2010 to 2Q 2018)

Source: Venture Pulse, Q2'18. Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, July 12, 2018

NOTE: The capital invested is the sum of all the round values in which corporate venture capital investors participated, not the amount of corporate venture capital invested. Likewise, the percentage of deals is calculated by taking the number of rounds in which corporate venture firms participated over total deals.

A Corporate/Startup Collaboration Conference in Paris in May 2018 is

Indicative of the Level of Interest


In a 2016 Survey of Large Companies, 64% Reported Startup

Collaboration as Important (41%) or Mission Critical (23%)


23%

41%

Source: The State of Startup/Corporate Collaboration, 2016; joint research study by Imaginatik and MassChallenge; 2016

“Healthcare” at ~25%› Pharma/biotech, devices, services

While the Level of Startup Activity Varies Greatly by Industry…


Number of Closed Deals(2014-2018)

VC Invested, $billion(2014-2018)

Source: Venture Pulse, Q2'18. Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, July 12, 2018

Software sector at ~40%

In the range of 1-3% each› IT hardware

› Consumer goods

› Energy

› Commercial services

› Media

“Other” comprises 20%

…Companies in Sectors Outside Software and Healthcare are Realizing

the Need to Be Active in the Startup Space


Reasons to be Active Examples

Disruption from outside your own sector› renewables vs oil & gas

› biotechnology vs food & ag

Disruption from the “software” sector› ride/car sharing vs automotive

› social vs traditional media

Opportunity to enhance physical products and services via digital technology

› voice recognition

› machine learning

› augmented/virtual reality

Opportunity to transform internal business processes and business models via technology

› additive manufacturing

› enterprise software-as-a-service

› industrial IoT

Source: Inovo Corporate/Startup Collaboration Roundtable; October 2018

Challenges and Approaches

Startups Offer Complementary Strengths to Corporations

Startup Strengths Corporate Weaknesses

Agility in search for optimal product-market fitSlow decision-making; inflexible business processes; complex/shared accountabilities

New technology / intellectual propertyHoles in IP in new growth domains (especially digital tech for non-digital companies)

Willingness to take risks Financial and career risk aversion

Willingness to challenge status quo Fear of cannibalization or obsolescence

Lower downside to market failure Failures are more visible and scrutinized

High risk, high reward incentives Homogenized incentive system


But There are Also Clear Challenges to Collaboration


Finding and selecting the right startups in a complex global landscape01.

Choosing the right collaboration mode for each startup partner02.

Structuring interfaces between a small simple startup structure and a large complex corporate structure

03.

Agreeing on exit objectives and terms with both the startups and VC partners04.

Mismatch in pace of activity and decision-making speed05.

Rationalizing incentive structures when both corporate and startup people are engaged on a shared objective

06.

Lack of trust and failure to operate transparently and exchange information freely07.

The Initial Challenge is Finding the Right Startups in a Complex Global

Landscape…Nine Approaches in Use Today


Startup Scouting (you find them)

Collaboration Promotion

(they find you)

Internal scouts…predominant approach today

External accelerators…sponsor, attend, connect

Silicon Valley outposts…go where they are

Matchmaking platforms…initial screening

Intelligent search tools…general and startup-specific

02.

03.

04.

05.

01.

06. Passive venture capital…let VC partners do the scouting

PR and sponsorship…marketing your collaboration interest and capability

Competitions & prizes…financial incentives

07.

08.

09. Internal accelerators…”no strings attached” space, equipment, guidance

Another Hurdle is Determining the Right Mode(s) of Collaboration for

Every Startup Instance…Ten Primary Modes in Use Today


Investment/Equity

Strategic venture capital (CVC)…using money to get equity and influence02.

Strategic acquisition (M&A)…gain full control03.

Mechanisms for infusing cash…convertible note loan, direct grants01.

Commercial Relations

Startup as customer…gain influence by providing free goods & services05.

Startup as supplier…revenue can be more valuable than capital06.

Information exchange…understand each other; due diligence04.

Technology licensing…in either direction; probably with exclusivity07.

Co-Creation Excubator (inside-out startups)…build-your-own startups09.

Co-development (outside-out startups)…external joint development 10.

Incubator (outside-in startups)…provide space, expertise, labs, etc. 08.

How Inovo Can Help

Five Areas Where Inovo Can Provide Assistance to Corporates With

Startup Collaboration

Innovation System Design-Build: design and build an overall strategic innovation system, including a startup collaboration sub-system

02.

Co-Creation: assist with specific startup collaboration initiatives to co-create strategic growth opportunities

05.

Innovation Strategy: build the case for an overall strategic innovation system, including a startup collaboration sub-system

01.

04. Discovery: scouting and screening to identify compelling startup collaboration opportunities

Domaining: identify areas of opportunity (domains) that narrow the field of potential startups to a manageable number

03.


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