Startups and Corporates: How Goliaths are shaking hands with Davids

Big corporates have realised the need to engage with start-ups for various reasons:

• Access to new technologies to feed into R&D pipeline
• Access to solutions for improving operations and product differentiation
• Find new B2B customers and catch them young.
• Talent attraction and retention
• Attractive investment ROIs
• ‘Speed To Innovation’ 

Engaging with start-ups has its own challenges. The expectations of startups and their timelines are vastly different from those of established companies. The traditional partnership or vendor-supplier models do not fit here. Following are the emerging engagement models:

Incubator: This model is used by corporates to engage with early stage start-ups. The start-ups have an idea, skillset to execute and a working prototype in some cases. Companies incubate the start-ups if the ideas are relevant to the business and provide funds, resources and mentors (both business and technical). The engagement duration is long, about 2-4 years. The successful start-up is either acquired or the start-up team is acqui-hired. This model is more popular with investor communities and industry bodies.

Accelerator: This model is used to engage with later stage start-ups. These start-ups would have a working product/solution and a customer base. An accelerator is a 5-6 months structured program in which start-ups are given space, facilities (equipment, internet, food etc..), funding, mentorship and access to customers. Towards the end of the time-bound program, the corporate has to select the startups and decide on how to leverage/assimilate the outcome. If start-ups adapt their product to corporate's needs (also called pivoting), then they are invested in. A graduation day marks the end of the program and the start-ups are showcased in front of the industry and investor community.  

Partnerships: The above models are structured programs. However, corporates can choose to go for a flexible and open model. The start-up community is regularly scanned in areas relevant to the company. Relevant start-ups are reached out to for further discussions and partnership. In this model, compared to the earlier two models, there is limited opportunity to mould the start-ups to suit corporate needs. The model works fine if the start-ups are potential product/service providers to the corporate.

Strategic Investments: Some start-ups are matured, of high value with high potential to impact the corporate's industry. These start-ups do not need the incubation or acceleration. These are companies of future. Corporates make large investment and pick up equity in them so to enjoy high rate of return and also to remain plugged-in in their development and exercise influence. Also, it lends prestige and visibility as corporates are seen as technology leaders who are thinking ahead.

The start-up ecosystem is highly dynamic and belies the standards/norms that big corporates are used to. Engaging start-ups demands resources and time of the organisation. With start-up ecosystem expanding by leaps and bounds, the huge money pouring in and skyrocketing valuations, no corporate can ignore it. The corporates who have been running structured engagements are open to sharing their experience and resources. The newcomes need to leverage the same while formulating their approach.