In order to remain competitive and keep pace with innovative business practices and technologies, large corporations are investing in, developing partnerships with, and collaborating with startups. Corporate venture capital is one type of these partnerships, but direct investment is only one path to company cooperation.
Businesses of all shapes and sizes are collaborating with startups to improve their own processes, and collaboration is becoming more commonplace. From 2013 to 2019 There was 32% year-on-year growth in corporate venture capital (CVC) investments, but
“Interestingly, financing is not the top reason for start-ups to pursue partnerships, or even among the top three. Their top motive is getting access to the larger partner’s market,”
said Tawanda Sibanda, a partner with Leap by McKinsey.
Building lasting professional relationships with founders and their teams while they focus on projects with other business partners (even if they aren’t in your portfolio yet or aren’t currently looking for funding) helps expand your network and reputation.
Some day, that connection may become a deal or another warm introduction. These collaborations are also huge opportunities for your portcos to build a strong brand. Here are four tips for helping startups and founders navigate a business partnership to build a more collaborative professional network.
1. Focus on supporting your founders’ strategic objectives
Startups and corporations agree that strategic fit is the primary criterion for startups and large corporation collaboration (more important than startup quality, shared mission, or bandwidth). If a startup in your network is interested in collaborating with a larger corporation, try to understand the strategic objective they’re aiming to solve to help guide them toward the right introduction.
Some questions to ask include: Does their offering cut costs or boost margins for the corporation they want to partner with? Can the startup help the larger company gain a strategic presence in a new market or with new technology?
Corporate-startup collaboration can be crucial for ongoing innovation for both teams. Helping founders in your network understand exactly what strategic offering they bring to the table—and why it’s worth a large company taking time to discuss a collaboration—can make all the difference.
A picture-perfect professional pairing
Sphero offers a perfect B2C case study in a small startup adding value to a large company. Sphero identified that its robotics technology would be a valuable addition to Disney’s line of products. The company wanted to work with Disney to find a faster path to market and infuse its products with more character.
The result was a line of Disney robotic toys that started with a replica of the Star Wars droid, BB-8. The droid was a massive hit for the holiday season, and Sphero gained new traction with millions of untapped customers while offering Disney a (well, another) differentiator. Unfortunately, this story didn’t have a happily ever after.
2. Make sure your founders are choosing the right business partners
After the boom of the BB-8 holiday season and a handful of other Disney brand toys, Sphero pulled out of the licensed product market to focus on STEAM (science, technology, engineering, the arts, and math) education. Thankfully, they were equipped to pivot.
Some startups aren’t so lucky. They become laser-focused on landing a big-brand partner that they drop everything to make a corporate collaboration happen. Small teams that fall into this bucket can end up as a consultant for a single, big-time partner and become dependent on them.
Counsel the founders in your network to keep their options open.
In the same way that startups shouldn’t immediately say yes to just any investor, they also shouldn’t leap into just any business partnership. A collaboration between companies should be just that: a collaboration, not a one-sided arrangement.
Where startups can go wrong in choosing a business partner
In his book “Do More Faster: TechStars Lessons to Accelerate Your Startup”, Michael Zeisser, a mentor at Techstars, writes, “I’ve witnessed startups over investing in developing a relationship with a big company. They poured too much time and attention into developing a deal, and although the deal ultimately materialized, its benefit fell far short of expectations.
In discussions with big companies, it is very easy for entrepreneurs to develop ‘happy ears,’ the tendency to hear what one wants to hear, while overlooking the signals that suggest otherwise."
When working with large companies, Zeisser recommends that startups be merciless. They shouldn't make too many concessions and they should be especially wary of signing exclusive partnerships that may impair their potential for long-term growth.
Building relationships with key organizational stakeholders helps founders mitigate risk. Make sure your partners focus on building the same authentic relationship they have with you to ensure they’re placing bets on people who have their best interests at heart.
3. Set, monitor, and regularly check on goals for the partnership
Setting clear expectations is the first step for any successful professional partnership, but revisiting (and refining) those goals is crucial for companies wanting to make the most of a collaborative partnership. Startups are often seeking advice or resources from their partners.
Help your founders set explicit goals for whatever project they’ll be working on:
- Whether it’s building a product,
- Learning new systems or strategies,
- Or simply expanding their network.
Larger companies on the other hand may look to startups as a safer way to innovate on their own products or services. Their goals will likely involve meeting tighter deadlines and branching out into new types of technology, and they’ll want to work with startup teams who’ll align with their company culture.
Founders need to establish clear goals upfront to ensure that they’re manageable and won’t detract from their company’s goals and mission while continually revisiting them to make sure they’re still aligned with their vision for the partnership.
4. Identify and adapt to differences in operations
One enormous difference between a scrappy startup and a global organization that can feel at odds is the speed at which they operate. Startups regularly pivot, make fast decisions, and test things constantly.
Larger companies are built on processes, clearly defined systems, and a certain level of bureaucracy that startups often aren’t ready to adopt in order to reach their goals. This disconnect can create some operational friction for these new business partners.
As part of the expectations and goal-setting process, founders need to determine whether entering into a lengthy (potentially many months long) negotiation with a large company will pull valuable attention away from other pursuits. More often than not, it’s worth it. “The collaboration between corporates and startups, as well as early-stage scaling businesses, has never been so crucial.” Sherry Coutu, entrepreneur and angel investor, shared.
A rise in corporate venture capital and the global growth of collaboration tools (Zoom meetings, project management software, Teams/Slack, etc.) have made these partnerships easier to navigate, despite organizational differences. This ease of access has pointed to predictions claiming that corporations and startups will work in the same physical space, side by side, by 2025.
Being the best VC advisor you can be for your portfolio
As a relationship-focused dealmaker, your role (and the role of your firm) is to nurture your relationships with these business leaders and facilitate their growth and development. As these types of business partnerships move from experimental options to a necessity for successful businesses, it becomes more important to effectively navigate and advise on best practices.
Nurturing these relationships and setting up your founder (and corporate) connections for success will add value to their companies and set your team up with even more resources and more connections for future business partners.