However, when considering what types of collaborations can be included under the umbrella of corporate venturing (CV), its definition is in part restrictive, noting that these partnerships strictly concern an exchange or acquisition of equity between a corporate and a start-up under joint venture agreements.
- Research shows there are several forms of startup-corporate cooperation based on the level of commitment.
- It is possible to combine different forms simultaneously and partnerships can grow gradually in the level of commitment.
- For startups, the benefits of CV lies mostly in name recognition and access to funding and large-scale support.
- Corporates, however, should consider CV as a necessity not a novelty. Notably, working together with startups is the gateway to successful innovation.
- Overall, it is important for both parties to choose their possible partner based upon a clear vision and mission.
- A case study including our partners Concept Booth at Creative Whereabout showcases this theory in practice, and highlights that these collaborations aren’t one-way streets.
Corporate venturing is commonly defined within a financial framework as the practice of established companies directly investing corporate funds into external, innovative startup firms, mostly through joint venture agreements and acquisition of equity stakes (Corporate Financing Institute).
At the most basic level, corporates often set up specific funds to invest in startups and growth companies, similar to how a traditional venture capital firm would approach these investments. Alternatively, they may avoid this commitment and instead opt to invest indirectly through other venture capital funds or trusts. (Startups.co.uk). Within this framework, the main purpose for the larger firm is to make a return on its investment when the company is sold or floats on a stock exchange.
However, increasingly, the war on talent and the need for disruptive innovation to keep established firms afloat has urged corporates to consider partnerships with SMEs and startups without this traditional structure.
Broadening the definition
Antwerp Management School is conducting research, sponsored by PwC and PwC legal, to analyse these types of collaborations in Belgium across a time-frame of three years. So far, approximately 1200 companies have taken part in the survey. The white paper it published, titled The Art of Corporate Venturing: The WHY and HOW of corporate-start-up co-operations, included figures highlighting that CV is growing in popularity. In the last three years, one in five established companies showed interest in working with a startup, and last year, this figure increased to one in four. In the future, one in three established firms is considering working with a startup.
Throughout the first phase of the study, research found that established firms often looked at CV as a merger and acquisition type of collaboration. One of the goals of the study was to highlight that within this arena, there are several cooperation forms, aside from this basic structure. After the first round of questioning, which involved an analysis of 600 companies and 90 interviews with companies, the research identified 20 different forms of CV.
The benefits of corporate venturing for startups
As seen on the diagram, the different forms of venturing, many of which can be combined simultaneously, are ranked according to the degree of commitment. The second part of the research, which will be published this summer, will investigate to what extent certain combinations are more successful than others.
According to Antwerp Management School’s research, both small and large companies are entering this collaborative arena to obtain the objectives relevant to their businesses, whether it is the corporate’s motivation to protect their market position, the startup’s goal to boost the launch of their product, or the mutual need to accelerate innovation and growth and to transform their businesses.
As startups’ company culture embraces failure as a step towards success, they are in a better place to experiment with innovative ideas. Especially as most technological thresholds have become obsolete following the recent digital revolution, launching a start-up has become more viable than ever. However, as the number of newly created startups is growing in parallel with competition within this arena, the ability to expand startups to a scale-up size has become increasingly difficult (Bloovi).
Both small and large companies are entering this collaborative arena to obtain the objectives relevant to their businesses.
Alongside securing the necessary resources – think securing capital, finding the right investors, developing marketing devices – this is where startups often fail. Here, smaller firms often look at approaching established firms and investors to start a partnership through which they can mutually support each other and innovate together.
Antwerp Management’s study found that there are five motives for startups to collaborate with a corporate: to find support and/or advice, to gain access to new markets or to increase their sales, the access to financial resources which comes with it, acquiring specialised assets or infrastructure and finally improving credibility and brand awareness by being attached to a trusted or recognisable company within the industry.
Because they were built from the ground-up and are less tied down by rules and regulations that come from higher up, startups are more agile when it comes to exploring their innovative capacity and are more comfortable with change, failure and adapting accordingly. However, established firms are more set in their ways within company walls, and are struggling to keep up with the competitive rate at which markets are evolving.
Corporate’s pathway to disruptive innovation
In the same way that startups in part rely on corporates and their brand identity to successfully launch their product and bring it to a wider market, established companies are increasingly depending on startups to survive in a market of ever-growing competitiveness.
They are at times so consumed by the inner workings and administrative and managerial issues of their companies, that they are unable to accelerate innovation. Most corporates have already understood the impact of business’ main mantra, ‘Innovate or Evaporate’. However, in the current innovation economy, this has been taken a step further: now a corporate must ‘Partner or Perish’ (Bloovi) and realise that often, the best partners are found outwith company walls.
The younger generation linked to this innovation-economy has made a pragmatic shift away from large, ‘stuffy’ corporations with a certain corporate structure. Larger firms now have to learn that if they want to innovate and work with creative talent, they will have to collaborate with them, instead of hiring them within their company’s own structures.
Here, Antwerp Management School’s study puts an emphasis on figuring out, either as a startup or corporate, why exactly you want to collaborate and what the motives are. In the research, Omar Mohout, Entrepreneurship Fellow at Sirris, states that in order to maximise the chances of success, startups and corporates should consider the cooperation on the basis of the goals and motivations for each party. They must also consider the possible restrictions (e.g. cooperation with competitors of the parent company), and develop a mutual understanding of each other’s agenda. Furthermore, they should avoid the obligation to follow the procedural guidelines of the parent company. Finally, it is vital to reach an agreement on the degree of autonomy and freedom of action.
Case Study: Alternative collaborations
One of our partner locations, Creative Whereabouts in Antwerp, is the business hub where one unique concept within this framework is brewing– the creation of an innovative way to play poker. This project, the ‘Days of Poker’ app, is an example of amutually beneficial partnership where both the startups and corporate are each other’s missing link, and where they were able to find the best match for their businesses based upon the aforementioned considerations.
Notably, this project was solely possible because of the corporate venturing connected to it. Under the umbrella of the newly created Optoria Entertainment, it brought together marketing-cum-IT development agency, Concept Booth, one of the largest gaming firms in Belgium, Ardent, and a group of eight investors.
From a simple partnership to a full-blown collaboration
The ‘Days of Poker’ project from Optoria is an example of a cooperation which grew from a simple partnership within a financial framework to much more. The seed for the idea was planted at Creative Whereabouts’ location, years before there was any mention of this concept and Concept Booth, which is run by Kristof Coenen and Kristof De Deken. At the time, another company (co-founded by Kristof De Deken) ran its business here by day. By sundown, it hosted a pokerclub, a hobby-project that brought together people to play for small amounts and that was more for fun than for money.
However, the small group soon grew to become the largest amateur pokerclub in Belgium, and now consists of over 10.000 individual players. Through his role in the club, Kristof De Deken was always aware of what was going on within the gambling industry, and realised at one point that there was some money to be made if they found an innovative way in. Four years ago, that opening presented itself through a game that was growing in popularity within their community. The pokerclub became a test group of sorts for the team to analyse how people wanted to play this game, and they created an idea for an app based on their recommendations.
Concept Booth chose to outsource the development of the app’s prototype to an IT department abroad. At this stage, they fully financed the development of the prototype, a simple version of the game that could, at this point, only be played for free. This partnership combined Concept Booth’s ideas and know-how of the poker world with the IT department’s knowledge of turning these ideas into a reality.
However, great ideas alone aren’t the be-all and end-all, and as mentioned before, this is where startups often fail.
Necessary resources for corporate venturing?
For Optoria Entertainment, one of the most important elements to consider before launching the app was securing the relevant licensing. In Belgium, businesses can’t buy gaming licences, because they are attached to live casinos, that all require and hold A-licences.
Aside from these, there are B-licences, for smaller playing halls. Finally, and more recently, B-plus licences were added to this list, which allow you to create online games or apps for gambling, but these too are connected to larger casinos. As Creative Whereabouts doesn’t operate under an A-licence, it struggled to secure the B-type. But, through its poker group, it did have contacts within this industry, mainly within Ardent group, the firm behind Circus.be and several casinos in Spa en Namen, and which was already aware of what Concept Booth could do and what its strengths were.
Kristof Coenen from Concept Booth explains how this partnership started out and how it grew into something larger. He recalls: “We made contacts within the Ardent because larger groups like theirs often work with amateur clubs like ours to promote their own businesses, for example we hosted their club qualifiers before their larger events in the casino. They gave us tickets to their casinos to distribute at Creative Whereabouts’ events, with which people could then play in these casinos, and this is how the first partnership started.”
Great ideas alone aren’t the be-all and end-all, and forgetting this is where startups often fail.
This soon became a profitable cooperation for both sides. Concept Booth sporadically worked as a consultancy agent for the firm, and helped introduce live poker tournaments into their casinos by co-developing a software program for the group, proving that his firm’s skillset went beyond what had been showcased before.
At this point, Concept Booth had created the prototype for its app, and had contacts within the relevant group for licensing, but had to tactically approach enquiring about this. Coenen explains: ”We kind of questioned them about how we could launch an app, then asked about licences, and soon we found out they had one lying around unused, and it kind of snowballed from there.”
Complementing your partner
This is one way for collaborations to blossom between startups and established firms: by identifying each other’s weaknesses and benefitting from each other’s strengths to further build on these. Coenen highlights that, for them as a startup, there were many benefits: “For us, the advantages of working with them exist on many levels. Firstly, there is their name recognition. For now, we have been promoting the app within our own networks, but once the big promotion from their part is concluded, the app will suddenly be on the radar of hundreds of thousands of users. Their marketing power is really impressive, if they press one button, the game gets sent to 400.000 players.”
In comparison with startups, who often have to encourage people to discover their product, larger companies boast an established customer service, back-office, and the marketing power that goes with it. Coenen clarifies: “ Because of their position, their back-office and customer service is well developed, which means the payments are automatically taken care of. Coenen further explains that, aside from the practical aspects, their support also offers them some quality reassurance: “For us, their approval said a lot about our product, because they wouldn’t send it to their clients if they didn’t think it was on the road to perfection. And their experience with further perfecting products helped us a lot in the development stage too.”
Furthermore, established firms have already built the relevant networks and client-base and acquired the tools necessary to successfully launch a project. Coenen highlights that Ardent can do this nationally and across borders: “Right now we are focusing on the national market, however we’d like to expand to international markets. But if no one knows this app, then no one will use it. In addition, the laws are different in every country. Ardent has international know-how on these topics and they are also able to work these foreign markets, so we can profit from this knowledge too. They are active in several countries, and are working on prospects in China. If you can get your app on this market, then your audience can grow from a thousand players to a million.”
As Coenen mentions, they were ‘able to fill the gap for Ardent when it came to this innovation, as they had a B-licence for creating an app or online game lying in their drawer, but they didn’t do anything with it.’ Even unused, this licence costs money, so by collaborating with Concept Booth, they were able to monetise this licence without having to invest too much time or extra funding.
Their marketing power is really impressive, if they press one button, the game gets sent to 400.000 players.
Coenen explains: “They probably are thinking: ‘Let the new guys on the block do something with this, if it doesn’t work out, we don’t lose out on anything, but if it does, it is an easy way to make money.’ They also already knew my colleague Kristof, and they know that once he is involved in a project he will have endless ideas, another gaming app, a gaming studio etc. So, in a way, they can follow us from the first row without all too many costs or effort.”
Centralisation vs. devolution
However, this mentality is often also mirrored in the overall management by corporations of these projects. Corporate venturing isn’t always a straight forward process. Coenen puts this down to the large gap and the differences between the company cultures. He adds: “These collaborations aren’t always as evident simply because you are dealing with a large corporate as a startup. Starting out was a very long process, and that’s when you start to notice you are working with a corporation that is working on a lot of different projects. It is not that your project is at the bottom of their pile of work, you’re not even in it. So you really have to fight for your spot and to become a priority.”
Whereas all aspects of the project from Concept Booth’s end were dealt with by Coenen and his partners, Ardent has separate departments for every step of the process, from dealing with legal frameworks to creating marketing tactics, and at times they were dealing with people who weren’t 100% knowledgeable of what was going on. Coenen says the time frame was extended too: “Between signing the letter of intent and the meeting with the investors at our lawyers to finalise the agreement, a whole year went by.”
He explains that the difference in the scale of business opportunities between both parties became evident here: “For the larger companies, they are busy with other projects, whereas we often found ourselves waiting, because this project is our main priority. If the startup’s project fails or soars, it doesn’t make that much of a difference for a corporate, they won’t really feel it. But for us, it is important that it really succeeds, so a larger part of the responsibility here lies with us. Now it has been launched (the app was launched at the end of December 2019), and even though the hardest part is done, we still have to make sure it grows further, and we are the ones who will mainly follow up on this.”
Perfect partnership for corporate venturing?
Coenen states that, despite this initial struggle, he would definitely consider working with an established company again. He explains: “For us personally, we would probably opt to work with Ardent again because now we have already set up this partnership, so many of our contracts can be almost entirely copied, and now we know what aspects we can do ourselves, it will be more effective.”
In the case of Optoria Entertainment’s Days of Poker project and the collaboration with Ardent, the majority of the partnership ran smoothly. But, this is not always the case. It is clear that setting up a successful collaboration is easier said than done. For this type of partnership to prosper, you need to partner with the right business, and as mentioned before, to define why you want to enter this cooperation.
If you are interested in discovering more about Concept Booth’s project, book your desk at Creative Whereabouts now via the Workero platform and meet the people behind this concept.
In the next part of our ‘Case Study: Insights into Corporate Venturing for Startups’, we speak with innovation expert John van der Lindento discover how startups and corporates should approach these collaborations and what to consider when looking for your partner.