How to avoid turning corporate venturing into a petting zoo
Max Winograd, director of open innovation and venture investments at Avery Dennison, on why disruption is here to stay.
It’s the time of year when the enduring Dogs Trust ad campaign reminds us that “a dog is for life, not just for Christmas”. If you’ll forgive the slightly corny segue, that same long-term outlook is vital when it comes to large organisations operating corporate venturing arms to invest in startups.
Corporates across all industries are going down this route, looking for the strategic investments that will safeguard themselves against disruption and accelerate their own innovation. But too many are ill-equipped to move at startup pace, are overly concerned with their own benefit, and lack the long-term vision and commitment necessary to create meaningful relationships. They end up running startup ‘petting zoos’ that are heavy on PR buzz but light on genuine impact.
How does it go so wrong?
Perhaps the biggest mistake a corporate can make with a startup it has invested in is to become a time sink for the founder and their team. Corporate venturing teams often fail to recognise – or are unable to adapt to – the fact that startups work in different ways to larger organisations, and at a significantly faster pace. They try to map their own organisations’ processes to the startup, miring them in layers of bureaucracy that cause innovation to stagnate.
This is often characterised by “death by pilot”. Startups are often sold on corporate investment by the idea that they will be able to accelerate ideas to proof-of-concept much quicker than they could alone. But it’s in corporate DNA to move slowly with 90 per cent certainty, rather than the startup preference of quickly with 60 or 70 per cent certainty and the agility to course-correct. This leads to constantly shifting goalposts, withheld resources, and frustration on both sides.
Tied into all of this is the fact that corporates are typically overly concerned with what they will get out of an investment, at the expense of creating positive impact for the startup. This often manifests in demands for an exclusive commercial relationship, significantly capping the startup’s upside. Corporates have a responsibility to instead ensure that startups they back are able to thrive in the wider market – if they want them to themselves, they should go for outright acquisition.
The other major issue stems from the short four-to-five-year tenure of the typical corporate venturing team before personnel changes are made or an economic downswing spooks senior leadership and sparks retrenchment. This short-termism often creates a sense that the startup relationships are disposable, when what is needed is an unambiguously long-term commitment from the board level down.
There is another way
Fortunately, these issues can all be alleviated with relatively straightforward strategic adjustments. Corporates can address the culture clash that risks turning them into a time sink and innovation roadblock by ensuring that venturing teams have the right diversity. Both experience of the startup world and technical ability should be represented alongside the corporate’s own culture. It’s also important for the venture team to have a degree of autonomy from the wider business, giving them space to build their own culture and bridge the gap to startups. This should ensure they can get up to startup pace and understand what normal operating procedure is, especially when it comes to knowing when more certainty is needed and when it’s right to push ahead with an idea.
Next, corporate venturing teams must be completely transparent with startups about their processes and expectations – and then filter their pipeline accordingly. This might mean passing on opportunities they would ideally have gone ahead with, because the startups aren’t able to work to their timelines or other conditions (which should be realistic, bearing in mind the startup way of working). But the opportunities that make it through this vetting will be much more likely to work out well.
With transparency about expectations comes a responsibility to be clear about what exactly the promise to startups is, and how it will be delivered in each case. The corporate-startup relationship has to be reciprocal, with genuine value delivered by both sides for each other, which requires the corporate to be just as accountable for what it will bring to the table as the startup is.
It’s also important that corporate venturing teams realise that saying “No” should not close off a relationship forever. If a startup isn’t the right fit right now, corporates should suggest alternative investors or collaborators where possible, and make it clear that they remain open to a future working relationship. If nothing else, demonstrating a willingness to point startups towards others who can help them when you can’t, and keeping the door open for the future, will cultivate a reputation as that rare corporate that genuinely cares about growing the ecosystem, making you more attractive to other startups.
Enabling real change
These adjustments should enable corporates to avoid falling into the petting zoo trap, empowering them instead to cultivate meaningful relationships with startups that lead to the development, adoption, and rollout of genuine innovation, both within their own business and for their customers. And after all, that’s the point of all this. Corporates can’t afford their investment in and engagement with startups to remain a vanity project. Disruption is here, and it’s not just for Christmas. Corporate venturing shouldn’t be, either.