By Alex McCracken & Zachary Schlenker, Silicon Valley Bank
How tech companies can successfully partner with corporates has always been an increasingly interesting topic to follow in recent years. The last 18 months has been no exception, with a dramatic increase in corporates partnering with and investing in tech companies, so here is an update on the trends we’re seeing across the globe.
Corporate Venture Capital (CVC) has increased dramatically and is now an excellent source of capital for many tech companies, primarily at growth and late stage. In 2018 CVC investment in the US reached $71 billion (52%) of a total $135 billion venture capital investment. This means that Corporate VC outgunned Venture Capital Funds for the first time. According to CB Insight’s Corporate Venture Capital report, there were 773 CVCs active in 2018 and the most active CVCs were GV (formerly known as Google Ventures), Salesforce, Intel Capital, Baidu Ventures and Legend Capital (Lenovo).
Europe has also seen an increase in corporates investment driven by the need for Corporates to source innovation externally and the rising number of high growth tech companies which could potentially disrupt corporate revenues.. According to Dealroom, corporates invested €7.5 billion into European companies in 2018, around 28% of total European VC funding. Most active corporate investors in Europe include Naspers, Microsoft, Rakuten, BMW and banks such as BBVA and BNP Paribas.
Corporate mergers and acquisitions continue to be the most popular method (80%+) of exit for technology companies in Europe, with relatively fewer exits coming via IPO in Europe compared to US. According to Tech EU, there were 441 tech exits worth €86bn in Europe in 2018. The most active acquirers of European tech companies in 2018 were Microsoft, Oracle, Google and Apple according to
Citi’s EMEA Technology Monthly Review. Some of the most notable, recent examples include Deliveroo raising $575M from Amazon and others to offer services to new customers, and GoCardless raising $75.5M from Google, Salesforce and others to expand in other countries.
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But how can startups and growth-stage companies make the most of this trend? How can companies source partnerships that will provide them with the numerous benefits corporates can bring, such as distribution and investment?
Here are my top tips for tech companies on how to approach Corporates:
1. Prioritise – decide which specific corporates you want to work with and why
2. Target the right person – build a relationship with an internal champion first who can then influence the budget holder
3. Approach the right way – start initial conversations around a trial for your solution
4. Be clear on objectives – clarify the objectives of both parties from the outset. Consider using this free Memorandum of Understanding as a guideline Partnership MOU Template
5. Be realistic about timings – understanding the timelines and decision-making processes of your corporate partner
6. Foster trust – Don’t make unrealistic promises on timings or capabilities. Demonstrate your ability to deliver and work within the policies the corporate has in place
7. Consider your image – consider how you want to come across to corporates, and tailor your presentation and communication style accordingly.
In summary, Corporates are now a very attractive option for early stage and growth stage tech companies, both as a “value add” source of funding where the corporates provide expertise and distribution and also for partnerships where corporates can pilot and potentially scale a tech solution. As always, Tech companies should complete careful due diligence on Corporates who may be interested in partnering or investing in order to qualify the opportunity and ensure all interests are aligned in the short and longterm.