Start-up-Cooperation “Interaction or integration: Which strategies for start-up-corporate-cooperations and -investments contain high value potential?”
Mr. Marten, you have already consulted E.ON Incubator, the BOSCH start-up platform and German family offices. How open are established corporates for cooperations with start-ups?
Most of the big corporates have either a formal accelerator or incubator program or some “liason officer” for startup cooperation. And it seems that most of the SME companies also want to play a part in the game and participate in third party accelerator programs. So in general it is fair to say that most companies (corporate or privately run) want to work together with startups and are open for cooperation. However, that being said, there is only a handful of German companies that have established a successful way to cooperate with startups. So there is still a lot to learn for both sides to “dance the dance with the gorillas (big companies)”.
Interaction or integration – which strategies for start-up-corporate-cooperations and -investments do you perceive as highly valuable?
That depends on the stage we are talking about. In my experience, it is very valuable to keep the startup (especially the early phase ones) as far from corporate structures as possible. In 95% of the cases it will poison the work and therefore the efficiency and creativity of the startup. It takes time and effort to build up a sturdy structure that can cope (in other words: say no) with the power of a “corporate wish”.
Of course, the end game of a startup is either an IPO or trade sale to a huge corporate to realize the value that has been build up. However, to do so, the startup has to listen to the whole market and build a product that fits to most and not a product that is great for one. Startups are not about building an edge for one company to extend the life of a certain product line. It is about finding new solutions that will change a market and most probably all players within. Usually change is something corporates do not like. So interaction is the best way for cooperation as it enables the corporate to learn and develop. Keep close ties, extend some convertible notes, loans or joint venture proposal to keep the startup close. This way you can always sit in on the table when the founders are ready to sell and the time is right.
For established corporates – which chances and risks does it contain to invest in or to integrate start-ups?
As long as the corporate is not falling into an M&A process in which everybody thinks you can acquire a startup and it will still be a startup after PMI, small investments are a great way to strengthen the ties to a company with great potential, borderless creativity and energized people. You are close to development and get an insight how markets are developing. But don’t interfere too much. Have patience and in time you will have a great company at your side that will be on great terms with you as you have always been there and helped. At that point, and if the company is ready to take the next step, you have a great advantage in comparison to anybody else in the market, then you can think about integration, if you have to.
Your advice for German companies and founders?
To the German startups: don’t fall into despair and jump on every corporate project with some big zeros to it. It is about your idea and how you change the market with your product. Of course is it nice to get a steady income to pay the bills. But only short term. If you lose focus of your product and the cycle (customized -> low touch -> no touch), you will end up in the consulting wheel and be an external agency to the corporate. It is a difficult decision, without any question and a tempting lure.
To German corporates and SMEs: Times are changing. Like the loom has changed the manufacturing, the assembly line production and electronics products, we are right now in the fourth revolution. Usually the people born in this time understand it better as they have no legacy to cope with. In order to be on the winning side, embrace the change, work together with these startups and offer to help them without tying them to your agenda. Have some “good hope fund” that you can put to work without expecting too much and try to be one of the good guys – it will pay out in the end.
Mr. Marten, appreciations for your time, the motivation and a bunch of qualified insights!
About Alexander Marten:
Alexander is a German born and US educated serial founder and business angel. In the past ten years he founded and co-founded seven startup companies in the US and Germany and raised several million USD in venture capital along the way. He founded his first startup in advertisement technology in the US with two fellow students and founded six other ones up to date. These startups are/were active in different areas e.g. advertisement technology, eCommerce, connected cars, big data, etc. These endeavors have resulted in two successful exits and one bad insolvency that conveyed more learnings than the two successful exits.
While loving to be an entrepreneur, in his spare time he advises blue chips like E.ON, BOSCH, Bertelsmann on innovation, business modelling, startup cooperation & investments.
About Sublime Investments:
Sublime Investments is an angel fund investing in early stage high tech startups and advising corporate companies on how to best deal with startups.
(Source: Alexander Marten)
Editorial event tip:
Meet Alexander Marten in Munich. A 1st expert conference around the topic “Start-up Cooperation” is scheduled for the 1st term 2017 in Munich.