Monday, March 24, 2014

Lesson #173: Corporate Venture Capital Funds, Accelerators & Incubators

With the explosion of corporate-backed venture capital funds, accelerators and incubators in the last couple years, I think the big companies are starting to realize: (i) how important innovation is to staying relevant in their future (watching rapid market share losses at companies like Blackberry, Nokia and Borders, who did not respond quick enough to competitive threats like Apple, Google and Amazon); and (ii) that they do have the right corporate personnel, speed or DNA to actually pull off innovation, like a startup would. 

CORPORATE VENTURE FUNDS

I was curious which corporations were at the forefront of venture capital investing, with formal funds already created and investing in the market.  Here were the corporations I quickly learned about from a few online searches:  Akamai, Amgen, AOL, BASF, Baxter, Bertelsmann, Bloomberg, Blue Cross, BP, Cisco, Citigroup, Coca-Cola, Comcast, Dell, Disney, Dow, Dupont, GE, GM, Google, IBM, Intel, Hearst, Hershey, Hitachi, Johnson & Johnson, Lilly, Lockheed, Merck, Microsoft, Motorola, Natl. Assn. of Realtors, Nike, Panasonic, Pfizer, P&G, Qualcomm, Salesforce, Samsung, SAP, Siemens, Telefonica, Tribune, UPS, Verizon and Walgreens.

What was interesting was the wide range of industries represented, with big corporate investor partners available for most any startup in most any industry.  What was also surprising, was how small this list is, without all other Fortune 500 companies doing the same thing here.  So, kudos to these early movers.

CORPORATE ACCELERATORS & BUSINESS INCUBATORS

Historically, startup accelerators or incubators were run by stand alone organizations like Techstars and Y Combinator, or in connection with venture capital funds, like Highland Capital and Lightbank, or in connection with the entrepreneurial programs at many of the leading business universities, like Stanford and Chicago.  Now, many corporations are entering the mix, with their own startup accelerators and incubators, most typically tied to helping drive innovation and startups in their industry (e.g., Blue Cross targeting healthcare startups). 

Here were the corporations I found from a few online searches:  AOL, Barclays, Blue Cross, Citrix, Coca-Cola, Deutsche Telecom, Disney, GE, Hershey, IBM, Kaplan, Microsoft, Natl. Assn. of Realtors, Nike, P&G, Pearson, Samsung, Siemens, Sprint, Turner/Warner Brothers, Volkswagen and Walgreens.

What was interesting here was whether the corporations built these efforts on their own, or partnered with some third party to run these efforts for them.  Keep your eye on Techstars, who is powering at least six of these corporate accelerators, getting a strong foothold in each of the key industries (e.g., powering Barclays in finance, Disney in entertainment, Kaplan in education, Microsoft in technology, and Sprint in telecommunications).  Very clever moves by David Cohen, Brad Feld and rest of the Techstars team, as startups most likely want programs directly related to their industry, as compared to the more generic programs originally launched by Techstars and most others.

It was also interesting to see that a few of these corporations were also opening accelerators or incubators in multiple locations around the world, to help solve their problems globally, and to better tap into local entrepreneurs by country.  Very smart!!

KEY TAKEAWAYS

In the limited research I have done, it appears that corporations are investing approximately $8BN a year (across 560 companies) in venture capital related efforts (extrapolating out the 3Q2013 data I found).  This is a big pool of money for startups to be tapping into, and most likely, didn't even know existed.  But, in addition to simply writing cash checks, the corporations are also bringing their industry experience and potential "first customer" contracts to many of these startups.  And, what do most venture capital firms like to invest in?  Companies that have achieved proof-of-concept with contracts in hand and big strategic partnerships in place.  So, taking money from corporations, may also open up to the door to other venture capital partners, as well.  Not a bad deal!!

But, practically, if you go down this route, it is best for you to open up a business partnership with these corporations first, so some internal business champion can sing your praises to the venture and innovation teams.  As, opposed to trying to raise capital first, without a business deal in place, which will be a much harder road to plow.

Hopefully, more corporations will jump on the band wagon here, as I think it will really help their own innovation efforts, the odds of success for the benefitting startups and the overall long-term global economy.

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