How can a tech startup engage with a Fortune 500 company for mutual benefit?
Fortune 500 corporations are stressed about where they can get growth and how to plug into the innovative and nimble entrepreneurial ecosystem. The chasm between the typical Fortune 500 company and a startup is typically too vast for a standard partnership. So the large company needs to build the equivalent of a standard API to handle the significant number of startups with which any given large company can work.
The most common ways in which the Fortune 500 are working with the startup community at scale is through corporate VC arms, contests, packages of benefits geared to startups, and accelerator programs. I worked with our intern team to look for the Fortune 500 companies making the strongest effort to reach out to the tech startup community. This is not a comprehensive list, but merely an attempt to highlight some of the most notable examples relevant for technology-enabled startups.
1) Corporate Venture Capital
Most VCs (including ours) collect money from independent limited partners in order to form their fund. Some corporations emulate this model by creating their own wholly-owned VC entities, typically with one LP: the corporate balance sheet. The advantage of taking capital from these players is that they become your internal allies at the firm. However, you have to be very careful about such investors restricting your ability to exit to a competitor, as well as the potential that they may create something competitive with your product. Some traditional VCs are highly averse to working with corporate VCs.
According to CB Insights, since the start of 2012, the most active corporate VCs are:
Dell Innovators Credit Fund (not listed) is an unusual take on this model. Also, some corporates are investing directly in stand-alone VC funds as LPs, presumably to enhance their deal sourcing.
2) Contests
The second tactic we’ve seen the Fortune 500 use is contests. This is a cheap way to attract a range of startups to work on problems the company can’t can solve in-house. It’s the same logic as the X Prize Foundation. A $250,000 prize is meaningful for most startups, but it’s far less than what it takes to run a formal R&D team inside a company.
For example, Qualcomm Ventures hosts an international business plan competition called QPrize, which targets mobile technology startups. Regional winners are awarded $100,000 in seed funding, with the overall winner taking home an additional $150,000. Amazon hosts an annual startup challenge for companies using Amazon Web Services (AWS). Attendees “get hands-on experience, insight, tips and tricks from AWS experts on how to architect [their] applications, optimize [their] costs and deploy quickly to the AWS cloud.” Winners receive a $50,000 credit for AWS paid services, another $50,000 in cash, and AWS mentoring and support.
3) Freebies
The most common tactic we’ve seen from large corporations is providing a package of benefits for startups in order to build relationships with early-stage companies. This promotes the company’s core services to new customers, and hopefully locks them in as permanent customers.
For example, HP created a website, HP Startup Central, which provides a slew of startup-specific discounts, promotions, and tools. Dell’s Entrepreneur in Residence (EIR) Program offers “custom software and hardware integration, escalated 24/7 technical support, dedicated customer care agents, and complimentary access to local, pre-sale and enterprise consultants.”
Microsoft BizSpark is a global program that helps software startups by giving them access to a range of Microsoft software at free or discounted prices. In addition, BizSpark offers technical support, business training, and a network of over 2,000 partners to connect members with incubators, investors, advisors, government agencies, and other resources.
The Rackspace Startup Program (not a Fortune 500 company, yet worth a mention) provides free cloud hosting and mentorship through a number of participating incubators, universities, and venture capital firms.
4) Accelerators
The accelerator model has produced some notable companies, and some of the Fortune 500 also want to get in the game. However, I agree with Erin Griffith that there’s a surplus of accelerators, and expect some significant shrinkage in 2013-14.
Nike hosts a program called Nike+ Accelerator which offers 10 partner companies “Support As You Go,” during a 3-month period in which they are each given $20,000. At the end of the program, “each team will present to Nike executives, mentors, angel investors, venture capitalists, and tech industry leaders.” The SAP Startup Focus Program functions as an accelerator for startups using SAP HANA as their application database. SAP helps startups utilize the platform, hosts events focused on SAP technologies and related topics, and showcases results at the end of the program. SAP also has a dedicated fund for startups using HANA.
IBM’s Global Entrepreneur Program includes “no charge software, exclusive local networking and mentorship events” via IBM SmartCamp, “technical enablement support to help you develop your product and get to market faster,” and “visibility as part of the IBM smarter planet agenda.” The Softlayer Catalyst Startup Program (an IBM company) similarly provides hosting and mentorship to referred startups.
General Electric has chosen to focus on the health space in their GE and StartUp Health Academy Entrepreneurship Program. This program “will help early-stage consumer health companies navigate the unique challenges of building successful growth companies.” The companies will have access to GE mentors and “will offer a virtual commercial laboratory” that provides innovative business models and partnership opportunities.
Google provides a directory of resources for startups (both from Google and elsewhere) through their platform Google for Entrepreneurs. They are a major sponsor of several accelerator programs, including Startup Weekend; Global K-Startup, which “aims to help Korean startups go global,” and 10,000 Startups in India.
The Wells Fargo Startup Accelerator offers 6 months equity free and no fee program focused on driving innovation in financial services forward; will invest up to $1M in select start-ups who complete the program.
Coca-Cola Founders is an equity free program supporting founders with or without a start-up idea.
AT&T Aspire Accelerator provides $100,000 investment plus $25,000 program costs to founders working on redefining student outcomes and preparing students for success.
REACH supports real estate tech entrepreneurs in several locations around the world.
Startup Autobahn Daimler Chrysler’s start-up accelerator works with startups to start a joint pilot project with Daimler AG and develop concepts and prototypes.
Startups should certainly research these opportunities, and take advantage of the resources of the large companies. Hopefully the Fortune 500 will buy from, invest in, and perhaps eventually acquire them.
Lastly, I suggest reviewing these links on fundraising:
- Free Government Money for Your Company
- How Tech Startups Can Get Money and Support from the Fortune 500
- Please don’t pitch a venture capitalist without this checklist
- What type of capital should you raise, and from who?
- Fundraising Hacks: How to Raise Capital for your Startup
- How Star Wars will help you raise capital for your company
- Face-to-face meetings are important, but written collateral is mandatory for closing the deal
- The investment committee rejected you; what does that actually mean?
- Is Venture Capital Right for Social Ventures?
[We posted an old version of this on Pandodaily. Thanks to interns Matt Joyce, Rikki Novetsky, and Katherine Boe Heuck for their help researching this.]
[Image Credit: Jimmy_Joe on Flickr]
