HBH Investor Talks:
Minimum viable advice: working with corporate investors
Most things with high reward require either hard work or a risky bet. So does working with corporations. But with hard work, startups can lower the risk and increase the changes of a big win-win for both sides. Together with Arctic Startup, we put together a three-step-guide for your startup’s path towards a beautiful cooperation with corporate investors.
Step 1: What Do You Need To Be Aware Of When Working With CVCs
Understand their needs: If a corporation has a Corporate Venture arm (CVC), there is a reason for it. Thinking about the reason makes you aware of how your relationship will pan out. Bear in mind, that corporations are not necessarily after unicorns, but they need innovators to stay ahead of game.
Finding innovation for existing business: Great path for an exit for you, but the downside might be that the market growth will be limited as the CVC competitors might be not willing to work with you.
Ask them about how competitors would see your partnership, how much they want to be involved, do they want to buy companies out or to do acquihires? It might be that they are looking for innovation outside of their core business too, for instance in HR, operations, sales, etc.
Battling fear of extinction: They are afraid of being disrupted and are hedging their main business by investing in startups.
In his opinion regarding Toyota’s investment in MaaS Global, Wilhelm Lindholm from Innovestor Group stated:
“They [corporates] fear a “Nokia (mobile phones) scenario”; being outcompeted by new business models and content, or, a “Foxconn scenario”; becoming a volume manufacturer with price as sole differentiator. OEMs are determined to avoid this. Hence, they are investing heavily in technologies, software, services and infrastructure – all key components of the emerging mobility ecosystem (in addition to their manufacturing capabilities and brands). Ultimately, OEMs want to stay/get ahead in the future value chain.”
In this case, you can treat them as a normal VC, but since they have a large existing network of customers and partners – you should ask how you can get access to some of it.
Diversification Into New Markets / Industries: Some CVC’s want to expand their core business and “not keep all their eggs in one basket”.
Those are great partners for your investment, as they are rather hands off and simply invest in your company with added benefits of having access to markets.
Besides the above – the most important thing is to ASK the CVC as to what their reasons for existence are, what their plans for exits are, and for collaboration.
Step 2: Choose The Right Ones
Besides knowing what they want, you need to know what you want. If you are simply looking for cash, you are already doing it wrong. Think strategically. Do you need access to a certain geographical market? Perhaps access to a certain list of companies as your clients or perhaps a patent portfolio? Well, who has what you need? Do they have a CVC arm?
Corporates need innovators to stay ahead of the game, while startups and scaleups need corporates to get access to their resources and funding. If approached well, the relationships can lead to success for both parties.
Step 3: Reach Out
Surprisingly, corporates can be easier to reach than VC’s, as they are mostly on Linkedin and often do not get as spammed as investors do. In addition to that – they have many more entry points compared to VC’s.
For instance, you can find the relevant person within the organization who may not be a part of the CVC arm but can do a warm introduction. Remember, that anything in business comes down to personal relationships. Most of the big corporates have their own CVC arms or startup programs, whose main function is to build bridges and translate the rules of the organization to startups and vice versa. Keep in mind, that the conditions for collaboration are not made the same – you need to study the terms carefully well in advance.
This is the second part of an article originally published on Arctic Startup website in cooperation with Helsinki Business Hub. This blog series, Investor Talks, introduces foreign investors active in Finland. To get on their radar, contact our Investor Services.
Writer: Valerie Vlasenko
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