Benefits and Roadblocks of Corporate Partnering for Startups

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constantly drive the process and take on the onus and burden of extracting results. If the startup fails to do this, it’s quite possible the corporate partner may become distracted with other activities and the relationship will be unable to move forward and generate benefits for either side.

An example of persistence: when Axcient was getting equipment financing, it was proactive in reaching out and asking what, specifically, was necessary for approval. From there, it put together the required models, expectations reports, financing and equipment requirements and anticipated what the finance department wanted to see. Persistence paid off: the financing was completed.

Know Your Value—It’s easy to get overwhelmed by the reach (and numbers) of a big business partner, don’t underestimate the amount of value that you can bring to the table as an early-stage company. The partnership will work better when entrepreneurs recognize their company’s value in the arrangement.

If a startup’s service or product is unique enough to attract a corporate strategic partner, it’s because it gives that larger company something to differentiate itself from its competition. Be very clear about what that value is. Axcient, for example, lets HP differentiate itself from its competitor—arming HP with a Cloud-based solution.

Be Patient—Partnerships with big businesses are like kitchen renovations. However long you think it’s going to take to get something done, it ends up taking two to three times longer.

For entrepreneurs, this can be maddening, but this is where a little perspective is essential. Big business is inherently slow. Their list of priorities is absurdly long. They think in financial terms that are inconceivable for small, early stage companies—with revenues in the billions. If startup owners are able to keep that in mind, it will help save their sanity—not to mention the partnership.

Picking Partners

Finding the perfect strategic partner isn’t an easy task. While it might be tempting to quickly embrace a business with deep pockets or one that operates in a closely aligned industry, that’s not always the right move.

It is, in fact, sometimes the least likely candidate that proves to be the best choice. Just as opposites attract in the dating world, so too can companies that (on the surface, at least) seem to have very little in common. Eric Olden, CEO of Allegis Capital portfolio company Symplified, discovered this first-hand five years ago.

Symplified, a cloud services company, today counts Quest Software, a traditional software company, as a strategic partner—something that might confuse some business observers, given how radically different the two firms approach the computer industry

It’s a partnership that even Olden was skeptical about when he was first approached by Quest in 2007. But something about that initial conversation felt right, so he began to do his homework on the company. Quest, he learned, encouraged startup partners to maintain their entrepreneurial spirit, rather than trying to make them conform to its big business style. That extended to acquisitions, too—and many of the employees of startups it had purchased had opted to stay with Quest (including two people Olden knew personally).

Ultimately, the promise of continued autonomy and the ability to utilize the resources of a multi-national corporation overcame any worries about the two companies’ different focuses—and the partnership has been a fruitful one.

Many entrepreneurs might not have been open to working with a big business that takes such a different approach to their industry. But the blinders that come with that sort of narrow focus can prevent startups from realizing their potential.

Similarly, startup owners often forget to consider overseas multinationals in their search for a strategic partner. Identifying an ideal international company might be more difficult than … Next Page »

Bob Ackerman Jr. Ackerman is the founder and a managing director of Allegis Capital, an early-stage Silicon Valley venture capital firm that invests heavily in cybersecurity. Follow @allegiscapital

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  • http://web.mit.edu/tlo/ Chris Noble

    This is a good and timely article. I license MIT’s IP in the Energy space, and there has traditionally been a big divide between the VC-backed spinouts on one hand and big-company sponsored-research licenses on the other. We do lots of both, and are working hard to bring them together for mutual benefit. Partnering between startups and big companies can be a win-win, but it also requires VC investors who are supportive. Sounds like you are Bob! Good work.

  • http://www.allegiscapital.com Bob Ackerman

    Thanks for your comments Chris. When I started Allegis Capital 15 years ago, one of my goals was to build an entrepreneur-centric firm, based upon my own experiences as a start-up executive. The success of my first company had nothing to do with venture investors – “we don’t invest in many software companies – the assets all have legs and go home at night” was a common theme from venture investors. In fact, the success of the company – which had operations in the US, Europe and Asia, lay in three strategic corporate relationships – AT&T, Apple and Motorola.

    These relationships are not easy – there is a significant impedance mismatch between the culture of a corporation and a start-up. At the same, when the interests are aligned, the leverage is compelling. In my experience, the VC – Corporation – Start-up embrace is about active management of risk and generating better returns. Having worked with more than 35 corporations as active limited partners and dozens more in partnerships with our portfolio companies, I can tell you first hand – the value this there. But you have to work for it.

  • http://www.tomhalle.com Tom Halle

    Bob – spot on. Strategic alliances, particularly of the “David-Goliath” variety, are a powerful alternative to cash that allow a startup to accelerate product development, market intelligence & penetration, press & analyst visibility, competitive shutout, revenue ramp, and other objectives that would otherwise be out of reach.

    These alliances are of particular interest to the Goliaths in the life sciences, information & communications, finance & insurance, clean/green tech, and emerging consumer product segments as these companies seek to test new product/market adjacencies and reduce technology or market uncertainty without committing large R&D budgets.

    I believe there is also an emerging understanding – among both Davids and Goliaths – that forming a strategic alliance is in fact the first in a series of potential steps that may ultimately lead to acquisition. The savvy Goliath, rather than diving in with an acquisition while uncertainties remain high, will partner first, then incubate, then invest – learning along the way – and, once the product/market potential has been proven and the partner portfolio has been winnowed down to those with the best traction and fit, and those with the best cultural, strategic, and operational alignment – then acquire.

  • Bob Ackerman

    I could not agree more Tom. In fact, in structuring their corporate venture activities, corporations would be better served if they structured their programs to align: 1) deployment of capital, with 2) tolerance for risk, and 3) and ability to deliver and derived strategic value in a partnership. I sometimes describe this as the “rent” – “lease” – “own” model of strategic partnering. Frankly, it is often better for the corporate in terms of driving sustainable value and tends to do “Less” harm to the young strategic partner.

    Bob