- Corporate acquisitions account for the majority of exits for innovation companies in Europe in 2020, although there has been a recent spate of innovation IPOs and SPAC mergers.
- Corporates are increasingly adopting innovative solutions to improve their digital offerings, so we’re seeing partnerships in a number of areas.
- Don’t chase every opportunity; decide which corporates you want to work with and why, as it takes a lot of work to partner with a large corporate due to their internal processes.
A combination of the pandemic and remote working has led to increased investment and collaboration between corporates and innovation companies. When done effectively, corporate partnerships can bring sizeable rewards for startups as they receive distribution plus investment.
Too often, however, we see innovation companies and corporates approach partnerships in the wrong way, which can lead to frustration for both parties. So, here are our key tips for partnering effectively.
First, let’s examine corporate investment into startups.
Corporate Venture Capital (CVC) is now one of the funding options available to innovation companies, especially at growth stage. According to GCV’s “World of Corporate Venturing 2021” report, there were 2,126 corporate investors globally who invested in at least one minority stake deal, with the most active being Alphabet (Google), SoftBank, Tencent, Salesforce, Intel and M12 (Microsoft Ventures). Corporate VCs participated in $129bn total funding rounds across 3,519 deals in 2020, a 7% increase on 2019. And in Q1 2021 there were 133 CVC deals over $100m, so 2021 has seen continued investment by corporates in innovation deals, according to GCV Analytics.
Corporate acquisitions account for the majority (c.80%) of exits for innovation companies in Europe in 2020, although there has been a recent spate of innovation IPOs and SPAC mergers. There was a wide range of corporate acquirers of innovation companies in 2020. Over 600 different corporates acquired innovation companies in Europe in 2020 (and more than 80 of these corporate acquisitions were of VC-backed innovation companies).
M&A for VC-backed European startups totalled €18billion in 2020 (up 13.9% on 2019) according to Pitchbook's 2020 European Venture Report. Some of the largest exits for EU VC-backed innovation companies were consumer deals as Just Eat acquired Takeaway.com for £6bn, and Dr Oetker acquired Flaschenpost for €1billion. Some of Europe’s largest non-VC innovation M&A deals included Nvidia’s acquisition of ARM (semiconductors) for $40bn and Worldline buying Ingenico (payments) for €7.8bn.
Secondly, corporates are increasingly adopting innovative solutions to improve their digital offerings, so we’re seeing partnerships in a number of areas. For example:
In fintech, UK companies such as ezbob, Kantox and Form3 struck partnerships with Metrobank, SVB and Lloyds respectively, while Moneyfarm partnered with insurer Allianz.
In the enterprise sector, virtual events company Hopin found funding and a customer in Salesforce. UPS invested in electric vehicle maker Arrival, and Telefonica partnered with Adjust to offer mobile marketing solutions to corporate customers.
In the consumer sector, we’re seeing companies such as Curve and Deliveroo partnering with Samsung and Amazon respectively, and Energy supplier Octopus Energy has partnered with Tesco.
Partnerships between Big Pharma and digital innovation startups are also increasing, such as Exscentia’s partnership with Bayer, and BenevolentAI’s collaboration with AstraZeneca. Other health sector collaborations include HealthHero’s partnership with Towergate Insurance.
If you’re looking to get your solution adopted or invested in by corporate investors, these tips could help.
Prioritise – Don’t chase every opportunity; decide which corporates you want to work with and why, as it takes a lot of work to partner with a large corporate due to their internal processes. Ask questions up front to calibrate whether the corporate is truly the right partner for you.
Target the right person – Build a relationship with an internal champion first who understands what the corporate is looking for and how best to approach the ultimate budget holder or decision maker.
Approach in the right way – Start initial conversations about a demo or small trial for your solution. By all means, mention how your solution could be rolled out more widely over time, but offer an initial trial to get internal champions engaged.
Be clear on objectives – Good communication is key, so understand the objectives, and constraints, of both parties from the outset. Confirming expectations in writing will help avoid issues later. For example, if the corporate invests do you want to offer them a “right of first refusal” on any future acquisition or not? If you are jointly developing IP in creating a new product, clarify who will own any IP emerging from any joint development work.
Be realistic about timings – Adjusting to the slower speed of decision making in corporates can prove challenging for startups. Understand the timelines and decision-making processes of your corporate partner to improve your chances of moving in lockstep with their processes.
Build trust – Don’t make unrealistic promises on timings or capabilities. Consistently demonstrate ability to deliver and work within the corporate’s internal policies. Corporates do want to adopt or invest in external solutions, but they have their own processes for reviewing and managing risk.
Consider your image – While informal attire and communication is commonplace in startups, corporate execs may be more conservative. Consider how you want to come across to the corporate and tailor your presentation and communication style accordingly.