For brevity, I’ll call a Corporate Acceleration Programs a CAP.

Basic Theory

A corporate accelerator is a specific form of seed accelerator which is sponsored by an established for-profit corporation. Similar to seed accelerators they support early-stage startup companies through mentorship and often capital and office space. In contrast to regular programs, though, corporate accelerators derive their objectives from the sponsoring organization. These objectives can include the wish to stay close to emerging trends or to establish a funnel for corporate venture capital investments. © Wikipedia

High Hopes

• Get information, approaches, methods and target segments that are under the radar for the company (due to the size), but which can scale if things go right.
• Since getting paying customers is one of the key issues for startups, corporations are well-suited to drown the right startups in internally-allocated revenue, hence increasing their chance for success.
• Company staff (mentors) and capital allocation from the top can make a huge difference in the startup’s survivability.
• A promotion of an accelerator can increase the deal flow, even though at the expense of trashy applications.
• Disruption is hard and actually not required for corporate-accelerated startups.

The Devil and the Details

• The goals of a startup and the organization must be compatible and aligned.
• Decision makers from the corporation must be actively present in the exercise, as without their support and protection nothing would last.
• For the startup the list of stakeholders will be way longer than if they were all by themselves.
• Startups in the CAP must have extensive contacts with each other and access to the company’s tools and systems along with the support for them to iterate faster.
• Corporations must help startups with legal services, accounting, investor connections and help with follow-on investment if needed; this shouldn’t be bureaucratized that much.

Fallacies

• Mismatched time horizons. For a startup, getting profitable (independently or on the revenue allocation basis) may take longer than the tenure of the program organizers.
• Mismatched IRR expectations. Corporations have quite predictable cash flows, budgets that make sense, they know the historical IRR for their internal projects and are trying to use it as a yardstick for the startups. Let’s not even mention the annual planning process for corporations.
• Clipping wings before one can fly. The vast majority of startups in the corporate accelerators don’t get to offer their product to the firm’s competition (makes sense from the competitive advantage position of the firm but fails to capture the value from the entire addressable market for the startup).
• But what’s the end game for the startups? The corporate money is somewhat tainted as the startup can’t sell to a competitor. Or if there’s a good opportunity to sell – the ROI might be excellent, but the absolute amount might be completely negligible for the corporation, so – no sale. And this contradicts a a very good rule for many startup owners: sell once being offered a decent amount of money.
• No second chance. It’s very hard for a startup to pivot under corporate supervision as this impacts the go-to-market timing, and many opponents of the program would jump on the opportunity to discredit the startup and the program itself. Or the opposite – dead bodies walking for too long because someone higher up in the corporate world can’t let go of their new toy.
• No meaningful upside for mentors. Mentors are usually company employees holding day jobs; they are rarely (if ever) are KPI’d and rewarded on the success of the accelerated startups.
• There’s almost no place for startup culture in the corporation. The means for getting things done in a large firm and in a seven-person (i.e. two-pizza) startup are worlds apart. Reconciling them requires a business interface person who would miraculously possess experience in both worlds. And again, the numbers in the risk-reward equation look completely differently in startups and corporations, which is a showstopper for most.

Conclusion?

• I’m no doctor, but supposedly firms have a better chance to acquire innovations through purchasing striving startups with a customer base comprising competing companies, than trying to feed and grow a build-for-purpose startup. (Same what I did in 2006 by selling my startup Unwiredtec to the largest client.)

Filed under: Мысли вслух