Corporations Can Use VC To Find Their Way In A Rapidly Changing Economy

Young startups versus the Fortune 100. Can you think of two cultures further apart? From size and market power to financial stability, these two groups of companies seem to exist in completely different universes. But the relationship between these two ends of the spectrum is changing fast. The reason: technology-driven market disruption. Startups are behind it, and corporates are very much feeling it.

A decade ago, it was oil and gas — an industry that formed 150 years ago — dominating the top 10 list of largest companies (by market cap). Today, Facebook, Alibaba, Tencent and Alphabet dominate that list, while disrupters such as Uber, Tesla, Dropbox, Airbnb and Slack have reinvented the industries in which they play.

And the pace of innovation is accelerating, fueled by a new wave of technology platforms coupled with ever-expanding data connectivity.

With the incredible speed with which technology can blow up entire markets, corporate venture capital initiatives aren’t just nice to have — they are about survival. That’s probably why 75 of the Fortune 100 now report being actively involved in Corporate VC — with more than half of that number employing dedicated teams to find and fund innovation. It’s simply impossible for corporations, at the massive scale they operate, to keep pace on all fronts unless they find ways to connect with smaller, younger and more nimble startups.

However, unlike traditional VC, which is singularly focused on investment returns, corporations approach the startup world with broader goals in mind.

For some corporations, the strategy is to merely explore early-stage startups to get a better (inside) look at emerging industry trends. This can be the case for large fintech or health care systems, where enterprise-level technology implementations do not happen overnight. For others, the goal is to make substantive investments in young tech companies to complement their current business model and further drive market advantage (the recent acquisitions of Mr. Beams and Securus are great local examples).

Whatever their strategy, startups represent a huge marketplace of technologies that corporations can leverage to drive competitive advantage in their current category — or even take their enterprise in totally new directions. It is critical that the right corporations are strategically aligned with the right startups. Corporations can provide access to valuable resources and partnerships that will help startups validate the viability of their business and thereby attract investors and customers.

In Northeast Ohio, JumpStart is working hard to fill an important facilitator role between these corporate and startup interests. In fact, that’s a big part of the reason we’ve partnered with the Cleveland Clinic to bring the global business accelerator Plug and Play to Cleveland.

Plug and Play’s business model isn’t just about investing capital, it’s about matching startups with the ideal corporate partners to create pilot projects that can help bring new technologies to market faster. Done right, that connection can be more important than a Series A funding round for a startup, while helping ensure large corporations stay relevant in a world where disruption is becoming the new normal.

This post originally appeared in Smart Business Magazine on May 24, 2018

Posted in Thought Leadership