From vertical investment to Corporate Venture Capital… or more…
Most Corporate companies are using participation in start-ups as one of the drivers of innovation; Start-ups have sustainable product and technology innovations, but resort to acceleration ecosystems for:
1) Finance their working capital and “first posting”
2) Secure a significant commercial pipeline
3) Reinforce its credibility
At the same time, Corporate companies draw on the innovation of start-ups, providing in return answers to these challenges.
In the market, two extreme modes of access to start-ups can be observed in a widespread way, among which several intermediate configurations can be imagined;
The first model involves participation as a landing partner in vertical funds (e.g. EnergyTech of CDP) promoted by institutional or private SGR; The second is the launch of internal Corporate Venture Capital programs dedicated to target technologies (possibly identified through Open Innovation programs).
Unfortunately, each of these two models confronts the corporate sector with a significant risk profile that grows as the number and aggressiveness of start-ups on the market increases; in the model of participation in vertical funds corporate companies face risks mainly related to investments through mutual funds (the company has no control over the start-up, although it participates significantly in equity); in the Corporate Venture Capital model, on the contrary, the corporate company faces operations-related risks (the incubated start-up requires considerable involvements and work is often a scarce resource for corporate companies) and investment in equity (often not strategic or even frowned upon by corporate strategy).
In response to this scenario, an innovative model that strongly mitigates these risks is beginning to spread in some advanced markets. In this model, the corporate companies use external selection channels (e.g. Accelerators, networks of professionals, University, etc.) to identify start-ups that have valid products/ technologies and credible management. An early adoption contract is structured with the start-up in such a way as to:
1) Finance the working capital without having to invest in equity
2) Give credibility to the start-up without having to intervene directly in the operation
However, there is a key factor of essential success in which corporate companies, in particular Italian, still have to work: the speed of technological due diligence before early adoption. Start-ups, in fact, can not stand 18-24 months of testing before having concrete answers and this for many corporate companies is still a problem…