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Why Cooperate With Startups (with bonus content: Why M&A of Startups Often Fail)

Why Cooperate With Startups (with bonus content: Why M&A of Startups Often Fail)

These were the slides for my talk "Why [corporations and SMEs] cooperate with startups?" in the Startup Week Düsseldorf program at Startplatz DUS on April 11th 2019. The talk aimed to offer an overview of the motivations for cooperating with startups, some real-life examples, and what actions you can take depending on your goals. For inquiries, contact you@plusandersen.com (This presentation also contains extra content with more information about why corporate M&As often fail and what to do about it.)

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Vidar Andersen

April 11, 2019
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Transcript

  1. COOPERATING WITH STARTUPS STARTUP WEEK DÜSSELDORF 04.11.2019 IF, WHEN, &

    HOW
  2. MORE VIDARANDERSEN.COM VIDAR ANDERSEN • STARTUP FOUNDER • EDUCATOR •

    INNOVATION ADVISOR FOUNDING PRINCIPAL +ANDERSEN & ASSOCIATES
  3. +ANDERSEN 
 & ASSOCIATES tomorrow today plusandersen.com

  4. We help you
 get ready for tomorrow today… plusandersen.com

  5. …achieving a 
 50x speed-up of innovation the startup 


    way plusandersen.com
  6. None
  7. THE +A INNOVATION PIPELINE

  8. MORE plusandersen.com • Education & Training • Programs & Processes

    • Innovation Metrics • Management Tools • Innovation Outposts • Human Assets
  9. A DEFINITION WHAT THE HECK IS A STARTUP ANYWAY?

  10. A CORPORATION IS A PERMANENT ORGANISATION DESIGNED TO EXECUTE A

    PROVEN REPEATABLE & SCALABLE BUSINESS MODEL IN A PREDICTABLE AND STABLE ENVIRONMENT
  11. A STARTUP IS A TEMPORARY ORGANISATION IN SEARCH OF A

    SCALABLE & REPEATABLE BUSINESS MODEL OPERATING IN AN ENVIRONMENT OF 
 EXTREME UNCERTAINTY
  12. THE TIMES ARE CHANGING WHY ALL THIS STARTUP HYPE NOW?

  13. SHORTER
 LIFE EXPECTANCY FOR CORPORATIONS

  14. EXPONENTIAL
 TECHNOLOGY DEVELOPMENT

  15. AUTOMATION
 AFFECTING MOST VERTICALS

  16. MACHINES
 LEARNING BY THEMSELVES

  17. THEN

  18. NOW

  19. YOUR COMPETITION
 NO LONGER PEERS OR NEAR-PEERS THE AMOUNT OF

    VENTURE CAPITAL AVAILABLE TO STARTUPS HAVE NEVER BEEN BIGGER
  20. VS

  21. YOU DON’T EVEN NEED VC
 IT DOESN’T MATTER WHERE THE

    AMOUNT OF LOCATION
 & CLASS FREE
 CAPITAL AVAILABLE TO STARTUPS HAVE NEVER BEEN BIGGER
  22. STARTUP VALUATIONS
 RAPIDLY INCREASING

  23. YOUR COMPANY
 BIG, SLOW & RIGID THIS IS YOU

  24. YOUR NEW COMPETITORS
 ARE SMALL, FAST & AGILE YOUR COMPETITION

  25. YOUR COMPANY
 COMPLIANT WITH LAWS & REG YOU

  26. STARTUPS 
 ARE BREAKING THE RULES THE COMPETITION Breakin’ the

    law Breakin’ the law
  27. LEAN METHOD HAS COME FULL CIRCLE 2013 2011 THE LEAN

    STARTUP 1940s AGILE & KANBAN 2005 LEAN INNOVATION MANAGEMENT 2016 KAIZEN
  28. VEHICLE OPTIMISED FOR 
 INNOVATION & GROWTH “STARTUP EQUALS
 GROWTH”

    - Paul Graham INNOVATION IS THE KEY TO GROWTH
  29. Uber, the world’s largest taxi company, owns no vehicles. Facebook,

    the world’s most popular media owner, 
 creates no content. Alibaba, the most valuable retailer, has no inventory. Airbnb, the world’s largest accommodation provider, 
 owns no real estate. Spotify, the world’s most popular music service, owns no music rights. - TOM GOODWIN
 SVP HAVAS MEDIA
  30. THE FACTS VS THE MYTHS SPEEDBOATS 
 VS TANKERS

  31. 10 FACTS CORPORATIONS DO GET IT 1 Traditional Venture Capital

    is no longer the only way to raise money for startups. DocuSign raised in the same round (Series E) exclusively from the following corporations: SalesForce, Google, Recruit, Mitsui & Co, BBVA, NTT DoCoMo, Telstra and MKI
  32. 2 The majority (61.7%) of the unicorns mentioned by the

    Wall-Street Journal under The Billion Dollar Startups Club have raised from at least one corporate. 
 (not including investment firms and banks) 10 FACTS CORPORATIONS DO GET IT
  33. 3 Corporations do not invest only in their 
 own

    vertical: 
 The online music streaming service Spotify 
 raised money from Coca-Cola. 10 FACTS CORPORATIONS DO GET IT
  34. 4 Inhouse R&D is giving way to collaboration with new

    ventures. 
 9 out of the 10 biggest R&D spenders worldwide are already working with startups. 10 FACTS CORPORATIONS DO GET IT
  35. 5 Not only silicon valley tech companies like Google,but some

    of the traditional corporate players have explicit ways to invest in startups on a large scale. 
 Ping An Insurance Group has a venture arm: 
 Ping An Ventures. 10 FACTS CORPORATIONS DO GET IT
  36. 6 When it comes to collaboration with startups, France (not

    USA) has the highest percentage of its top corporations engaging startups: 
 23 out of 25 top corporations are working 
 with startups. 10 FACTS CORPORATIONS DO GET IT
  37. 7 Investing in startups 
 is not the only way

    to collaborate. 
 ProSieben Sat1 Media AG provides advertising time in return for revenues or equity shares through its venture arm (Seven Ventures). 10 FACTS CORPORATIONS DO GET IT
  38. 8 Building accelerators, a popular way to help startups, is

    now done by “non-tech" corporations too. Diageo has an accelerator to create new 
 spirits brands: Distill Ventures.
 10 FACTS CORPORATIONS DO GET IT
  39. 9 Working alone with startups is not the only option:

    global corporations do it together as well. 
 The Ecomobility Ventures investment fund has been created by 5 corporations(Air Liquide, Michelin, Orange, SNCF and Total). 10 FACTS CORPORATIONS DO GET IT
  40. 10 68% of the top 100 companies from the Forbes

    Global 500 are engaging with startups. 10 FACTS CORPORATIONS DO GET IT
  41. AND STARTUPS
 WITH CORPORATIONS WHY DO CORPS ENGAGE WITH STARTUPS?

  42. SHIFT 
 HAPPENS “SCREWED IF YOU DON’T”

  43. SPEED OF INNOVATION QUICK VS DEAD

  44. "In the new world, it is not the big fish

    which eats the small fish, it's the fast fish which eats the 
 slow fish." - KLAUS SCHWAB
 WORLD ECONOMIC FORUM
  45. "If you don't create the things that will kill Facebook,

    
 someone else will." - MARK ZUCKERBERG 
 FOUNDER OF FACEBOOK
  46. SOMETHING IN IT 
 FOR EVERYONE WIN-WIN OUTCOMES

  47. CORPORATION ASSETS • CREDIBILITY • BRANDING & PR • DISTRIBUTION

    • SUPPLIERS • FUNDING
  48. STARTUP ASSETS • SPEED OF INNOVATION • INNOVATIVE IMAGE •

    REAL INNOVATION • CULTURE TRANSFER
  49. HUGE UPSIDE POTENTIAL FTW!

  50. SHORT & LONG TERM
 VALUE DRIVERS TIMING RISK COST R&D

    Long Term High High Corporate Startup Engagement Medium Term Average Low M&A Short Term Low High
  51. 5 EXAMPLES
 FROM THE REAL WORLD HOW CORPORATES ENGAGE WITH

    STARTUPS
  52. 5 EXAMPLES HOW CORPORATIONS ENGAGE 1 Sprint, R/GA, Kaplan, Microsoft,

    Disney, Barclays, Qualcomm and METRO all have 
 an accelerator powered by Techstars.
  53. 2 Johnson & Johnson has a co working space with

    research facility: Jlabs. JLABS 5 EXAMPLES HOW CORPORATIONS ENGAGE
  54. 3 Monsanto and Syngenta have a venture arm: Monsanto Growth

    Ventures 
 & Syngenta Ventures. 5 EXAMPLES HOW CORPORATIONS ENGAGE
  55. 4 Procter & Gamble has a fellowship program with the

    accelerator The Brandery in Cincinnati, sponsoring startups. 5 EXAMPLES HOW CORPORATIONS ENGAGE
  56. 5 Even the CIA has a venture capital arm: 


    In-Q-Tel, an early investor in Facebook. 5 EXAMPLES HOW CORPORATIONS ENGAGE
  57. MORE THAN ONE WAY TO DO IT BUT HOW DO

    YOU START ENGAGING?
  58. HEURISTIC LOW TO HIGH 
 INVOLVEMENT 8. Mergers & Acquisition

    7. Investment 6. Spin-Off 5. Accelerator / Incubator 4. Co-Working Space 3. Events 2. Startup Program 1. Support Services HIGH ENGAGEMENT LOW ENGAGEMENT
  59. HEURISTIC LOW TO HIGH 
 COSTS 8. Mergers & Acquisition

    7. Investment 6. Accelerator / Incubator 5. Co-Working Space 4. Spin-Off 3. Events 2. Startup Program 1. Support Services HIGH COSTS LOW COSTS
  60. HEURISTIC LOW TO HIGH 
 RISK SEEKING 8. Investment 7.

    Mergers & Acquisition 6. Accelerator / Incubator 5. Spin-Off 4. Co-Working Space 3. Startup Program 2. Support Services 1. Events HIGH RISK SEEKING LOW RISK SEEKING
  61. HEURISTIC SHORT TO LONG 
 STRATEGY 8. Events 7. Support

    Services 6. Startup Program 5. Co-Working Space 4. Accelerator / Incubator 3. Spin-Off 2. Investment 1. Mergers & Acquisition LONG TERM SHORT TERM
  62. WHO DOES WHAT 
 262 OUT OF F500 CORPORATIONS

  63. CORPORATE ENGAGEMENT 
 BY CHANNELS AND RANK

  64. TOP INDUSTRIES 
 WHO ENGAGE WITH STARTUPS 94.1% Pharmaceuticals 85.2%

    Telcos 68.8% Regional Banks 64.5% Major Banks 58.8% Diversified 
 Insurance
  65. TOP INDUSTRIES 
 WHO ENGAGE WITH STARTUPS 100% (7 of

    7) Semiconductors 100% (7 of 7) Computer Services 87.5% (7 of 8) Beverages
  66. TOP COUNTRIES 
 WHO ENGAGE WITH STARTUPS 94.1% France 71.4%

    Germany 71.4% Switzerland 56.8% Japan 53.3% United Kingdom Orange EADS Credit Agricole Renault BNP Paribas VW Group SAP Allianz Siemens DTAG Nestle UBS ABB Syngenta Swisscom Nippon Tel Softbank Nissan Motor KDDI Seven & I Hld. Vodafone Standard Ch. SABMiller Diageno WPP
  67. OTHER COUNTRIES 
 OF NOTE FOR COMPARISON 45.5% U.S.A 23.8%

    China Johnson & Johnson P & G Google Boeing Dow Chemical Ping An Insurance Group SAIC Motor Alibaba Tencent Holdings Lenovo Group
  68. BETTER GET USED TO IT

  69. CASE STUDY

  70. JLABS

  71. JLABS accept high-potential companies from diverse healthcare sectors, including pharmaceuticals,

    medical devices, consumer and digital health. JLABS
  72. Space Equipment Expertise Ecosystem Channels Funding JLABS

  73. JLABS San Diego Flagship San Francisco South San Francisco California

    
 Institute for 
 Quantitative 
 Biosciences Toronto Cambridge
 MA JLABS JLABS JLABS JLABS JLABS Houston
 Texas Medical Center
  74. JLABS ALUMNI

  75. JLABS • Started 2012 • Over 100 companies in portfolio

    with a growing capacity to accommodate up to 225 companies across the 6 sites • Does not take equity or IP 
 (identified JLABS as success criteria)
  76. WHERE TO GO FROM HERE SO WHAT’S NEXT?

  77. ENGAGEMENT
 EVOLVING IN PHASES STEP TOOLS 1. Learn Research, Events

    2. Partner Support Services, Startup Programs, Co- Working Spaces, Spin-Offs, Accelerators & Incubators 3. Own Investments, Mergers & Acquisition
  78. DIFFERENT OBJECTIVES
 DIFFERENT ENGAGEMENT TOOLS Innovation Culture New Markets Platform

    Solving Problems Events Support Services Startup Programs Co-Working Space Accelerators & Incubators Spin-offs Investments M&A CORPORATE OBJECTIVES STARTUP ENGAGEMENT TOOLS MOST TO LEAST RECOMMENDED
  79. 1 Talk to a pool of startups about their needs

    as part of your design process. It's easy to assume 'they would love this' when the bar for competitive offerings is getting higher. START TODAY 
 ENGAGE WITH STARTUPS
  80. 2 There are many different ways to engage with startups.

    The key is to keep in mind your objectives, resources and time frame for expected results at all times. START TODAY 
 ENGAGE WITH STARTUPS
  81. 3 You can start small, choosing one channel of engagement

    at a time and iterate fast based on the results and buy-in. 
 However if you don't shoot for big enough wins from the get go, there may not be enough to show to get you more resources. START TODAY 
 ENGAGE WITH STARTUPS
  82. 4 Select the right partners to share the knowledge and

    minimise risks. Doing it alone can be scary. Feel free to talk to me if you want some help along the way. START TODAY 
 ENGAGE WITH STARTUPS
  83. 5 Whatever you choose to do, be prepared to work

    at the speed of startups Don't keep them waiting on you. You don't want the engagement to backfire. START TODAY 
 ENGAGE WITH STARTUPS
  84. DO OR DO NOT THERE IS NO TRY

  85. BONUS CONTENT

  86. WHY CORPORATE ACQUISITIONS OF STARTUPS OFTEN FAIL

  87. WHY CORPORATE ACQUISITION 
 OF STARTUPS FAIL Most large companies

    manage three types of innovation: • Process innovation 
 Making existing products incrementally better • Continuous Innovation
 Building on the strength of the company’s current business model but creating new elements • Disruptive Innovation 
 Creating products or services that did not exist before
  88. Most large companies manage these three Types of innovation with

    an “Innovation Portfolio”: • They BUILD innovation internally • They BUY it • They PARTNER with resources outside the company
  89. If the corporation decides to buy, there are five types

    of innovation to buy: 1. License / Acquire intellectual property (IP) 2. Acquire startups for their teams (and discard the product) 3. Buy out another company’s product line for the product 4. Acquire a company for the product and its installed base of users 5. Buy out an entire company for its revenue and profits
  90. WHAT CAN YOU ACQUIRE? INNOVATION PORTFOLIO WHY ACQUIRE? DISRUPTIVE INNOVATION

    CONTINUOUS INNOVATION PROCESS INNOVATION BUILD PARTNER BUY • REVENUE • PRODUCT LINE 
 + USERS
 • PRODUCT LINE • TEAMS • INTELLECTUAL
 PROPERTY
  91. SEARCH VS EXECUTION • Common mistake to treat all acquisitions

    the same: 
 Not all ventures are at the same stage of maturity • Startups are companies still searching for a business model • Ventures that are further along actually executing their business model are no longer startups • Companies that acquire startups for their intellectual property, teams or product lines are acquiring startups that are still searching for a business model • If acquiring later stage companies who already have users / customers and / or a predictable revenue stream, they are acquiring companies which are executing
  92. BUY PRODUCT + USERS BUY IP BUY TEAMS BUY PRODUCT

    LINE BUY REVENUE NEW VENTURE PHASE: SEARCH VS EXECUTION ACQUISITION INTENTION SEARCHING EXECUTING
  93. SEARCH VS EXECUTION • What gets lost in acquisition (IP,

    team, product, users) rationale is that startups are run by founders Searching for a business model • The founding team is still testing for the right combination of product, market, revenue, cost, etc with continual customer discovery process, iterating building incremental MVPs • This phase of a new venture is chaotic and unpredictable with very few processes, procedures or formal hierarchy • Search driven by the startup culture of individual initiative and autonomy in passionate and relentless pursuit of opportunity - the very Antithesis of the process, procedures and rules of the large corporation • Early-stage companies that have found product-market fit are now in execution mode, scaling the company and user base- and scale and execution require repeatable processes and procedures
  94. PREDICTING ACQUISITION FAILURE OR SUCCESS • Success of the acquisition

    depends on wether acquirer intends to keep new venture as standalone division or integrate and assimilate it into the corporation • Alignment & incentives - conflict of interest;
 Biz dev and strategic partner execs who find the startup and negotiate the deal are ironically not the executives who manage the integration or the acquisition (aka have to live with the consequences) - that is usually up to the CTO or operating executive of the acquirer who wanted the innovation acquired
  95. PREDICTING ACQUISITION FAILURE OR SUCCESS Why is search or execution

    such an important question?
 A simple heuristic guide to predicting success: • If the startup is acquired for its intellectual property and/or team, integrate and assimilate it quickly • If the startup is still in search mode and you want to acquire product line and users to grow at its current pace or faster, keep the startup as an independent division and appoint the existing startup CEO as division head, give her a political savvy “corporate concierge” to access the acquiring company’s resources to further accelerate growth • If the target is in execution mode, integrate and assimilate, combine its emerging corporate KPIS, processes and procedures with your own, most likely transition target CEO to innovation or exit
  96. BUY PRODUCT + USERS BUY IP BUY TEAMS BUY PRODUCT

    LINE BUY REVENUE ACQUIRER STRATEGY ACQUISITION INTENTION INTEGRATE INTEGRATE INDEPENDENT
  97. CORPORATE ACQUISITIONS • 70-90% of corporate M&A fail • Corporate

    acquirers need to know what they are buying 
 - is the target searching or executing? • If the target is acquired for IP, talent or revenue, it should be rapidly integrated into acquirer • If the startup is acquired for products and/or users, preserve its startup culture by keeping it an independent unit • Give the acquired CTO a internal politics savvy “corporate Concierge” to help access your corporate resources to accelerate growth further • Incentives need to tie together the acquisition target’s continued success with the rest of your corporation • Acquires need a formal integration and on-boarding process
  98. +ANDERSEN 
 & ASSOCIATES tomorrow today plusandersen.com