For a while now, I’ve been mulling over the question of how we can get corporates and start-ups (especially social start-ups, my area of interest) to work together. The potential is in plain sight. Corporates have so much that start-ups sorely need: labs, fabrication facilities, scientists, engineers and experts, distribution channels, marketing muscle. Corporate CSR funding can be used to fund start-ups (if it’s through an approved Incubator). Acquisition by a corporate can be an attractive exit option for founders, employees and investors, while providing a corporate with valuable products in segments it didn’t understand.
But there are many barriers that prevent it from happening. Start-ups fear the big bear hug of a corporate and the risks of IP being stolen. Corporates don’t want to use their marketing channels for a start-up’s products, because they’re uncertain about the effect of unproven products on their reputation. Funding too, can come with too many strings attached. Corporate decision-makers rarely understand start-ups. They insist on water-tight contracts and well-defined milestones that will be rigidly administered, not realising that a lot of the start-up’s initial journey will be through uncharted waters. Corporate mentors start out enthusiastically, but soon their travel schedules and primary responsibilities cause mentoring to become a low priority in a long list of demands on their time. Some mentors do it purely to earn some brownie points and diversify their profile in their annual appraisals – this is a waste of time for the start-up and understandably, leads to frustration.
The law also puts some restrictions in the way of such collaboration – the CSR act specifically disallows the use of CSR money in an area of the company’s primary business. So corporates using CSR to fund innovative ideas that they could acquire could be difficult.
What can we do about these challenges? I have a few thoughts, but I’d welcome vigorous dialogue and suggestions from others familiar with these problems:
1) Insist on watertight contracts that protect a start-up’s IP. These must unequivocally specify that all the owned work product is a property of the start-up, and that it can exploit it without requiring permission from anyone.
2) Avoid corporates that have designs on the exact space that the start-up operates in – a broad overlap of interests is okay, even beneficial, but too specific an overlap lays the grounds for suspicion, if not mischief
3) Make sure that mentors and experts volunteering their time are doing it out of genuine interest, and not just to look good within the corporation. Give start-ups a chance to interview potential mentors and experts, and judge the genuineness of a mentor or expert’s interest for themselves
4) Find corporate leaders who understand start-ups. Leaders who have been entrepreneurs or are angel investors maybe the best – they “get” that a start-up’s initial few years will be unpredictable, and are comfortable with that ambiguity.
At Villgro, we’ve started a few corporate relationships by incorporating these principles. It is early days yet, so I’m not sure if we have all the right answers (or even whether we’re asking the right questions). Only time will tell.