P R Ganapathy | January 13, 2017

Do corporates and startups mix?

For a while now, I’ve been mulling over the question of how we can get corporates and startups (especially social startups, my area of interest) to work together. The potential is in plain sight. Corporates have so much that startups sorely need: labs, fabrication facilities, scientists, engineers and experts, distribution channels, marketing muscle. Corporate CSR funding can be used to fund startups (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.
Startups fear the big bear hug of a corporate and the risks of IP being stolen by the corporate’s employees. Corporates don’t want to use their marketing channels for a startup’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 startups. They insist on water-tight contracts and well-defined milestones that will be rigidly administered, not realizing that a lot of the startup’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 startup 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 startup’s IP.  These must unequivocally specify that all the owned work product is a property of the startup, and that the corporate will not pursue any business opportunities that compete with the startup.

2) Avoid corporates that have designs on the exact space that the startup 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 startups 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 startups. Leaders who have been entrepreneurs, or are angel investors, may be best – they ‘get’ that a startup’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.