BY YELENA RYMBAYEVA AND NICHOLAS R. ZABALY | Special to BIZ Magazine
Today’s economy bedevils startups and established corporations with disruption and uncertainty. Stable innovation is sought by all. This desire has led to a meeting of the minds between scrappy upstarts and corporate veterans, yielding accelerator programs and startup partnerships. These collaborations have been termed open innovation, and this article explores why corporations collaborate with startups, and how startups can maximize the benefits.
Corporate Investing in University Startups: A Win-Win Collaboration
Partnerships provide large companies with access to cutting-edge research and startup talent. For example, Bayer (via its Leaps by Bayer unit) invests in university-originated startups to strengthen its business units, Shell partners with early-stage and academic innovators through their GameChanger program, and AB InBev’s 100+ Accelerator supports 100+ startups in 33 countries.
Via these programs, corporations gain early access to breakthrough innovation emerging from university labs, and fill capability gaps by partnering with startups. Over half of Fortune 500 companies now run accelerator programs; in essence, they are talent scouting for future growth.
Open Innovation Versus Traditional R&D
In traditional R&D, a company uses teams to perform predetermined tasks. In open innovation, companies instead collaborate with external sources of innovation — sharing knowledge and co-developing technology. While traditional R&D is a closed innovation model, innovation prioritizes selection of the best idea regardless of origination, shifting the focus to technology licensing and joint ventures.
Preparing for a Corporate Accelerator: A Startup’s Starter Guide
Participating in a corporate accelerator requires the right preparation and expectations, including:
- A Solid Prototype: Corporations look for startups that have a prototype or early pilot demonstrating the intended solution.
- Market Need, Business Alignment, and Value Proposition: The product should solve a significant problem, align with the corporation’s strategic interests, and possess high investment yield potential.
- Team Strength and Commitment: Founders who are reliable, innovative, and deeply knowledgeable are prioritized, because corporate partners want to be assured the team can survive business and technical challenges while being receptive to learning.
- Secured Intellectual Property: It is essential to have the rights to use all intellectual property, including licensed technologies. Strong NDAs and other legal protections which assert ownership are a must.
- Pitch and Metrics: Data is essential for decisions. Providing pilot results, user growth, revenue, efficiency gains, monthly active users, or letters of intent makes a significant difference. This data should be presented in a pitch deck alongside the product profile, business model, market snapshot, competitive landscape, and team credentials. A deck should also detail why the partnership makes sense for both parties.
Benefits and Challenges for Startups
Open innovation provides both rewards and risks which are important to understand.
Rewards:
- Funding and Resources: Financial benefits can include seed investments, grants, resources, and access to labs and manufacturing facilities. For example, startups in AB InBev’s 100+ Accelerator receive up to $100,000 for pilot projects, as well as facility and supply chain access.
- Mentorship and Industry Expertise: Programs which pair startups with experienced engineers and product managers can refine the startup’s product-market fit. This is particularly invaluable for insular industries where startups can struggle to make inroads.
- Pilot Opportunities and Commercial Deals: Piloting a product in a corporate setting can provide immediate validation, leading to commercial contracts and strategic investments.
- Credibility and Market Positioning: Collaborating with an accelerator confers reputability, opening doors to potential clients, pre-positioning the product for market entry, and providing media exposure.
- Speed and Learning: Accelerators rapidly condense a startup’s maturation time, with a structured approach that encourages rapid iteration and personal improvement.
Risks and Considerations:
- Equity and IP Control: Accelerators generally require 5–10% equity, and may require first refusal rights for the intellectual property. It is crucial to perform due diligence about the agreement terms before signing.
- Scope Creep: The corporate partner’s needs may pull the startup away from their core focus. Setting expectations early will keep the pilot project as a stepping stone, and not the sole reason for the partnership.
- Speed Mismatch: Because startups move fast, while corporations take measured steps, timeline misalignments can occur. Startups should have their own internal timelines which are insulated from delays on the corporate side. Having a key advocate within the corporate partner can also help mitigate these dangers.
- Idea Risks: While reputable accelerators will not seize a startup’s intellectual property, legally protecting the property is essential. Delivering on promises is an excellent defense; when a startup cheerfully and reputably fulfills its obligations, a partner corporation is far less likely to become frustrated.
- Cultural and Integration Challenges: Both sides must take the time to understand and adapt, with clear and patient communication required for a partnership to work.
Examples of Open Innovation
There are thousands of successful examples of open innovation. Here are just a few.
- L’Oréal — Beauty Tech Accelerator: Since 2017, L’Oréal has selected around 10 early-stage startups each semester. Accelerator alumni include Sillages Paris (personalized perfume) and ModiFace (AR beauty app).
- Bayer — G4A (Grants4Apps) Digital Health Accelerator: Launched in 2014, Bayer’s G4A program has supported more than 150 global startups and over 30 commercial collaborations. Alumni startups include Vesigen Therapeutics (novel drugs) and Blackford Analysis (medical imaging AI; acquired in 2023).
- Plug and Play — Multi-Corporate Accelerators: Plug and Play runs industry-focused accelerators on behalf of corporate consortia, with over 500 corporate partners. They have provided early-stage investment to PayPal, Dropbox, and LendingClub.
- Shell — GameChanger Accelerator: Partnering with the U.S. National Renewable Energy Lab, Shell has expanded its GameChanger Accelerator to offer non-dilutive funding, lab technical support, and scalable pathways for startups via collaborations with national labs and government co-sponsors.
- AB InBev — 100+ Sustainability Accelerator: AB InBev has expanded their program into a multi-corporate initiative, with partners including Coca-Cola, Unilever, and Colgate-Palmolive providing additional outlets and resources.
Conclusion
Open innovation has yielded win-win outcomes by uniting fresh ideas from startups with knowledge and resources from corporations. While not every partnership will succeed, continuing open innovation is imperative. Today’s world is beset with challenges, but by uniting in viable, mutually-beneficial collaborations, we can overcome them and redefine innovation in the years ahead.
Yelena Rymbayeva is a veteran marketing professional with experience in software, product development, and entertainment-focused startups. She serves as the chief marketing officer of QMS2GO, an AI-driven quality management system software platform, and as director of marketing and product development for LA New Product Development Team, a firm which assists inventors and entrepreneurs in developing and launching consumer-focused products.
Nicholas R. Zabaly is the editor-in-chief of QMS2GO’s research and knowledgebase operations.