Corporate Venture Capital & Innovation Initiatives

Guest post by Mike Millard, founder of Pitch-a-Kid & AngelSpan advisor

Besides the amazing emerging technology, what else should corporations look for in startups? For those with time constraints and wanting the conclusion first – here you go.

Before you commit time and resources investing or partnering with any startup, make sure it has demonstrated regular transparent communication and performance reporting BEFORE you commit time/resources.

corporate-ventures

And now for the rest of the story.

Corporate venture capital is hot. From tech giants like Google to consumer product companies, many are getting in the game as an extension of its business development activities. Whether it is via in-house venture capital initiatives, or engaging young, innovative companies on a project basis (ostensibly for a first-look at new tech), corporations can’t move fast enough into this “innovation arena” to remain competitive and provide value to the customer.

The why does not need to be examined or debated here. The larger question is how.

Build, Buy, or Partner?
How to do you engage the innovative startup community in a fruitful and sustainable way to identify the right technology to fuel the overall corporate strategy? Building an internal venture capital fund is one obvious choice, but this does not alleviate what to look for when engaging with startups. The same goes for buying a startup, partnering with them, or even investing in them. How do you reduce your risk for knowing which startups are going to be better than others? Many talented professional venture capitalists understand people, technology, markets and have excellent pattern recognition to help identify promising startups. They also have access to more information than the average investor. But what about the rest of us? How can we reduce our risk by working with startups as we feel increasing pressure to innovate? With the enabling technologies of firms like SwitchPitch, many corporations are engaging innovative companies on a project basis to infuse the right technology, culture, and people on projects to deliver optimal results with reduced risk.

Partnering
Just as private venture capitalists, angel investors, and family offices active in the direct investing struggle to find the right company, corporations also struggle with which companies they should choose when deciding who to partner with on innovative solutions and emerging technologies. And, just like investing in startups, the danger is in getting caught up in the ‘flashy bauble’ of the technology. Politics, inexperience, and pressure to find solutions all contribute to less than stellar outcomes for partnering with startups. The key to startups, as any experienced investor will tell you, is in the execution (Netflix vs. Blockbuster and Apple vs. Blackberry come to mind). First-mover advantage is sometimes a fallacy. The best technology doesn’t always win. But the companies that execute better along the startup lifecycle do much better in the marketplace regardless of technology.

Who is Likely to Execute Best?
Corporations, angels investors, family offices, and venture capitalists want to know who is going to execute the best – that is the ‘$64,000 Question’ for those of you old enough to remember the game show. They wish they knew as ultimately the desired return or partnership initiatives is related to the execution. All of the Excel models, presentations, strategy reviews, and marketing do not matter unless there is execution.
There are some patterns and clues some active investors are beginning to recognize, recently confirmed by a national survey done in conjunction with the Texas Venture Labs at McCombs School of Business at the University of Texas.
The survey results confirmed that entrepreneurs as a group that embraced transparency executed on their business plan (vision or idea) better than those that didn’t. Simply put, those that communicated better were more successful.
Investors surveyed confirmed this relationship was both:
* A corollary relationship – the more experienced startup CEOs (who tend to execute better) knew proper transparency/reporting to outside investors and stakeholders (like corporate partners) was part of their fiduciary responsibilities.
* A causality relationship – the transparency and feedback loop with outside investors and stakeholders helped the less experienced entrepreneur execute better due to the heightened engagement with those interested and willing to help them succeed. The investors had access to appropriate, timely, and useful information that allowed them to provide better guidance, stay more engaged, and avoid any surprises.

Corporate Best Practices and Startup Bad Habits
Anybody that has worked inside a large organization in charge with deploying corporate resources is familiar with the reporting requirements necessary to maintain advocacy and access to resources. It is just part of how big companies work.

There are monthly reports, quarterly reports, yearly reports, and reports that summarize reports. And they come is many shapes and sizes from HR goals to strategy objectives to marketing updates. As a whole – not so with startups.
Per the survey results, less than 1/5 of startups report on a monthly basis, and approximately 1/3 honor the information rights typical in any standard term sheet and report on a quarterly basis. There shouldn’t be any wonder why roughly 15% of companies in a ‘typical’ venture portfolio create all the profits of the fund! I think startups can learn from the corporate world from the required reporting – both internal and external. Transparency and reporting are simply the right course of action for success. Why then, do so few startups communicate with transparency on a regular basis when it can help them execute better?

Transparency, Standardized Reporting, Operational Performance Monitoring
Again, while this is standard procedure in the public market, and for internal corporate initiatives, it has not been adopted by the startup community as a widespread practice.
As a reminder, I do want to disclose that I am an Advisor to the company described below because they are the first to solve this problem in an ‘institutional-quality’ way.
AngelSpan is, in fact, providing structured message communication services for startups all over the country.
Just as there are investor relations for public companies, AngelSpan provides investor relations for private companies – startups. It provides message communication and consulting assisting clients to go through the startup lifecycle faster by keeping stakeholders informed and engaged with regular, structured, and consistent reporting. The founder was formally owned/managed a multi-family office, originally at 3000 Sand Hill Rd. He experienced this ‘information gap’ first hand as both an active angel investor and advisor to his clients’ angel investing activities. He wondered why startups don’t mimic from their corporate big brothers with communication practices.

AngelSpan is not a ‘DIY’ SaaS platform. Rather, it keeps its clients on a disciplined cadence of monthly updates and quarterly reports with information relevant for success. It makes sure its clients are reporting on the right content by incorporating the BellMason Diagnostic into their work – branded the SMART IR Report. This report allows the user to report on the operational, financial, managerial, and market in a format that investors understand and can quickly digest. Imagine as an investor if every one of your portfolio companies communicated to you on a monthly and quarterly basis using a consistent format. Imagine how much more productive your board meetings would be if you knew what was going on the last three months. Imagine how much easier your due diligence would become for a potential investment or partnership if you had 18 months of prior updates delivered to you.
The key is the operational performance report card detailing to clients how well it is executing along the startup lifecycle. As mentioned, it is about execution.

Better Outcomes
So how can corporations reduce your risk and increase your likelihood of success when partnering with startups? Before you commit time and resources investing or partnering with any startup, make sure it has demonstrated regular transparent communication and performance reporting. If investors simply focused their investing (or partnering) activities with startups that have already delivering proper transparency, would outcomes be optimized?
Based on my corporate and venture experience, I believe a resounding YES!

Mike Millard is founder of Pitch-a-Kid, and an advisor at AngelSpan. Mike is the former Executive Director of Innovation and Technology Commercialization, Ascension/Seton; Director of Research, Austin Ventures; Associate Director of Technology Commercialization/New Venture Creation, AT&T Knowledge Ventures.

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