A plethora of big brands have staked their claim on the start-up space over recent months, with ASOS, HP, L'Oreal and John Lewis all launching either a start-up investment arm, or accelerator programme.
While coming from diverse industries, these companies have one thing in common - they need start-ups. As big, relatively slow-moving organisations in a fast-moving world, they don't want to be left behind. Investing in the most promising new businesses of the moment gives them access to the innovation they need to stay ahead of the game – hopefully!
These brands certainly aren't alone – in fact, they are actually quite late to the party. A recent report by OpenAxel, a European acceleration platform, found that nearly half of the world's 500 biggest public companies now work with start-ups – a figure that is likely to keep growing in the years to come.
While these corporate-backed programmes vary in how they work, they tend to follow one of three models:
Accelerators and incubators
– As with the L'Oreal, ASOS and John Lewis schemes, many companies run accelerator or incubator programmes, involving mentoring, business coaching and access to a co-working space, and often seed funding in exchange for equity. In many cases brands will partner with an established accelerator to run the programme, to benefit from their existing infrastructure and expertise. For example, L'Oreal is running its scheme in partnership with well-known London accelerator, Founders Factory, while John Lewis is running its version with TrueStart.
Corporate venture capital
– Another option for brands is to establish a venture capital arm to strategically invest in start-ups that fit with their business objectives. While less hands-on than an accelerator, VC funding enables companies to influence the development of technology that will ultimately be useful to areas of their business, while potentially acquiring talent along the way. This is the route HP has taken with HP Tech Ventures.
Start-up acquisitions and alliances
– Finally, some companies may choose to acquire promising start-ups in order to take ownership of their talent and IP, without spending any time on the R&D part of the process. This enables large brands to build innovation capability far more quickly, but is generally an option for more mature start-ups accelerators or VCs.
These brand-backed schemes understandably attract a lot of headlines and can be a tempting option for cash strapped start-ups, looking for a leg up and some advice from those in the know. But, while they can offer some fantastic benefits, they might not be right for everyone. Here are some pros and cons to think about before getting involved:
Big brand influence
– a brand sponsored programme can give you the opportunity to learn from a leading business in your sector, benefitting from their contacts, experience and potentially their cheque book! On the downside, this could mean limiting your options in terms of future partnerships and the direction of your business, so make sure you've considered that.
The small print
– these schemes can vary greatly in what they offer, from a full package of investment and support, to less guaranteed benefits, or perhaps more of a competitive element to gaining investment at the end of the programme. Don't be scared to ask questions and challenge what they are offering, making sure it is what it seems and not just a PR exercise!
Understand the brand's motivations
– while the schemes often have a 'giving back' element to them, don't let that fool you! Most big businesses are looking to benefit from you as much as the other way round. While that's not necessarily a problem, just make sure you're clear about the objectives of the scheme before diving in head first.
High profile mentors
– many of these programmes sell themselves on the mentors they have on their team, which can be a fantastic boost for start-ups, offering valuable advice and guidance. A couple of points here. Firstly, check that the mentors are actually relevant to your business - do they have the right background and expertise you're looking for? Secondly, these 'celebrity' mentors are usually busy people, so try to check how much facetime is really involved, or you could be disappointed.
Measurements of success
– Many of the schemes are cagey about the results they have actually delivered, with research by OpenAxel showing that 88% of brands don't even know the total revenue of start-ups that graduated from their programmes. So do some digging and try to aim for those with more definite quantifiable results, where possible.
As with any big business decision, think carefully about what you want, your business goals, and if the big brand route is right for you. While these programmes could be your shortcut to the big time, for those who'd rather stay independent, there are plenty of other routes to make your venture a success.
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