Most large companies know they need to stay on top of emerging technology trends, and closely track the startups successfully commercializing them. One way to narrow the universe of potential startup partners is to interact with a venture-capital firm that backs promising young companies.
But how do you do this, exactly? What are the best practices for engaging a VC firm and their portfolio companies?
It’s a question more companies should be asking today, in my view, given the tectonic shifts now transforming enterprise computing. I now run business development for Battery Ventures, and oversee the firm’s program to connect CIOs, CTOs, CISOs and other enterprise executives with smaller technology providers, usually from Battery’s portfolio. But in a previous life I worked inside the IT organization of a Fortune 500 company and simultaneously in that company’s corporate-venture arm. And even though we had strong senior leadership, a cross-disciplinary team, and adequate resources, we still struggled to integrate cutting-edge technologies from startup companies into our services roadmap and products.
Our success rate was frankly disappointing, and I learned first-hand that disrupting the status quo inside a big company with new technology is not easy. But by re-thinking how we evaluated and engaged with smaller companies, we were able to increase our success rate, accelerate implementation time for new products and services, and limit the burden on the small startups partnering with us.
The first step: assessing existing policies
Enterprise-tech executives must start this process by making an honest assessment about their company’s policies when it comes to technology implementation. Often, these existing corporate policies—around things such as security and privacy, and procurement in general—make it difficult to adopt emerging technologies and business models that might be helpful to your organization.
The technology world has moved to open-source development and SaaS-based delivery models, for example, though which customers pay for software through monthly subscriptions, instead of one-time fees. In the Battery Ventures portfolio, almost all software companies use these business models. But your organization’s policies may not have caught up to these trends, meaning that adopting some of this cutting-edge technology may lead to significant legal, finance, procurement, and technical challenges for you.
A second consideration is the maturity level of your internal capabilities, and your ability to deliver new technologies effectively to business leaders. Many IT organizations say they have active big-data projects, for example. But moving a relational database from disk to in-memory doesn’t constitute ‘big data’. Other companies generate volumes of one-size-fits-all email campaigns, but that isn’t actually connecting with your customer in a social or intimate way. Many companies rely on large integrators and an army of consultants to pull any technology project over the finish line; engaging an early stage startup will be a tall hill to climb in these cases.
If these examples are representative of your organization and you are just dipping your toe into a space filled with next-generation technology, consider focusing on later-stage companies in a venture firm’s portfolio. Mature start-ups are prepared to collaborate with partners that are not as experienced with engaging the innovation ecosystem. More on this age-stage topic in a future blog.
Be clear about your goals—don’t just be a tourist
A third and final point to consider when engaging with startups is that it’s critical to articulate the goal of new innovation within your organization up front. At first pass, this may sound like something out of a motivational seminar about “driving change”. But you should dig one level deeper and really think about this. The reasons for investing time and effort in these types of projects vary by company. A non-exhaustive list of goals includes product differentiation; leap-frogging competitors; engaging in co-innovation; forging go-to-market partnerships; driving cost down; and accessing human talent. These are all excellent reasons to connect with the venture community. The expectations, methodology and outcomes for projects linked to these goals, however, will vary dramatically.
Everyone’s time is valuable. Having thought through these guidelines in advance may help you derive more value from a VC-firm engagement, as opposed to just engaging in fun “innovation tourism”—sampling a bunch of new technologies on offer, like trinkets at an outdoor bazaar, but not going home with anything substantial. The next post in this series will dig into structuring your organization for innovation and actually working with startups.