Reflect-ions | Marriage between corporates & startups: A match made in heaven or lost in translation?
We know that corporates up their competitiveness through R&D. However, to risk something they have never done before and build it from scratch - like a whole new internal R&D team - is a different beast entirely. Such all-in kinds of decisions aren't likely to be taken by most corporate boards, especially in the post-pandemic world.
At the same time, startups are struggling with a whole different set of issues. How do they know if their solution is a painkiller fit for the industry they are trying to serve? In fact, how can they verify that the problem is a problem indeed? How do they scale? And what if they are a European startup with practically no big IPO exit option?
This is where corporate – startups collaboration comes in. It could be as simple as "let's get to know each other and what you do" – and pilot the solution for two months, for example. Or it could lead to "here's the core of the problem the industry is facing" and top-level collaborations of acquiring the startup and acqui-hiring the R&D / product team. Essentially - all the way to an exit option via trade sale.
The Research and Innovation Foundation organized a panel discussion at Reflect to showcase the ins and outs of corporate-startup collaboration. Guided by the moderator Stavriana A. Kofteros, Vice-Chair of RIF, the representatives of startups, corporations, and funds shared their journeys.
The marriage story
You either like being "married" to a corporate or not - as summed up by Michael Oikonomou, Co-Founder & CEO at Foody. His company was a startup pioneer in Cyprus, and their success resulted in an acquisition by none other than Delivery Hero. According to Oikonomou, if the match weren't a fit, they wouldn't be here today. He points out that partnering with a corporate comes with a set of benefits, and it opened many international doors which was crucial for a startup in an up-and-coming startup ecosystem such as the one in Cyprus. The collaboration with Delivery Hero meant access to more than 50 countries, significantly cutting the time required for experimenting and learning what works.
Oikonomou points out that there shouldn't be hurdles in communication between startups and corporations. "We have this idea that startup founders are youngsters out of university, but it's not like that. We are speaking about executives and people who got out of industries who have access, with a new product and a new value proposition," he explains. After all, a fruitful collaboration with startups is a competitive advantage. "If a big company is not there to acquire something that has a value proposition, competitors will."
However, there are plenty of opportunities to benefit from each other besides a buyout. "Startups and corporates should think of ways how to collaborate in a much 'lighter' way," says Daphne Pittas Diogenous, COO, member of the Board of Directors at Medochemie Ltd.
Carolos Georgallis, CEO at AIFCAP Managers, agrees that trade sale is not the end of the road and that a mere collaboration has a considerable investor value. It's an important signal for investors that the startup has potential and can lead to investments or acquisitions later.
"The fact that a large player that knows the industry inside out has shown trust to such a startup and their technology, product, and management team is hugely beneficial for investors," he says, adding that startups should strike up deals with corporations with this in mind.
The best of both worlds
Corporate-startup collaboration comes with its challenges: different styles require quick learning and willingness to find synchronization of the two very different types of conducting business. "For a startup, a project may have three weeks duration. For a corporate, three weeks will probably be the time we will need to find the next available slots to meet with them," Stephanos Stephou, CCO at Fameline Holding Group. Scott Waite, Co-Founder at H2 Energy Systems, adds that should the two work well together, trust that both sides know what they're doing is imperative.
Another chapter is the people: and those need to be on board. More often than not, mergers and acquisitions are people-oriented, and the cultures of both organizations need to work well together. "A team has its culture, and there is a strong culture in a big corporation, so those two have to match," says Oikonomou. On top of that, the startups have to learn the corporate game. "Can they think corporate? Can they understand, adapt and be flexible? Can they really navigate through the complexities and the chaos which is a large corporate? This is where I've seen a lot of startups fail," Georgallis concludes.
Watch the full panel discussion here: https://youtu.be/iodQJMgXQy0
The Research and Innovation Foundation (RIF) is the national authority in charge of supporting and promoting research, technological development and innovation in Cyprus. RIF was a Gold partner of Reflect Festival 2021.