With The Powerful
Don Laurie Advises Netpreneurs On Working
With Corporate Venturers.
VA -- November 14, 2001) According to Donald
Laurie, Managing Director of Oyster
International and author of the new book Venture Catalyst, corporate executives
have two sets of mission-critical activities they have to
perform. One is to deliver quarterly results in the annual
operating plan, the second is to create a pipeline to the
future that will generate revenue and growth. As Laurie
explained at this morning’s Netpreneur Coffee &
DoughNets meeting, the latter is why large corporations
invest in and partner with entrepreneurs.
There are four ways companies can
grow, according to Laurie:
such as through product line extensions
by entering new markets
acquisition, although many of them fail, and
venturing into the world of startups.
While both enterprises and
entrepreneurs are looking for growth, their needs,
cultures, and values cause them to seek it in different
ways. It’s an opportunity for entrepreneurs, though you
need to be careful in how you pursue it. At this
morning’s session Laurie offered entrepreneurs pointers
and a roadmap for partnering with corporate venturers, and
he was joined on stage by veteran entrepreneur Mario
Morino with tips from the field.
One reason why big corporations
need entrepreneurs to bring innovation and growth is that
those two mission-critical goals Laurie cited are, to some
degree, at odds with each other. When corporate executives
talk to their R&D departments, the first goal,
quarterly numbers, causes them to ask, “What can you do
in 12-18 months?”
There’s a lot that smart people
can do in 12-18 months, but building a ground-breaking,
market-making, disruptive product like the Web browser or
Viagra isn’t one of them. In the past, corporations
split long- and short-term development efforts roughly
50/50, but, today, that ratio has shifted to about 90/10
in favor of short term returns. Whether through
partnership, investing, or acquisition, balancing that
equation is an open door for entrepreneurs.
Take, for example, Intel “the
mother of all corporate venture capital activity,”
according to Laurie. Through this year, Intel invested
approximately $1 billion in startups at between $2 million
and $10 million per investment. The company has some 200
people in their venture group, all organized by industry
and with a strategy and technology map for each. So far,
Intel has benefited from 59 IPOs that brought some $4
billion into the company coffers. Those returns
notwithstanding, the driving force behind Intel’s
aggressiveness is that the company is trying to discover
-- and to become a part of -- the next big thing after
microprocessors. It’s where they see their long term
growth coming from.
What are the benefits of these
deals to entrepreneurs? Corporate partners can be a source
of capital, and they can provide distribution channels.
They can offer technology alliances and beta testing. They
can become customers, and they can offer learning and
support once the deal is done. For example, while
entrepreneurs may pride themselves on being trend setters,
corporations have implemented a lot of processes in areas
like QA and marketing that startups can adopt without
reinventing the wheel.
Just be sure not to adopt the
wrong habits, of course. As both Laurie and Morino pointed
out, the management needs and goals of large companies are
often in opposition to those of entrepreneurs. It’s not
that one set is better or worse, it’s that organizations
of different sizes and with different stakeholders have
different priorities. Corporations, for example, value
responsibility while entrepreneurs value independence.
Where startups embrace risk, corporations seek to minimize
it. And while entrepreneurs are built for speed,
enterprises want thoroughness.
As Morino said, “Be careful
dancing with an 800 pound gorilla. It knows it’s the
While there are dangers in
partnering with or taking investments from strategic
partners, it doesn’t mean you shouldn’t do the deals,
just that you should be careful. Both Laurie and Morino
offered pointers in what to look for, including:
is their venture strategy? Where do you fit in with their
interests? Morino suggests that you make sure to
understand how they map your sector and its
competitors, not just the way you do it. Then make sure
that there’s a fit.
sure that the CEO “gets it,” especially if you’re
dealing with someone else in the organization. Top
management has to buy into the deal or you’re likely to
be lost in the corporate sea.
the corporate culture and make sure you want to be part of
it. Is it welcoming or arrogant? Are they in it to help
build a business? Make sure that you’re important to the
organization and get proof, such as lucrative compensation
packages for salespeople representing your product.
sure that you understand the value they bring to the
arrangement explicitly. Unless you’re just about broke,
look for something more than just money.
the corporate venture group partner with institutional VCs
or seek to manage things themselves? One thing about
corporations, by the way, is that most will not lead an
investment round, they’ll only participate. That’s
because they want someone else to do the heavy due
diligence and they usually want to be regarded as the
strategic partner, not the financial one.
Given the recent challenges in
the current economy, will corporate venturers remain an
active player for startups? According to Laurie, in 1994,
VC levels were on the order of $5.5 billion, with about 1%
from corporate ventures. In 2000, that had grown to $102
billion, of which 18% came from corporations. In just the
first six months of 2001, however, investors already had written
off some $9 billion.
Despite the change, Laurie
expects corporate venturing to continue, if more modestly.
He says that some companies will get out, while others
that have solid venture models integrated into their
corporate visions, like Intel and GE, will continue
leveraging entrepreneurs as a source for growth and
innovation. In between, other companies will try to figure
it out for themselves, hopefully avoiding the
mismanagement of recent years while developing a coherent
strategy that makes sense for their businesses.
According to Morino, there may
even be an upside in these uncertain economic times for
entrepreneurs who think boldly. As some companies pull in
their horns, they’ll be looking to unload products,
service or operations that they no longer consider
strategic. They may even pay enterprising entrepreneurs to
take them over. It could be a chance to pick up assets and
market share, and, if nothing else, it certainly
highlights the differences between entrepreneurs and
2001, Morino Institute. All rights reserved.