Corporates Turn to Startups for Innovation
Corporations know that they are not good at innovation, and as they look out towards the horizon, they see that startups in general do a much better job. Fox Business reported that Wells Fargo (WFC) announced it is launching an accelerator, with the intent of mentoring startups and aiding them with resources to fuel their growth. The goal is for the bank to learn from outside innovation, which is sometimes harder to cultivate at large corporations.
Steve Ellis, who is heading up the program, said Wells Fargo intends to work closely with these companies to explore whether any of the security, biometrics, and analytics concepts could be applicable to the bank.
“Hopefully some of them will become integrated into Wells and how we deliver to our customers," he said.
Each startup participating in the bootcamp training has a specified Wells Fargo business unit interested in teaming up. For those startups, in addition to the training, and in exchange for a small stake in the company, Wells Fargo provides them with roughly $50,000-$500,000 in funding.
The fourth-biggest U.S. bank isn’t the only company turning to startups for innovation. The TechStars accelerator has been partnering with corporations including Disney (DIS), Barclays (BCS) and Sprint (S).
For participation in these programs, there’s no financial arrangement between the corporations and startups, but TechStars does take an equity stake. In addition to inspiration, some of the corporations may be interested in investing or acquiring the startups down the line.
"(The setup) allows them to do it an arms length,” TechStars CEO David Cohen said. “It’s not directly investing, it’s them supporting the activity.”
Cohen added top executives like Disney's (DIS) CEO Bob Iger have taken an active role in the TechStars arrangement. He said those executives spend time with the smaller companies, which provides them with a deep connection to the mentoring companies.
It's not just U.S. companies finding success with programs like these. French telecom giant Orange (ORAN) has also seen a benefit in working with smaller firms. The company launched its Orange Fab program in San Francisco last year and has since replicated it in offices around the globe.
“We see fast-moving disruption multiplying itself, brought on by a new wave of scalable innovation happening much later than large companies can understand,” Georges Nahon, CEO of Orange’s Silicon Valley-based innovation and development center said. “This program gives us an opportunity to see where we can continue to innovate, whether in the IT space, in the human resource area, or anywhere in between.”
In addition to office space and company resources, Orange Fab startups have the option to receive funding up to $20,000 in the form of a convertible note. The participating startups cover a broad range of categories including consumer Internet, security, energy and media.
Through Orange Fab, its parent company has “learned a lot about trends like crowdfunding, fundraising, the lean startup approach, and how to integrate external innovations into our organization,” Nahon said. “Each start-up is a different business development case and dynamic that we need to think about.”
Despite the successful outcomes of some corporate accelerators, others warn being embedded with a corporation could carry disadvantages for startups like idea poaching. Others may be reluctant to acquire startups with backing from a competitor.
"While it is great for entrepreneurs to have another option, most corporate accelerators don't work as they provide too narrow an aperture for the companies,” Paul Bricault, partner at Greycroft and co-founder of Amplify.LA said.
He recommends startups choose a program without an attached company because "(they) need to build for larger markets and frequently corporate accelerators jaundice a broader market focus by magnifying their own perspective."
Despite the potential downsides, the corporate accelerator trend doesn't seem like it will end anytime soon.
"Over the past two years we've seen a tremendous amount of interest from large corporations who want to be more proactive about engaging with technology products and innovation,” Jacob Mullins, CEO of Exitround and a mentor of Orange startups said.
Similarly, Cohen notes his company has gotten “tremendous inbound interest” from Fortune 500 companies hoping to get involved with TechStars.
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