Anne-Marie Roussel

In the current economic downturn where 1) VC money is tight and 2) the IPO market is at a standstill, startups are increasingly looking at corporate venture as a means to growth -- or even just survival. Most startup-oriented conferences I have attended recently have featured discussions about corporate venture funds – in fact, I am on a panel this week about Corporate Venture Capital at the annual Private Equity conference organized by the Thunderbird School of Global Management in Phoenix.

The problem is that most corporate venture funds are also victims of the economy – and thus tightening up. That is, "pure corporate funds" – the ones that hug closely the traditional definition of a corporate fund : "The subsidiary of a large corporation which makes venture capital investments." What I found interesting in the past few months is how that definition is being stretched to include other business development activities such "corporate partnerships" or "corporate in-kind investments" (ie technology investment as opposed to pure $ injection).

When money gets tight and scarce, big corporations have to get more creative about how to integrate external innovation into the corporate fold. While acquisitions have been an obvious option – albeit fraught with potential "soft barriers" such as integration of mismatched cultures – "strategic partnerships" between a David (small startup) and a Goliath (big corporation) are the current buzz. They involve no (or little) money changing hands, instead they focus on finding synergies – mostly how a small startup with promising technology can help fill a specific gap in a corporate product portfolio, or accelerate time to market. Many of the conversations I have with startups and VCs investing in the Digital Space these days revolves around the theme of "How can we help you help us?" – in other words, the value is not just calculated in terms of pure $ but in terms of business proposition: what is innovative in a startup's technology or business model is evaluated both in terms of the potential value it can bring to the corporation but also in terms of what the corporation can do, if anything, to help that startup further develop. The focus is on "partnering" rather than "venturing". What this means for startups is that it's not all gloom and doom out there: sure, acquisition deals are harder to come by-- but many large corporations are seeking out partnerships with startups as part of their innovation strategy – and now is the time to take advantage of this trend.