Frontier tech: learning to dance with corporate investors
This story is brought to you by Antonio Castro Neto and Pierrick Bouffaron.
AM2 is a Singapore-based venture studio that creates and strengthens science-startup projects in the advanced materials and advanced manufacturing fields. Join an incredible community building the future 🔥🤖
Frontier tech startups go through an evolution cycle way different than a typical B2B or B2C company. The challenges that founders face along their entrepreneurial paths are unique: commercialization roadmaps are more complex and require significant investment at every stage. Investors may be asked to bankroll the business for years, often supporting both the ongoing productization efforts, the market education as well as the international expansion. Team flexibility, resilience as well as a strong collective capacity to collaborate are paramount.
This should not come as a surprise for entrepreneurs. In the case of science-driven ventures, seeking product-market fit is not about A/B testing features or challenging market signals and trends. A good illustration is the first spin-out we launched from the National University of Singapore, dedicated to high-quality graphene production: 2DM. Finding the market fit had us go through conducting iterative experiments with the technology and its application to real-world environments, educating our prospects and customers about the characteristics of graphene as well as navigating the various scientific fields, industrial value chains and intellectual property that drive them. Developing a deep technology involves a series of problems to solve, which continue even once the startup makes early sales: it is then time to turn it into a reliable product, or support its integration into existing value chains. The frontier tech journey is all but volatile –progress is easily reversed, and a period of stability rarely lasts for long. With 2DM, it took us almost six years from incorporation to raising a Series A round.
Because of these volatility and intense go-to-market efforts, frontier tech is naturally characterized by longer gestation periods. Depending on the nature and maturity of the innovation (e.g., in the case of 2DM, the production and product integration of a new advanced material), it can take months to years before the technology is ready to commercialize at scale. As the stack of technologies involved can have many different applications, founders need to select which ones to pursue. Managers, board members and partners may be hesitant on the priorities or even have conflicting ideas. At 2DM, we keep facing this constant dilemma of balancing use case exploration and exploitation, evaluating with the board our strategy to allocate time and resources. Dropping some balls to focus on the most promising ones has quickly become our quarterly routine. Those are hard but crucial decisions to make.
In this game, partnering with –and getting investments from– corporates makes a lot of sense. One can regularly read in the press that avoiding corporate partnerships or investments early on should be a rule of thumb for startups, on the double ground of escaping lengthy processes and limiting later-stage investment options. In the case of frontier tech, we believe it can be a massive opportunity as long as the relationship is healthy, reviewed and adapted over time. Complex technological innovation happens close to customers and in the environment of professionals who are experiencing problems unique to their industrial context. Corporate activities capitalize on a level of industrial know-how which can be a game-changer for the founders. The startup benefits from the parenting value of brand association, access to market channels, resources, scale, and proven routines for efficient business management.
What is the main incentive? Large firms look at enhancing their corporate innovation by investing in disruptive products, services, or technologies, absorbing the startups’ fast processes. The drivers are strategic as much as financial, the startup helping drive innovation internally, challenging the status quo and being a vehicle to explore new product lines. Mature tech ecosystems have witnessed a dramatic evolution of the corporate perception towards open innovation, especially when it comes to partner with a startup: incumbent firms enter into partnerships with the genuine hope of achieving a win-win situation, looking for ways to shield the new ventures from competitive market forces or excessive internal bureaucracy.
Nevertheless, frontier tech founders should not be naive. The differences in size and culture of different firms looking to collaborate creates a minefield of potential broken promises. Large, monolithic, process-heavy companies take time to decipher a business need, the process, people, tools, financials and technology it takes to fulfil that need and then execute. Too slow partnerships and deals can lead to market timing problems, the devaluation of intellectual property and a loss of motivation from the startup leadership team. In the early days of the entrepreneurial journey, securing funding is critical. Founders need investors and partners to leverage the ongoing R&D work, fund product development, work on the market entry and strengthen a growing team. It is tempting to accept the first or the biggest corporate player we can find. But in reality, it often pays to be picky. Learning to dance with big firms takes time and is to be seen as a core element of strategic performance for frontier tech ventures.
Here are three key principles hard tech founders need to focus on to succeed:
- Ensure a strategic and cultural fit
A lack of common features in the corporate and startup medium-term future trajectories could lead to a growing operational disparity. Therefore, both partners should work on a common vision — not only roadmaps and KPIs- during the talks or the due diligence. If a common vision is not formulated formally, at least both firms should learn about each other’s attitudes and perceptions. Entrepreneurial studies always make clear that a vast majority of corporations and founders alike consider strategic fit as the most important factor of success in the collaborative relationship. Setting-up rules and reviewing the joint processes early are a must.
2. Address the corporate contingencies
A six-month deal for a corporate could be the fastest investment the firm has done. Obviously, six months are a very long time from the startup perspective, in particular for market timing and cash flow management. Things could be make-or-break within that timeframe. Corporate investors have complex organization structures and slower processes, which might frustrate the entrepreneurs. Founders should make sure to have top managerial attention during the process, and evaluate the corporations’ experience in dealing with startups in the first place. For example, multi-corporate investment rounds can be cumbersome and call for a seasoned corporate lead, or at least a top law firm versed into frontier tech investments.
3. Master the “rhythm” of scale
Being a frontier tech startup financed by corporates does not necessarily mean hunting each and every target on their prospective customer lists. It is first and foremost about the founders leveraging the power of multifaceted partnerships, tapping into the incumbents who have the capabilities and legitimacy to help bridge the reach between the startup and those potential joint customers. Over the years, scale is an absolute must, and big firms can be fantastic partners for it. But at first, the relationship can be developed through a large range of tactics- the companies being customers, joint marketing channels, investors, licensees, etc. As new commercialization models emerge, the corporates themselves reinvent their approaches to technology transfer and existing industrial chains, creating new entry points for the attentive and value-driven founders.
