By Tom Ballard, Chief Alliance Officer, PYA
Just ahead of this afternoon’s “Innov865 Investor Series” forum at Scruffy City Hall in Knoxville, we had the opportunity last week to participate in a webinar focused on better connecting start-ups and corporations.
The topic is something that the Knoxville Entrepreneur Center is trying to address, as noted in this recent teknovation.biz article about the new LEAP (Local Executive Access Program). It is also a need that I have heard consistently from entrepreneurs who see some level of relationship with established companies as a key lifeline in their journey. After all, it is another way to generate revenue.
The webinar last week was one of a series offered by the Angel Capital Association. We were able to watch it, thanks to our friend John Bruck who is an angel investor and member of the Innov865 Alliance Steering Committee. The one-hour event featured Steve Baggott, Managing Director of Strategic Growth Ventures LLC in Cincinnati.
“I have pretty much seen every deal structure you can imagine that would drive value for everyone,” the 32-year veteran of global giant Procter & Gamble said. Baggott’s last role as Director of Global Business Development spanned nearly 19 years. That’s where he was integrally involved in open innovation.
Noting that the “bigs need to partner to accelerate their own innovation programs,” Baggott also reminded the webinar viewers that they should not “assume people on the corporate side understand what it takes to be an entrepreneur. They have not maxed-out three credit cards, secured second mortgages, and ruined a couple of relationships.”
Baggott’s key theme was the importance of entrepreneurs and angels who are trying to help them understanding the nature of corporations.
“People at big companies already have full plates,” he said. “Whatever you bring them has to be good enough to displace something they are working on.”
That said, Baggott outlined several key reasons that entrepreneurs should pursue relationships with corporations. They include validating or refuting the perceived use case for the technology, extending a start-up’s capabilities by taking advantage of the corporate’s embedded expertise, and accelerating the path to an exit.
Baggott identified a variety of routes that an entrepreneur can take to capture the attention of a corporation. One that is emerging is a third party intermediary like Pilot44 in San Francisco. “They play an incredibly important role,” he said.
Many entrepreneurs try to identify and cultivate someone in the corporation to become their ally. Baggott said that is a potential path, but he offered some cogent advice.
“Ask lots and lots of question” to determine if your contact is strategic, Baggott said. “Don’t take no from somebody who can’t say yes.”
He urged entrepreneurs to take their time in vetting potential corporate partners. Baggott’s first question that needs to be answered is this one: “Do they have stated strategic intent around open innovation with top executive support?” If so, entrepreneurs should assess the corporation’s track record . . . “do they walk the talk?” Having very senior executives engaged is critically important.
“Have more than one corporate option,” Baggott advised. “Don’t have all your eggs in one basket.”
What are the downsides of seeking a corporate partnership?
Baggott said they include discouraging other potential acquirers when the start-up is ready to exit and complicating a separation if there is intertwined intellectual property.