For years now, top corporations have successfully leveraged innovation tools like acceleration, incubation and CVC to foster growth and gain a competitive advantage. These tools boost innovation by giving companies access to cutting-edge technologies, business models, and offerings - opening them to endless opportunities. Now there’s a different innovation tool on the rise: the venture client model.
Corporations that use the venture client model, engage startups as a client, not as an investor, partner or parent company. It benefits corporates by providing quick access to new solutions while giving startups the early revenue they need to grow.
Like other tools, the venture client model facilitates the interface between internal and external innovation, enabling companies to:
- Grow beyond their core business
- Create new revenue streams
- Accelerate the innovation process
However, compared to other corporate venturing tools, it requires less investment or upfront commitment. Let’s take a closer look at how the venture client model works, its benefits and whether or not it's a good fit for you.
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What is the venture client model?
Born at the BMW Startup Garage back in 2015, the venture client model is a relatively new approach to corporate innovation. Under this model, startups become innovation suppliers for corporates at a very early stage:
- Before the offering is mature or fully developed
- Before the startup has a proven business model
In essence, the corporation acts as an early adopter of the startup’s technology, feeding its growth by becoming a customer. In some cases, the corporate can also provide valuable feedback about the new product or service, enabling the startup to make vital iterations.
As a venture client, the corporate has no equity stake in the startup. As explained by Gregor Gimmy, the CEO of 27pilots, credited with creating the model:
“We are not an accelerator, we are a venture client. That means we become a startup’s client at a point in time that still makes it a “venture,” for example because the startup product is not ready to launch yet.”
He also clarified the venture client definition by specifying that it's not a supply chain tool. Instead, it’s a competitive tool that enables companies to make data-driven decisions about whether or not to engage in long-term collaborations with startups. It makes the overall process faster and less risky.
Today, many leading corporations have venture client units that are yielding stellar results, including Bosch, Siemens and Holcim. These units have dedicated teams and resources to identify, engage and onboard startups with relevant new solutions. In most cases, they coexist alongside other corporate venturing activities.
How do venture client units work?
Here’s how venture client units work in practice:
Identifying needs and challenges
This process can start in one of two ways:
- When a venture client unit proactively identifies a strategically relevant startup
- When a business unit within the corporate identifies a problem, gap or challenge
These challenges are usually complex and cannot be solved through internal resources or existing partners. In the latter scenario, the business unit makes a request for external startup support to the venture client unit. The goal is to seek out top startups that offer solutions to help the corporate reach its strategic innovation goals.
Challenges are usually prioritised based on urgency, impact or the business unit’s motivation to solve the challenge.
An in-depth analysis of the challenge is done to create the criteria for the new startup solution. For example, the venture unit at Bosch is constantly on the lookout for new startup innovations to help speed up its development cycles.
Internal prep work involves tasks like allocating a budget and getting buy-in from corporate stakeholders. During this process, venture client teams work closely with business units (i.e. the actual venture client) because they have the technical expertise to understand the challenge better than anyone. Other departments like legal can aid preparation, speeding up the startup onboarding process later on.
External prep work usually involves tasks like creating the startup participation criteria, defining the KPIs and establishing timelines (e.g. ongoing tasks, tenders, etc.).
Startup sourcing, selection and negotiation
During this phase, the venture client unit issues a “program call” to engage and invite relevant startups. After an initial assessment, the startups that best fit the pre-established criteria are invited to meet with the corporate and discuss the negotiation terms.
The pilot phase
This phase entails setting up a pilot project to test the new solution. This is done by buying a small sample of the startup solution and implementing it in a real setting for a determined period of time. The solution’s performance is closely monitored to ensure it meets pre-established KPIs. The data gathered during this phase will help the venture client team decide whether or not to adopt the solution.
Once a new solution is approved, the next step is to negotiate a roadmap for future use. This could take the form of:
- Continued patronage
- Licensing the new startup solution
Depending on the relevance and potential impact of the solution, it could be scaled for wider use throughout the corporation.
How does the venture client model benefit corporates?
We’ve already touched on some of the benefits of the venture client model for corporations, now let's look at them in more detail:
Low-risk access to cutting-edge startups
The venture client model enables companies to test new innovative solutions before making any big investments or commitments. It also allows corporates to work closely with startups and test if there is a good fit before engaging in a long-term relationship.
Early collaborations with startups that haven’t yet fully developed their offerings leave room for customised iterations. For example, after trying a new product or service, a corporate can request new changes and features to make it an even more effective solution. This level of customisation is more of a challenge if the offering is already fully developed.
Lower upfront costs compared to other innovation tools
Innovation tools like CVC, incubators, and accelerators often require an upfront investment for things like operations, maintenance and hiring (among others). In comparison, the venture client model is quite cost-effective, requiring a relatively small investment (just enough to purchase the solution). In some cases, the corporate may allocate a budget to cover some of the startup’s costs, but even then, the cost is usually lower than direct funding.
An accelerated innovation process
Buiding new solutions internally can take years of research and development with no guarantee of success. The challenge is even bigger for corporations that lack innovation experience.
The venture client model enables corporations to skip to the end of the innovation process and get quick access to vital solutions and technologies. All the tangible benefits of a new solution without the effort of having to build it in-house.
It fosters a culture of innovation
Under the venture client model, different units within a corporation work closely with startup teams, gaining exposure to new, out-of-the-box approaches. The collaboration helps boost companies' entrepreneurial thinking, leading to a more robust innovation culture.
How does the venture client model benefit startups?
These are just some of the benefits of the venture client model for startups:
Autonomy and full equity
Under the venture client model, startups are simply gaining a client, with no loss of autonomy, equity or control.
Reliable validation based on real cases
Early stage products get tested on their ability to solve real corporate challenges. The data and feedback gathered lead to valuable product improvements - even if the solution doesn’t get adopted by the corporate.
Early client revenue
The venture client model enables startups to earn revenue much earlier while they’re still developing their product or service. This can provide the revenue needed to fund further development, increasing the chance of long-term success.
Access to industry knowledge and expertise
Working in close collaboration with corporates enables startup teams to gain more in-depth knowledge of the industries they serve. In some cases, corporates can even provide valuable coaching and mentoring to help take the startup to the next level.
Is the venture client model right for you?
The venture client model is an effective and efficient way to access new startup solutions before they even hit the market. It’s a low-risk and relatively inexpensive way for corporations to:
- Gain strategic insights
- Test new solutions quickly and cost-effectively
- Benefit from customised offerings
- Access a solution before competitors do (i.e. a time-to-market advantage)
The added capabilities can make a huge impact, enabling companies to enter non-core markets, improve existing processes and compete more effectively.
Given this model's high speed, high capital efficiency, and low risk, it’s a good first approach for corporations with a relatively low level of open innovation maturity. While no corporate venturing activity is entirely free of risk, the venture client model is an ideal way to start collaborating with startups and building your corporate ecosystem.
Are you looking for new ways to fuel company-wide innovation and create new revenue streams? We can help you leverage existing corporate assets to build your corporate venturing unit and pave the way for the future growth of your business.