500 Startups is the most active seed investor in the world, having made about 1600 investments across the world in the past 6 years, and even partnered to start the 500 Tuktuks startup fund in Thailand. 500 Startups partnered with Insead graduate business school to look at how the 2000 biggest companies in the world (as ranked by Forbes) deal with startups. The resulting report focuses to the 500 biggest companies which represent 69 industries in 37 countries. After garnering extensive information from annual reports and company websites to see what they’re doing with startups, Arnaud Bonzom, Director of Corporate Innovation at 500 Startups, says, “We discovered a new reality where the world’s biggest corporations are not as ‘lost’ as you may think.”
The world is changing, he says – and along with it the business models of big corporations. Cases in point: - Uber – the biggest taxi company in the world, owns no taxis.
- Alibaba – the most valuable retailer in the world, holds no inventory.
- Facebook – the most popular media company in the world, doesn’t even produce its own content. History has shown that it’s literally a case of do or die. Where is our friendly neighborhood Blockbuster’s today? Why doesn’t Kodak have a name in the digital camera industry? Believe it or not, Blockbuster’s once had the opportunity to buy Netflix – and passed it up, as did Kodak when presented with a chance to enter digital cameras. Corporates today are faced with two choices: Evolve, or die. So perhaps we will not be surprised to hear that: 1. The top 100 companies on Forbes’ Global 500 list are actually working with startups twice as intensely as the last 100 companies on the list. 2. Over half of of the Unicorns (61.7%) mentioned by the Wall-Street journal under The Billion Dollar Startups Club have raised funding from at least one corporate (which doesn’t include investment firms and banks).
3. Startups can now raise money from corporates directly – without the help of any VCs. This means VCs themselves will be faced with disruption in the near future. Arnaud draws the example of DocuSign in the US, who raised a full round of funding (Series E) solely from corporate investors (SalesForce, Google, Recruit, Mitsui & Co, BBVA, NTT Docomo, Telstra and MKI) – no VCs. Traditional Venture Capital is no longer the only way to raise money for startups, proving anyone in the industry can get disrupted.
4. Corporations do not invest only in their own vertical: e.g., online music streaming service Spotify raised money from Coca-Cola. Why did a music streaming platform raise money from a beverage company? “When you look at this kind of investment or partnership between corporates & startups, it’s more about which challenge they are facing at the moment,” says Arnaud. One of Spotify’s challenges is to deliver the product worldwide. What they get by working with Coca Cola is cooperation with a massive company that sells its products all over the world. We might not realize that although Coca-Cola is a beverage company, it has more trucks than UPS, DHL and FedEx put together. From the logistics side, this makes Coke the biggest logistics company in the world. Coke gets something from the partnership too, Arnaud pointed out: Delivering a free song from Spotify easily improves Coke’s relationship with customers. Other poignant findings from the report include:
Suggestions for Corporates in Working with Startups
Many corporates seek the most beneficial stage to enter and starting working with startups. We’ve seen lot of companies such as Orange telecom or dtac in Thailand make a shift from doing series A investments – which takes a lot of money and also means a fight against top investors such as Sequoia Capital and other top investors, to starting accelerators, which gives them access to startups very early on – but, this also involves more risk as startups at such early stages have a much lower valuation.
Most of the 500 biggest companies do mergers & acquisitions (M&A) and some of them may also do research & development (R&D). Research shows that most corporate-startup engagement occurs in between these two phases. Arnaud offers the following guidelines for corporates:
In conclusion, the joint report 500 Startups and Insead shows most corporates clearly see the benefits of working with entrepreneurs and are already investing in startups in one way or another. As for what we can expect in the future, it’s just a matter of time before the rest of the corporates jump on the bandwagon.
500 Startups & Insead’s full 51-page report can be downloaded for free at the following location: How do the Biggest Companies Deal with the Startup Revolution?