Building a Deep Tech company means dealing with corporations continuously, from validating the market in the early stages to closing the first deal with a partner.
However, for aspiring founders, it can be tricky to understand where to start navigating the corporate structure, identifying the right stakeholders, and managing various agreements.
To address this gap, we designed a unique episode drawing from the deep experience of Dennis Clark, Investment Director @ Zeon Ventures!
Key Themes Covered:
💡 Understanding How a Corporate Innovation Arm Works
🚀 Why Deep Tech Doesn’t Mean Incremental Innovation
🤝 Approaching Corporate Partnerships: Key Steps for Deep Tech Startups
⛔️ How to Identify Potential Adoption Barriers
📝 From MoUs to JDAs: Key Agreements for Startup-Corporation Collaborations
Welcome to the 39th episode of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
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KEY INSIGHTS FROM THE EPISODE
💡Understanding How a Corporate Innovation Arm Works
Day-to-day operations are typically managed by the unit itself in conjunction with corporate strategy or business units and R&D teams. Both of these teams often have differing motivations or priorities. So, [for aspiring Deep Tech founders] it’s important to understand this.
Why Do Corporations Set Up Innovation Arms?
Corporations often set up these entities for a combination of reasons.
Firstly, external forces, such as major technological shifts or societal changes, can exert pressure on existing business models.
For instance, in the automotive sector, advancements in battery technology and machine learning for safety and autonomy have spurred manufacturers to engage with Deep Tech startups via corporate venture capitals (CVCs) and innovation arms. Similarly, the chemical industry is currently responding to climate change and sustainability pressures by shifting towards bio-based materials and energy-efficient processes.
Another driving force is the rapid commoditization of certain business segments, which prompts corporations to establish CVCs to discover new business areas that might replace or rejuvenate weakening segments.
Understanding Corporate Venture Capital Dynamics and Stakeholders
Typically, a corporate executive function establishes the CVC, but its day-to-day operations involve various units.
Corporate strategy and business units usually focus on current problems or future market ambitions and are mostly staffed by business professionals keen on partnerships.
On the other hand, R&D teams often serve as both collaborators and gatekeepers for new technologies, managed by engineers who are deeply engaged in technical advancements but may also focus heavily on internal developments.
🚀 Why Deep Tech Doesn’t Mean Incremental Innovation
Founders should understand that corporate innovation and venture teams are not interested in incremental innovations; they seek disruptive, outlier technologies.
Basically, incremental innovation refers to advancements that are part of an existing roadmap.
In many industrial organizations, this could be outlined in a 10-year plan, for example. It involves improvements or developments to technologies or products that are already anticipated within the company’s strategy.
On the other hand, disruptive innovation, or what it’s sometimes called a "moonshot," is something unexpected.
This could be a breakthrough in technology or a completely new way of conceptualizing a product or service.
For instance, in the automotive industry, the concept of Mobility-as-a-Service transformed traditional transportation models. Companies like Uber and Lyft introduced significant shifts not through new technology per se, but through innovative business models that dramatically impacted the mobility and automotive sectors.
So, while incremental innovations are more about gradual enhancements along a predictable path, radical innovations disrupt the industry by introducing entirely new paradigms. That’s what’s expected from Deep Tech products.
🤝 Approaching Corporate Partnerships: Key Steps for Deep Tech Startups
Understanding how different corporate stakeholders perceive startups is crucial.
Early-stage Deep tech Startups are often seen by corporate innovation or venture units as:
Potential partners
Future acquisition targets
Collaborators to explore new technologies
Here are 3 Key Steps to Approach your conversation with a potential corporate partner:
1. Identify the Right Corporate Division
Regarding who to engage with first, consider the nature of your technology or solution.
If it meets a current product need, interacting with product teams might be more beneficial.
Conversely, if your technology is disruptive or complements future products, initiating contact with the corporate innovation team is advisable.
Remember: They could be your strongest allies and how they view your startup is essential, and this perception may evolve over time.
2. Prioritize the Right Questions
It’s important to ask the right questions to assess the need or criticality that your innovative product can uniquely address.
Here are 5 important points to understand during your interview:
Does it solve a pressing problem for the industry or corporation?
Does it align with their strategic goals, or is it merely a nice-to-have?
Understanding the corporation’s readiness to adopt new solutions and identifying potential barriers to adoption, such as budget constraints or existing commitments to other technologies, is also vital.
Additionally, inquiring about any partnerships or investments that might not be publicly known but could affect your potential collaboration is crucial. These discussions can provide insights into obstacles that may arise and help you tailor your pitch to address specific corporate needs effectively.
Finally, gathering feedback on your product—its features, pricing, and overall value proposition—is fundamental. This feedback can guide you in making necessary adjustments to enhance its appeal and suitability for the corporation’s needs.
3. Leverage Unique Resources
Once you identify the right stakeholder or champion within the corporation, you can leverage their resources, such as customer networks and distribution channels, to gain meaningful market validation and expedite market entry.
⛔️ How to Identify Potential Adoption Barriers
Understanding and interacting with people throughout the value chain, understanding their perspective and requirements, [...] and evaluating technologies inside a specific corporation and industry is really important.
In many large organizations focused on Deep Tech, such as the automotive industry, tier-one suppliers often handle significant aspects of technology development and understand the detailed requirements of the end products.
While automotive companies may ultimately purchase the solution or dictate specific technologies, interacting with various stakeholders across the value chain to gather their insights and requirements is essential.
Here are 3 suggestions to identify potential adoption barriers:
Understand the corporation's internal process for evaluating new technologies and the timeline for adopting these solutions.
Startups often face challenges due to the lengthy timelines that some industries have for integrating new technologies. Identifying industries that prioritize your solution or move faster can be strategic.
The purchasing process can be another significant barrier.
Understanding how a corporation handles procurement and engages in joint R&D efforts can provide crucial insights. Questions about the purchasing steps should be asked early to obtain valuable feedback.
Consider how to collaborate with companies at different stages of your startup's lifecycle.
For instance, if you're at a very early stage, exploring pilot programs or non-dilutive funding opportunities could be beneficial. Understanding the requirements for such collaborations and the optimal timing for re-engagement are also critical questions that should be addressed.
📝 From MoUs to JDAs: Key Agreements for Startup-Corporation Collaborations
If everything goes according to plan and you’re ready to engage with a corporation, what comes next? What are the most common types of agreements that founders can propose to start a collaboration, especially for startups at different stages seeking market validation? Let’s explore the basics.
Understanding the Landscape of Startup-Corporation Agreements
For early-stage startups, the focus should primarily be on collaborative development opportunities. These early interactions typically involve joint development agreements (JDAs) where startups work alongside corporate R&D departments to validate technologies through joint research.
This is crucial for startups that are still refining their technologies or prototypes.
As startups progress to later stages and perhaps have a minimum viable product (MVP) or a standalone product, the focus shifts towards market integration. At this stage, pilot programs become relevant, allowing startups to implement their technology within a corporate setting or integrate into the corporation’s supply chain.
This phase involves different collaborative agreements that support the practical application of the startup’s innovations.
Additionally, there is a third category that often accompanies these stages—financial or strategic support. This can include participation in corporate accelerators, securing strategic investments, or forming marketing partnerships.
These types of collaborations can provide substantial resources and guidance to startups, facilitating growth and scalability.
Memorandum of Understanding (MoU) or Letter of Intent (LOI)
In the early stages, the simplest form of collaborative agreement is typically a memorandum of understanding (MOU) or a letter of intent (LOI). These documents provide a basic framework for collaboration. They are generally not legally binding but enable both the corporate and the startup to explore partnerships ahead of a formal agreement. The advantage of these agreements is that they are straightforward and quick to establish, though they don't create legal obligations.
Joint Development Agreement (JDA)
As the relationship progresses, especially for technology-oriented companies, the next step is often a joint development agreement (JDA). This agreement goes into detail about the joint development of a product or technology. It typically defines the rights, responsibilities, and contributions of both parties, and more importantly, it establishes a framework for sharing intellectual property, costs, risks, and rewards. JDAs are typically binding and set the tone for the relationship moving forward.
Licensing Agreement
For more commercially oriented collaborations later in the startup's lifecycle, a licensing agreement might be appropriate. This type of agreement allows one party to use or commercialize technology and provides a structured framework for monetizing intellectual property. Licensing agreements require detailed negotiation around terms such as royalty rates, usage restrictions, and exclusivity, including territorial rights and market competition considerations.
Offtake Agreement
Another common agreement in sectors like Deep Tech, sustainability, and climate change is the offtake agreement. This contract between a buyer and a seller sets a price for a product, providing market validation and sometimes guaranteed revenue if the agreement is binding. While offtake agreements enhance credibility and can unlock less risk-averse capital, they also fix prices that might later affect profit margins and create long-term obligations.
