Best Practices of Venture Clienting

Every year or so, a new trendy term enters the corporate innovation theatre: whether accelerators, company builders or corporate venture capital funds - many supposed sources of innovation and digitization drive have been hailed as the "new black" by evangelists, strategy consultancies and early adopters.

In many cases, the only thing that has remained is a reality check that it is not so simple after all and that the industry-agnostic "one-size-fits-all" rarely exists. Often, only inflated press releases in the archives of the respective company websites bear witness to those explorative, but rather inconsequential times.

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Venture Clienting is such a hot-selling variation of the transformation claviature. But in view of the sobering experiences with the mentioned vehicles, established companies are still relatively cautious in their dealings with this "new kid on the startup block" – the expectations associated with such measures were too excessive and the innovation budgets are too limited in the currently cooling global economy.

This reluctance is unfounded: Venture Clienting is a comparatively low-threshold, tried-and-tested, and resource-efficient innovation vehicle. It was already practised among established corporations in Europe, North America, and Asia more than 15 years ago and far before that, referred to simply as commercial and / or strategic partnerships with "young digital companies" or "startups". In the German-speaking world in particular, all wars were fought in this regard: from shallow, forced marriages aimed at pure PR to deeply integrated partnerships that advanced to commercially viable case studies.

Looking at a vast set of good and bad experiences, decision-makers who deal with

the topic of digital transformation and, in particular, the systematic interaction with the startup ecosystem, cannot ignore Venture Clienting anymore. At the latest, the recent interest rate hikes, the associated devaluation of the technology sector, and the omnipresent consumer uncertainty give reason to take a closer look – Venture Clienting has what it takes to become the ”white knight” of the crisis-ridden innovation activities of corporations.

1) Flexibility: So test who binds himself

Today, there are many good reasons for institutionalised interaction with the startup ecosystem that can withstand the mentioned criticism. Depending on the industry, it's mostly about tapping into trends, technologies and talent, impulses for one's own transformation story and, more and more often, concrete bottom-line impact.

For this, three basic directions are widely established in corporate innovation:

• Company Building (also Venture Building or Incubation): own development of startups.
• Corporate Venture Capital (including accelerators as a form of early-stage venture capital): strategic investment in already existing startups.
• Partnerships (Venture Clienting): strategic and/or commercial collaboration with existing startups.

Compared to Company Building and Corporate Venture Capital, Venture Clienting has the advantage of being scalable in instalments. Corporation and startup first check in a clearly defined, lived practice whether they fit together in terms of content, culture and ultimately also in economical ambitions. Only then can a deepening take place, for example through jointly developed services or equity participation.

In this sequential approach, the collaboration is initially allowed to grow rather non-binding. The creative wiggle room for course corrections remains great while stakeholder expectations can be managed more result-oriented on both sides. If such a partnership goes according to plan, it can lead to a deeper commercial anchoring, an equity investment, or ultimately the acquisition of the startup. The internal justification of such measures is more grounded than with purely opportunistic shots without a KPI and milestone foundation.

Well-designed partnerships can be scaled if they are successful, but can also be shut down if they do not work out. The path dependency of other innovation vehicles such as CVC is naturally higher and sometimes associated with hard lock-ins.

2) Market coverage: The exploratory power of Venture Clienting

For sustainable, credible interaction with the startup ecosystem, you first have to describe and learn to understand it from your own industry perspective. This includes dealing with relevant startups right on your own doorstep, but also open-minded exploration to the left and right of it - after all, digitization is driving the convergence of industries, technologies, and talents into unprecedented spheres, which makes a clear delineation of activity enormously difficult. In addition, one should simply not nip good old-fashioned serendipity in the bud from the start by setting the search fields too narrowly.

The relevant set of technology and startup verticals is usually clearly defined from an M&A, CVC or Company Building perspective and linked to the overarching corporate strategy. Venture Clienting - due to its less-binding-nature as well as the comparatively low resource input - is much better suited as an explorative tool in comparison. After all, a low-key-partnership can be set up quickly even with a startup that is quite far away from the respective industry. It is not uncommon for this to yield valuable impulses, perspectives on people and markets, and also new business that could not be distilled from a conventional, rather limited and risk-averse strategic view.

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_{The Time Is Now.}

_{Especially now, in times of economic drifts and uncertainties, there are numerous good reasons for Venture Clienting activities in the corporate environment. And it is certainly not "new wine in old bottles": the learning curve with regard to corporate-startup partnerships has increased considerably on both sides, resulting in more realistic expectations and faster, more substantial results.}

_{Misguided constellations with unclear goals and unfulfilled hopes are still a reality, of course. But already from the initiation of such, both sides can systematically derive relevant intellectual ROI with a comparatively low time and capital allocation.}

_{In the end, the versatile upward compatibility of Venture Clienting is probably its greatest strategic advantage: there are no limits to well-functioning corporate-startup partnerships - equity participation, outright acquisitions, or dedicated, jointly developed solutions can be a realistic outcome after years of mutual convergence. And in many cases, these have been justified with tangible results from a preceding Venture Clienting phase.}

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3) Capital efficiency: Steep learning curve for little money

The "testing the waters " nature of Venture Clienting has always made sense. In the current times of trimmed budgets and declining investment climate, it decides more than ever about the go and no-go of corporate innovation endeavours. Even economically robust companies no longer want to buy a pig in a poke just to maintain communicative appearances of the innovation theatre. Instead, the demand for economic substance and a well-founded compatibility between corporations and startups is growing.

Venture Clienting – if thought out and staffed right – is usually more time- and capital-efficient than other innovation vehicles, often combined in multimodal "innovation labs" and "digital hubs" with considerable overhead.

An initial proof of concept (PoC) can be set up quickly as deep integrations in booking systems and APIs are usually not yet necessary at this stage. And if necessary, data can simply be exchanged manually for the first test runs to get an indicative feel for the processes. The knowledge gained from such early experiments can be substantial and put expensive consulting projects in the shade. Because of the mentioned scalability of modern Venture Clienting setups, what works can be turned up successively. In contrast, what doesn't convert is to be discontinued to conserve time, capital and goodwill budgets on both sides.

4) Timing: Corporations and startups have learned to close ranks

Just a few years ago, collaboration between corporations and startups was considered a gimmick for the former and a waste of resources for the latter – especially when it came to early-stage startups. corporations in this context have been strongly generalised as risk-averse, slow and bureaucratic.

Such lame ducks still exist today, of course, just as there are many startups that are incapable of cooperation with established businesses. But the truth is also that many corporations have significantly stepped up their game with regard to the tech ecosystem.

Today, one can find former founders and other startup personnel in the startup-oriented units and departments of established companies. In many cases, they look back on a broad track record of Venture Clienting cases, investments and incubations. There are also increasingly well-documented APIs and dedicated test products and markets through which Venture Clienting constellations can run. Long story short: times have changed since you last checked in on Venture Clienting, if you did at all.

Accordingly, the willingness to partner is currently higher than ever before, both on the corporate and startup side. The ongoing cooling of the VC climate is doing the rest: startups are again encouraged to generate revenues as early as possible and to close financially stable accounts with strong retention. This makes going to established companies not only attractive, but in many segments inevitable.

5) Cultural spillover: The journey is the destination

The initiation of a Venture Clienting partnership is already an exploratory roller coaster: landscaping, selection, definition of the first POC, and finally the scaling of a partnership result in learnings that can make up a substantial intellectual ROI, especially on the corporate side. One thing is to continually preach the importance of digital transformation – the other is to demonstrate it with living examples. What may be common practice for innovation units or the IT department is often uncharted territory for the others involved.

No matter what the outcome of the respective partnership is at the end of the day, the sheer engagement with its opportunities, requirements and risks is immensely valuable for the individual "can do" spirit and the collective transformation readiness of a company. And it is not a one-way street: even startups – especially those that sell B2B SaaS solutions to established companies – have recognized the value of co-development with corporations. In the course of this, they can calibrate their approach, communication and ultimately the actual service in a practical manner. It is therefore not surprising that the once maligned corporate-startup partnerships have now become en vogue.

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