Pierre DuPont knew he had struck gold when his 1914 corporate investment in a still private six-year-old startup called General Motors started showing results. The stock leapt in value sevenfold and the board of directors of the chemical conglomerate followed this with another $25m investment. What DuPont did not know was that he had started an era – that of corporate venture capital (CVC).
One such organisation with an impressive CVC fund was Xerox. It had an active CVC program from the 1960s with an internally managed fund investing in some of the legendary figures in Silicon Valley, including Apple’s Steve Jobs. Xerox Technology Ventures netted capital gains of $219m – a net return of 56% on the initial investment, far greater than independent VCs.
However, it was terminated early. Why? The structure of the program provided executives with hefty compensations and led to turmoil between Xerox managers and the venture executives. It was also believed the startups in the program succeeded at the expense of other Xerox units. With the scrapping of Xerox Technology Ventures, many corporations pulled the plug on their corporate venturing funds, causing a brief hiatus in the CVC era.
In 2005, Jessica Livingston, frustrated with the amount of time it was taking VCs to make decisions, discussed the issue with future husband Paul Graham, and they created Y Combinator. In 2006, Techstars launched its first accelerator, and it was soon joined by the likes of 500 Startups, Launchpad and others.
Over the next decade, a total of $207m was invested in 11,305 startups via 579 accelerator programs. Corporate organisations noted the success of these accelerators and soon launched their own versions. Enterprises including Microsoft, Citrix and Telefónica were among the first companies to offer such programs in the early 2010s. Since then, 69 corporate accelerators have been launched worldwide.
However, the corporate accelerator model seemed to be driven by the urge for large enterprises to plug themselves loosely into the source of innovations that displaced giants like Exxon Mobil and General Electric from the top of the New York and Nasdaq stock exchanges.
In a 2017 survey, 500 Startups found that 81% of startups said that fewer than 25% of their pilots had resulted in commercial sales. This led Y Combinator to give a cold shoulder to the corporate accelerator model. The failing of the initial corporate accelerator model is similar to that of the first corporate venture fund. There was a misalignment with the speed and the risks that startups take and those of their corporate mentors. Pilots with the large corporates, a promise that attracts startups to large corporates in the first place, take too long to put in place, as those running the daily operations are busy with their daily grind and do not have the same incentives as the staff running the accelerator.
Noting the failure of the traditional model, corporates started looking for other ways to work with startups. This led to a new type of corporate accelerator model – outsourced. The idea was that partnering a team with a proven method helped the startup to be successful. Corporates could take advantage of their resources and networks and avoid the misalignment of the traditional corporate accelerator.
In 2012, the Microsoft Kinect accelerator was the first of the outsourced corporate accelerators in partnership with Techstars. This model caught on, and since then more than 50 corporates have run outsourced accelerators, including Barclays, Amazon, Alexa, Target, SAP and Ford. Our startup, RetargetLinks, has just completed the Techstars/Rakuten accelerator in Singapore, Techstars’ first accelerator in Asia and the first with Rakuten.
One of the benefits of outsourced corporate accelerators is the idea of focusing on the startups and not solely fulfilling the objectives of the corporate. Sphero had already graduated its first Techstars accelerator and sold over $20m in products before joining Techstars’ Disney accelerator. Why go back? As CEO Adam Wilson said: “We were looking for guidance to take our products to the next level, to infuse a deeper story into our robots.”
This is exactly what the Disney accelerator was able to provide. Sphero struck gold with Disney, leading to the development of the record-breaking BB8 robot. All the companies from the 2014 Disney accelerator have either raised funds or been acquired.
Corporate partnerships with the startup ecosystem have developed extensively over the years. While it is definite that the corporate accelerator model will improve and refine itself further, it is unclear how. The silver lining is that, no matter how, whether through CVC, corporate partnerships or corporate accelerator programs, startups will continually generate value for corporates, and corporates will continue to invest in the startup ecosystem.
This is an edited version of an article first published on Entrepreneur