Even before General Electric announced it would relocate its headquarters to Boston, the company's venture capital arm was already actively courting startups in the region.
GE Ventures has had a Boston office since 2013 and has already invested in several Boston-area companies. With the relocation, they’re also launching a startup accelerator in the city called GE Digital Foundry.
GE is far from the only major corporation to team up with an early-stage startup. According to a new survey done by the startup accelerator MassChallenge and Imaginatik, most companies say they’re focused on early-stage interactions with startups—and not just because they’re scouting potential acquisition targets.
“The corporates really want to be in that nascent stage of development,” said Mike LaRhette, president of MassChallenge. But navigating such a partnership can be tricky, for both the big company and the startup. Their survey of 233 startups and 112 corporations including Microsoft, Pfizer and IBM found there’s not yet a consensus on how to do it right.
A lot of corporations have an “innovation team” or another division in charge of networking with promising young companies. But LaRhette said few have a solid structure or strategy for what that team’s role is. A quarter of the corporations MassChallenge surveyed aren’t even sure how much they’re spending on those efforts—and that's not the best move, said LaRhette. Starting your own in-house accelerator, for example, might cost you more than just going to the existing community.
And for all the talk of a “strategic fit” between early and mature companies, the definition of a "strategic fit" can be different for each company involved.
“For both corporates and startups you have to investigate the impact that broker, that player on the other side can have for you,” said LaRhette. “Do your good due diligence, examine the kind of impact that relationship can have for you.”
Mike Feinstein, CEO of Jisto, said both sides need to keep an open mind about how to structure such a deal.
"A big company may often need to get out of its comfort zone in terms of deal structure or how a relationship is managed," said Feinstein, whose cloud-computing company entered MassChallenge's incubator in 2014. "Learning how to do this is a critical skill for both the big and small company, but chances are the small company is already much more flexible."
For MassChallenge alumni Rifiniti, an early partnership with Cisco proved very fruitful—they’re now one of the analytics firm’s biggest customers. At first, Rifiniti CEO Michael Gresty said, there’s typically a nervousness among startups that big companies are going to poach intellectual property.
“But for most companies, it’s not worth the trouble,” Gresty said. “If it’s such a good idea they might as well acquire and go to market sooner.”
It’s not always the big guy reaching down into the startup world. Rifiniti approached Cisco, after participating in innovation accelerator programs at IBM and Microsoft that didn’t pan out.
“I would say from an enterprise side, I don’t know how likely you are to find nuggets of gold in those innovation programs, but you build a lot of good will, and you certainly have to do it,” Gresty said. “They probably have to look outside those programs for true matches and be willing to approach those companies with complementary technology and other business opportunities.”
In other words, he said, forge a real partnership.