Big banks do it, big phone companies do it, and even the biggest entertainment companies do it: After years of neglect, the world’s biggest companies are throwing their weight (and a few dollars) behind new technology startups.
It wasn’t always
this way.
Historically there’s
been one big backer of early-stage companies and that’s the investment arm
affiliated with the sultan of search, Google Ventures.
There are several reasons for the surge in
corporate accelerators launched in recent years, said Yael Hochberg, a visiting
associate professor of finance at MIT Sloan School of Management.
On one level,
industry observers like Hochberg, say this new corporate activity is another
example of corporations looking for the next new thing in investment.
“Back in the 1990s
during the first wave of corporate venture capital, there was a lot of talk
about VCs making a lot of money and then the corporate piled in. Accelerators
like TechStars and [Y Combinator] are the new hot thing,” Hochberg said.
However, there are
legitimate business cases to be made for corporate accelerators as well, she
said.
“Over the last few
decades one of the things that has definitely been happening with corporations
is that they’ve moved to an open innovation model or outsourced R&D.
They’re doing less basic research in house and essentially looking to bring
that in through acquisitions,” Hochberg said.
With the cost of
developing new technologies coming down so dramatically, it makes sense for
corporations to take smaller bets on new technology offerings, according to
Hochberg and her peers.
These days companies
from Siemens to Coca-Cola to Warner Bros. have an
accelerator program. Even the National Association of Realtors has
one. But the recent surge belies the fact that a preponderance of investment
dollars from corporations goes to later stage funding rounds.
Sometimes
corporations start these programs only to pull back on them after only a few
years. Facebook launched an accelerator in the early days of the
phenomenon only to mothball it within a couple of years. The jury is
out on whether corporations can provide the right kind of support that an
early-stage entrepreneur needs.
For SK Telecom
Americas, the business developments arm of the Korean mobile telecom giant SK
Telecom, the decision to launch its accelerator program was a matter of
necessity as much as an invention. The company simply saw a lack of early-stage
investment among venture capitalists in what its executives describe as “core
technologies.”
“There was a lot of
frustration being created not only among the entrepreneurs but also the
strategic companies weren’t getting access to new technologies from startups,
because those companies were not being formed,” said Min Park, president of SK
Telecom Americas.
To help launch early-stage
companies investing in core hardware technologies, SK Telecom Americas has put
aside up to $10 million from its own balance sheet to set up the SKTA
Innovation Accelerator.
The accelerator has
already launched two stealthy startups – Pavilion and Etopus – which will
receive up to $1 million in working capital, professional services, development
tools, and workspace to develop their computing architecture and high-speed
interconnection related technologies (respectively).
SK Telecom is also
arranging development partners for the startups that come through its program
to give them guidance on how to develop their technology and begin to take it
to market.
It’s a plan that
correlates to the thesis on corporate venturing that MIT’s Hochberg proposed.
“A lot of what
startups are about is experimentation. [Now] you can experiment at a cost
of about a tenth of what it was a decade ago,” Hochberg said. “[Businesses] can
actually go out and get a sense of whether these things are going to be
successful a lot more quickly and at a much lower cost.”
Source: http://techcrunch.com/2014/02/24/corporate-investors-move-into-the-accelerator-market/
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