Large firms urged to collaborate with startups as digital era survival tactic

Asia's Tech News Daily

Large firms urged to collaborate with startups as digital era survival tactic

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‘Corporate venturing’ practice provides 7-step solution

By Yi Whan-woo

Rapidly changing business trends in the digital era are threatening the survival of several conglomerates that remain stuck in a traditional mindset and lack the agility to nurture new growth engines.

As a business breakthrough, the embattled conglomerates are urged to join hands with startups that are small yet adaptive to digital transformation through a practice called “corporate venturing,” according to the latest report released by the Korea International Trade Association (KITA).

Titled “The trend of corporate venturing and its significance,” the report claimed corporate venturing is different from uneven, hierarchical partnerships as witnessed between larger and smaller firms in past cases.

It rather suggests the conglomerates can make up for their shortcomings through cooperation with startups, and therefore, the former should treat the latter evenly and respectfully for a “win-win situation.”

KITA viewed such equal relationships are crucial for large enterprises’ survival around the world, especially considering their average life-span will be 12 years by 2027, down from 61 in 1958.

On the other hand, more startups are surviving in the digital era and achieving explosive growth.

For instance, the number of “unicorns,” which refer to private startups with a valuation of over $1 billion, reached 887 worldwide as of November 2021, up from 269 in 2017.

The growth of the unicorns is characterized with a “J curve,” with the letter representing a company undergoing challenges early on, before picking up at an explosive pace.

Korea is no exception to a favorable ecosystem for unicorns, with their numbers consistently rising over the past four years and reaching 15 as of July this year, said analysts and pundits.

Accordingly, more than 50 multinational companies, including Google and Amazon, are running corporate venturing programs here.

“The diverging fates of slow-to-change conglomerates and promising startups explains why the former should work with the latter in finding clues for innovation,” the KITA report said. “The conglomerates can facilitate growth when their partner startups continue to grow.”

Corporate venturing is divided into seven processes, with the seventh and the last step being a conglomerate’s merger with a startup.

The beginning step includes events aimed at having them get to know and build mutual trust with the startups that interest them.

The popular events includes hackathons ― a portmanteau of hacking and marathon ― which are designed to bring together teams with the common goal of quickly solving problems which many businesses are facing.

The next process is “venture client,” under which a company purchases and uses the product of a startup with the purpose of obtaining a strategic benefit.

The third is “corporate incubator,” a collective support for startups in their early stages to overcome relevant challenges and become self-reliant. The support can be offering office space or management infrastructure.

It is followed by “corporate accelerator,” a special business unit tasked with consulting, investment and other services needed to help startups “take a leap forward,” after they make considerable advances.

A “corporate venturing builder” is a unit that is more involved in a startup’s business as a co-partner by collaborating on business direction, marketing and other management activities.

Corporate venture capital (CVC) comes next, in which a large firm takes stakes in a small but innovative business entity before acquiring it.

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