The Rise of the Corporate Accelerator
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Pierre S. DuPont knew he had struck gold when his corporate investment in 1914, in a still private, six-year-old startup called General Motors, started showing results. The stock leapt in value seven-fold and the board of directors of the chemical conglomerate followed this with another $25 million dollars in investment. What DuPont did not know is that he had started an era—the era of corporate venture capital (CVC).
One such organization with an impressive CVC fund was Xerox. Xerox had an active CVC programme since the 60s that operated an internally managed fund with the intent of investing in some of the legendary figures in Silicon Valley, including Steve Jobs.
Xerox Technology Ventures netted capital gains of $219 million dollars, which was a net return of 56 per cent on the initial investment—far greater than independent VCs.
However, it was terminated early. Why? The structure of the programme provided executives with hefty compensations and led to turmoil between Xerox managers and the XTV executives. It was also believed that the startups that were part of the programme might have succeeded at the expense of other Xerox units.
With the scraping of XTV, many corporations pulled the plug on their CVC funds—causing a brief hiatus in the CVC era.
In 2005, Jessica Livingston was interviewing for a job at the Boston VC Fund. She was frustrated with the amount of time it was taking for the VCs to take decisions and, after discussing with Paul Graham, they created Y Combinator. In 2006, Techstars launched its first accelerator, and soon was joined by the likes of 500 Startups, Launchpad and others.
Over the next decade, a total of $207 million were to be invested into 11,305 startups via 579 accelerator programmes.
The Success Story
Corporate organizations noted the success of these accelerators, and soon started launching their own versions.
Enterprises including Microsoft, Citrix and Telefonica were among the first companies to offer such programmes in the early 2010s (although now discontinued). Since then, there have been 69 corporate accelerators being launched worldwide.
However, as Erin Griffith discusses in a 2017 article in Forbes, the corporate accelerator model seemed mainly driven by the urge for large enterprises to loosely plug themselves with the source of innovations that displaced giants like Exxon Mobil and GE from the top of the perch on the NYSE and the Nasdaq.
In a 2017 survey, 500 startups found that 81 per cent of the startups said that fewer than 25 per cent 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 startup take and those of the corporate mentors. Pilots with the large corporates, a promise that attracts the startups to the large corporate organizations in the first place, take too long to put in place as those running the daily operations are busy with their daily grind and don’t have the same incentives as the staff running the corporate accelerator.
The ‘Outsourced’ Corporate Accelerator
Noting the failing of the traditional model, corporates started looking for other ways to work with startups—something that led to a new type of corporate accelerator model, an “outsourced” corporate accelerator. The idea being, by partnering with a team with a proven method helps 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 rapidly caught on; since then over 50 corporate organizations have run outsourced corporate accelerators, including Barclays, Amazon, Alexa, Target, SAP and Ford.
One of the benefits that outsourced corporate accelerators are meant to have over traditional corporate accelerators is the idea of focusing on the startups and not just solely fulfilling the objectives of the corporates. Sphero had already graduated its first Techstars accelerator and sold over $20 million 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. It is interesting to also go back and see that 100 per cent of 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 still 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 programmes, startups will continually generate value for corporate organizations and corporate organizations will continue to invest in the startup ecosystem.