Can Corporate Engagement with Startups be Not-for-profit?
Large companies have recently found models to engage with startups that revolve primarily around technology
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Engagement of large corporates with startups can contribute to innovations in a big way. Size, resources and efficient processes of big companies complement the ideas, agility and risk-taking orientation of the startups to spur innovative solutions. While innovation is at the heart of such engagements, almost all of the models evolved so far are from the corporate innovation perspectives and how they capture the value from such efforts. In India, the government has made provisions that actively push large corporates to support startups more as responsible corporate citizens, making such engagements favorable to startups. If this makes an impact in some ways, it can be an interesting way to nurture startup ecosystems in developing economies.
Provisions under section 135 of the revised Indian Companies' Act, 2013, makes it mandatory for corporates of larger size to provide 2 per cent of their average net profits over three years for social good. Apart from the other obvious social causes, corporates can also qualify the financial support to startups under the social good definition of the act. In addition to this, after the announcement of big Startup India drive in 2016, the Indian government advised several large public sector undertakings – notably from petroleum sector – many of whom are in the global Fortune 500 list, to create a startup fund with the objective to support the ecosystem. ONGC, one of the highest profit-making crude oil and natural gas giant, launched a Rs. 100 crore startup fund. Other public sector oil companies such as IOCL, BPCL, MRPL too became part of the government's push to create startup funds. Such mandatory provisions for making large corporates contribute to the society, are widely criticised, but if viewed from startup ecosystem perspective, they can make an interesting contribution.
Corporate-Startup Engagement Models
In an article in California Management Review, Weiblen and Chesbrough have presented four models of corporate innovations through startup engagements. Corporate Venture Capital model and Corporate Incubation model largely focus on equity-driven engagements. Equity stakes in external ventures by way of corporate funding focus on outside-in innovations and introduce corporates to the new technologies. On the other hand, intrapreneurial efforts through corporate incubators follow the inside-out approach for radical innovations to be commercialised through ventures that have grown in a start-up like environment created within the large organisation.
Apart from these traditional models, large companies have recently found models to engage with startups that revolve primarily around technology. Quite often seen in the form of Corporate Accelerator programs, outside-in innovation efforts help sponsoring corporates acquire new technologies and products through multiple startups and stake claims on the IP. Platform model of engagement, on the contrary, provide a technology platform of the large corporation to startups for building their own products as seen in cases of Apple iOS, SAP or AWS. Here, the large corporation positions itself as a technology leader and takes profit from each product built using its platform.
Corporate "Startup' Responsibility
In an unequal relationship generally favouring large corporations, startups find it difficult to engage with big companies to protect ownership control and/or IP. In recent times, large companies like Amazon and Facebook have even earned bad reputations with alleged stealing of ideas and bullying the startups using their platforms. While large companies cannot be blamed for capturing value for their involvement with startups, for the startups to protect their interests, the entrepreneurial ecosystem has to provide its own mechanisms.
Government push in case of oil companies to fund startups in India or mandatory CSR that also includes startup funding, can indeed provide a new model of corporate engagement with the startups. It, in fact, it can be seen as an opportunity for large companies to make the economic impact beyond social or environmental causes as responsible corporate citizens. Supporting startups should be seen contributing more by the large companies than supporting some completely unrelated causes. Models that takes the view of Corporate "Startup' Responsibility aim at making corporate resources available to startups without prioritising the corporate for-profit in startup engagement programs.
Making it Work
Unfortunately, CSR spending on tech incubator based startups between 2014 and 2017 is estimated to be meager Rs. 54 crores. Oil companies struggle to invest startup funds with not even 10 per cent of the funds invested in some cases. It is unreasonable to expect large corporations to get involved in identifying, engaging and monitoring any such non-profit corporate engagement with startups without strategic interest. At the same time, it is important for them to ensure that their funds are utilised well for the larger good.
In order to make an impact with such provisions of mandatory responsibility, large companies need to integrate with the startup ecosystem. Positioning and implementation of such efforts demand partnerships with independent incubators, which are designed to support new tech ventures. University based incubators provide credible positioning, access to fresh ideas and monitoring that go a long way in making successes out of such programmes. Such integration can lead to better access to the resources, ease of working and reasonable freedom to the startups and can possibly yield better results from any mandatory requirements that the corporates need to fulfill towards the startups.
Mandatory provisions for the large corporates can be viewed as a unique mechanism to strengthen the startup ecosystem in India. For corporates, it need not be exclusive and can co-exist with the other models of startup engagements that are equity and/ or IP driven. Would corporates look at "compulsory' social responsibility from the perspective of corporate "startup' responsibility?