The Venture Client Model: A Breakthrough Vehicle for Corporations to Benefit Strategically From Top Startups

Looking back at his tenure at BMW where he pioneered the venture clienting approach, they benefited from working with startups in various departments. There were issues across the entire value chain, such as the IT department, logistics, financial services, and the HR department that external startups could solve, better than existing technologies.

Beyond the immediate impact, startups also act as catalysts for change within large corporations, by fostering a culture of innovation and adaptability that can have a transformative impact across various facets of the business.

So, how does this work in practice?

Three Ways To Establish Startup Partnerships

First, let’s zoom out and look at the broader startup ecosystem in a simplified way. A key player within the ecosystem is a startup that creates a solution for an unsolved problem. Venture capitalists play a role in financing these startups, and because they do extensive research to ensure the uniqueness of the solution, the startup’s solution is often difficult to be imitated by existing players. Clients have a need that the startup's solution aims to solve. So, essentially, there are three main players in this system: the startup, the venture capitalist, and the client.

As a client, you engage in the ecosystem to identify the right startups for the problems you encounter. Once you identify a startup, how do you integrate the startup technology into the organization?

To integrate startup technology into a corporate setting, there are two main options: establishing a partnership or acquiring the startup. The goal is to become a user of the technology, either exclusively or in a shared capacity through licensing. There are three distinct ways to establish a partnership with the startup, yet two of them are in most cases not viable.

1. Through Corporate Venture Capital (CVC)

The first approach is through CVC, which leaves the corporate with a minority stake in the startup. Yet this process is time-consuming, often taking over 12 months. Moreover, startups often aren’t too keen on investments from corporate investors, especially if the corporate name is not well-known. This approach also requires a significant amount of capital.

Once the corporate venture capitalist has obtained a minority stake in a startup, they then need to promote the startup to the business units. This step is challenging as the business units often prefer to handle things on their own and may not prioritize working with the startup recommended by the CVC. To make things worse, the corporate VC does not automatically gain access to the startup's technology, creating a divide between the engineers in the business unit and the investors in the investment office.

To facilitate the integration of the startup's technology into the business unit, multiple additional steps are necessary, including purchasing contracts, legal contracts, and compliance requirements. This further delays the process, adding another 12 months or more. In short, the CVC approach is time-consuming and expensive.

2. Through Corporate Accelerators

Building an accelerator is another option, as it is more cost-effective than a corporate venture capital setting. However, also this approach doesn't actually transfer technology. Instead, the startup showcases the technology and its use cases during a demo day. The hope is that someone within the corporation would be interested in the technology. This sponsor would then support the startup, in monetary ways or otherwise. Unfortunately, this approach, commonly seen in programs like TechStars, also has low transfer rates into the company.

3. Through Venture Clienting

With this approach, the corporate directly buys and adopts the products of startups to gain immediate and measurable strategic benefits. It bridges the gap between startups and corporates efficiently, bypassing the pitfalls of traditional models.

Building a Venture Client Unit

To excel in working with startups within the Venture Client Model, it’s essential to establish a dedicated unit or department. This is not something an innovation manager or business director can do on the side.

Just like any other department, it can be run in various ways. To tackle the most common challenges associated with corporate-startup collaboration, the model for a successful venture client unit offers four modules:

• Startup Intelligence: The first module is gaining intelligence about the startup ecosystem and identifying problems that startups can solve better. Funding trends often help in this process; a significant amount of investment flowing into a segment, such as $100 million or more is an important signal. Once these problems are identified, the next phase involves validating the startup's solution through piloting.
• Validation: This stage should take place in the actual corporate environment, such as a factory or R&D department, to assess its effectiveness. Upon successful validation, the adoption phase begins.
• Adoption: This phase involves establishing long-term relationships with the startup through contracts or even investments. However, it is important for the venture client unit to have a clear strategy and structure for this partnership, including a defined vision, reporting lines, team size, budget, and KPIs.
• Technology: Lastly, technology plays a crucial role in managing the vast number of problems and startups in the venture client unit. Excel spreadsheets or basic CRM systems are no longer sufficient, necessitating the use of advanced technology to monitor and measure the unit's activities effectively.

Collaboration in Action: A BMW Case Study

Through their BMW Garage, BMW partnered with two startups to address the challenge of driving cars autonomously out of the factory. Sasha Andrey, a project leader at BMW, explained that they took a different approach compared to traditional autonomous driving by not using vehicle sensors like LIDAR, cameras, or radars. Instead, they installed sensors along the driving tracks to remotely control the cars inside the plants.

To develop this technology, BMW collaborated with two startups: one from South Korea specializing in LIDAR perception software and another from Switzerland experienced in motion planning software.

One of the startups were discovered at a startup event. Another got onto the radar of the BMW Garage staff after seeing their race car videos online. Of course, first the startups were extensively screened to ensure they could deliver what BMW needed.

Then, the BMW Startup Garage acted as a liaison between the startups and BMW HQ. They helped the startups understand the workings of a big OEM like BMW and integrated them into the purchasing system quickly. On the other side, they made sure BMW HQ took a fair approach by not seeking to get the startups' intellectual property, but rather focusing on testing capabilities, and negotiating fair conditions.

The teamwork between BMW teams and the startups was crucial throughout the development process. The agility and flexibility of the startups was instrumental in further developing the technology and its application inside the factories. BMW are now optimistic that the technology will deliver vast efficiency improvements already this year.