Venture Clienting: A Vehicle for Win-Win Corporate-Startup Partnerships

Being an early customer for startups – rather than investing in them – can boost your innovation impact.

For decades, tools such as accelerators, incubators, and CVCs have propelled corporate innovation by granting access to state-of-the-art technologies, business models, and offerings, paving the way for endless possibilities. However, a new approach is gaining momentum: venture clienting.

As venture clients, corporates engage with startups as clients rather than as investors, partners, or parent companies. This approach offers the dual advantage of providing corporates with swift access to novel solutions while affording startups the crucial early revenue required for their growth.

During our recent Innov8rs Learning Lab on Startup Collaboration & Ecosystem Engagement, Gregor Gimmy (Founder and CEO at 27pilots), Lars Christian Roessler (Head of Corporate Venturing, BSH Startup Kitchen at BSH Home Appliances Group), and Eva Teresa Harasewycz (Venture Associate at Siemens Energy Ventures) discussed why the Venture Client Model is the most effective tool to drive innovation at quality and speed. They also shared practical insights on establishing a Venture Client Unit within your organization, as summarized below.

What’s A Venture Client?

A Venture Client is an organization that buys and uses products developed by startups to eventually integrate them into its existing business operations. Venture clients seek out the best startups that can help them address specific business issues, optimize their operations, or improve the overall customer experience. And “as any company that buys from startups is a Venture Client, almost every organization is a Venture Client. Startups, after all, wouldn't exist if other companies would not use their products. So, there are hundreds of thousands of Venture Clients, from huge corporations to small, ten-person firms”, says Greg in a previous article.

The term “ Venture Client” was coined by Greg back in 2014 while he was working at BMW. It all started with a question: how could the entire corporation benefit measurably from top startups? Gimmy was convinced that BMW as a whole could benefit from startups, not just the R&D department. In fact, he realized that the corporate had many problems across the entire supply chain that startups could solve better than other incumbent technology. He then created the world’s first organizational unit that applied the Venture Client model, the BMW Startup Garage. Since then, multiple companies have established their own Venture Client units, including Siemens Energy and BSH, as we’ll see later in the article.

Eva strongly believes that venture clienting is one of the best venturing tools corporates have access to today. At Siemens Energy Ventures, the entrepreneurial heart of Siemens Energy, they become an early customer of startups to test and adopt a solution to clear business problems. However, they don’t want just to test and exploit startups; rather, they want to build long-term relationships with them.

“This is a great win-win situation for both the corporate and the startups.” – says Eva.

“For us, as a corporate, we highly profit from new technologies to enhance our operations and processes and become faster. On their side, startups have the unique opportunity to gain a corporate customer as well as commercial feedback to build better products and services”.

Why Choose Venture Clienting Over CVC And Other Approaches?

The traditional approach advocated by academics and management consultants for corporates to access innovative technology, ideas, and talent is establishing a Corporate Venture Capital (CVC) unit that invests in early-stage startups. However, this conventional approach suffers from several drawbacks: it’s slow, costly, inefficient, and lacks scalability.

As we all know, the process of acquiring minority stakes in startups is time-consuming and financially burdensome, with expenses reaching millions of dollars annually. Furthermore, even promoting the startup to corporate business units can be highly challenging, requiring additional processes. Greg shares that the overall process at BMW used to last over two years, yielding minimal results; on average, only 1 out of every 10 startups they invested in resulted in a partnership or technology transfer per year.

“Corporate Venturing Capital can’t deliver on its strategic promise. As a vehicle to adopt startup-tech, CVC is slow, ineffective, expensive, requires a huge capital risk, and is not scalable”.

Initially, Greg's idea was to establish an accelerator, as it offers a more cost-effective alternative to a CVC setup. However, this approach doesn’t entail the actual transfer of technology and its success hinges on capturing the interest of someone within the corporate who recognizes the value of the showcased technology. Consequently, this method often falls short. For this reason, Greg proposes bypassing CVCs and accelerators altogether. Instead, he advocates for corporates to buy and utilize startups' products directly, as they possess the expertise to solve problems more effectively than internal resources. In other words, embracing venture clienting can be a game-changer for corporate innovation.

You should not simply improve your current CVC. Instead, you have to explore something new. Venture Clienting, unlike conventional CVC or accelerators, centers around the direct integration of startup technology into the corporate environment, eliminating the reliance on external programs.

Lars echoes Greg and emphasizes that at BSH their primary objective is to create a significant impact for both the company and the startups they collaborate with. They have intentionally directed their efforts towards creating impact within their core business and have explored diverse approaches to engage with startups accordingly. Consequently, they have phased out certain collaboration models like accelerators and incubators. Lars acknowledges that while these vehicles can be effective in building an innovation brand and driving cultural change, partnering with early-stage startups through costly, year-long programs may not necessarily yield tangible results in terms of real impact.

Similarly, CVC initiatives only make sense under specific circumstances. For example, it’s most suitable when implemented on a substantial scale as a financial investment or to generate a pipeline of potential mergers and acquisitions. In other cases, CVC can be arduous, demanding a highly skilled team, and involvement in industries that may not directly impact the core business. Without a large-scale approach, the potential for significant financial returns becomes limited, potentially resulting in small ownership stakes in companies that are also difficult to sell.

Venture Clienting, as Greg highlights, should not be viewed as an exclusive standalone approach but rather as a component of a larger and intricate innovation framework. Its purpose is not to supplant your internal innovation initiatives or replace existing departments focused on innovation or company building. Instead, it serves as a valuable complement to these efforts, enhancing and adding value to them. Companies like Apple exemplify this approach by maintaining robust R&D departments while concurrently acquiring startups. The combination of these resources is pivotal for comprehensive and holistic innovation endeavors.

And this is all confirmed by Siemens Energy Ventures, where Venture Clienting is one of three approaches they use to tackle the technical and commercial challenges throughout the entire energy value chain. Founded in 2020, Siemens Energy Ventures focuses on investing, building, and piloting ventures to transform energy systems and help fight climate change. These approaches, namely Venture Clienting, Venture Building, and Venture Capital, are employed to tackle diverse technology domains, each with a distinct time to impact:

1. Venture Clienting, or the piloting method, aims to deliver short-term successes (1 to 3 years) by swiftly and efficiently addressing specific business challenges.
2. Venture Building, or the building method, is meant to identify new markets and build teams that have the potential to create and scale up ventures for growth or spin-out. It operates on a mid-term time frame, with an impact expected within 4 to 6 years.
3. Venture Capital, or the investing method, represents a long-term approach (7 to 10 years) to support energy and climate startups as strategic growth partners, enabling them to disrupt emerging markets and scale. In addition to strategic investments, startups benefit from access to Siemens' R&D expertise, global manufacturing knowledge, and extensive network of customers, suppliers, and other ventures.

How To Become A “Good” Venture Client? The Venture Client Model

In his previous article, Greg explains that a “good” Venture Client embodies four essential characteristics:

1. A good Venture Client has a well-defined purpose of strategic relevance.
2. A good Venture Client can identify internal problems that startups solve best.
3. A good Venture Client can quickly and effectively adopt a large number of startup products.
4. A good Venture Client knows how to measure the operational performance as well as the strategic impact of startups on the company.

While we won't go into detail on the four characteristics here, it’s essential to clarify what it takes to actually become a good Venture Client. Just like any other area of business, to become a good Venture Client and do it in a scalable manner, you need to build a dedicated department with a qualified in-house team and corresponding competencies. In fact, if you want to be good at manufacturing, you need a factory; if you want to be good at design, you need a design department; if you want to be good at marketing, you need a marketing department; and if you want to be a good client for startups, you need a venture client department or unit on a mission to enable partnerships or M&A transactions. According to Greg, a Venture Client unit must follow a structured end-to-end process or model composed of four main modules:

· Startup Intelligence: this module focuses on understanding the startup ecosystem, including startups themselves, technologies, investors, the flow of funding, and problem areas. By staying informed about the startup landscape, you can identify the best startups to address your specific challenges.

· Startup Pilot: once potential problems and promising startups have been identified, the next step is to validate their technologies. This phase involves conducting a thorough assessment and matching the startup's solution to the specific needs of your corporate. Running a pilot project, preferably in the R&D department at the headquarters, allows for a comprehensive evaluation of the startup's solution. Successful validation leads to the adoption phase.

· Startup Adoption: in this phase, the focus shifts towards establishing a long-term relationship with the startup. This involves defining the terms through a supplier contract or even considering an M&A transaction, depending on the strategic alignment and goals of the partnership.

· Startup Culture: developing a startup culture within the corporate is a crucial task for a strong Venture Client unit. It entails educating corporate colleagues about the relevance of startups, the unique value they bring, and why they can offer solutions that the corporation may not be able to develop internally. Fostering an open-mindedness and understanding of the startup ecosystem greatly impacts the adoption rate of startup solutions. Additionally, it’s vital to monitor and measure the progress and outcomes of the Venture Client unit to ensure its effectiveness.

“While the majority of problems are typically addressed more effectively by the corporate itself or incumbent partners, it’s important to recognize that startups best solve certain critical problems”.

The Venture Client Model: How It Practically Works At BSH And Siemens Energy

Both BSH and Siemens Energy have established their Venture Client Units that operate following the modules described above. In particular, at BSH Startup Kitchen, the Venture Client unit of BSH, they start venture client activities by identifying specific challenges or unmet needs within the core business. So basically, they actively engage with key decision-makers across various business functions, including pre-development and e-commerce, to thoroughly understand these unresolved issues. They then act as matchmakers, connecting these challenges with startup solutions that best fit the requirements. Their responsibility extends to facilitating the entire process, encompassing onboarding, validation, and ensuring the successful implementation of these startup solutions.

“To ensure the success of a Venture Client Unit, adopting a service-oriented approach is crucial. While maintaining some degree of independence from the core business, the primary focus should be on actively supporting and collaborating with the business teams to enhance their innovation efforts”.

The Venture Client Unit at Siemens Energy Ventures collaborates with business units to address strategically significant challenges by leveraging startup solutions. The process begins by thoroughly identifying the specific needs and areas of application within the business. These needs are then matched with the most suitable startup solutions available in the market. Subsequently, the selected technologies undergo a pilot phase to validate their effectiveness. Upon successful piloting, the solutions are integrated into the organization, marketed to customers, or deployed across various sites.

Similar to BSH Startup Kitchen, Siemens' Venture Client Unit supports the entire organization, collaborating with different functions and business units. In the 18 months since its establishment, the unit has successfully identified over 100 relevant use cases, initiated 17 pilots with startups, developed 11 long-term partnerships, and currently maintains 6 ongoing pilot projects. These partnerships have resulted in an annual impact of 18 million euros.

To make this even more tangible, Eva shares the successful pilot between Percepto – an Israeli startup that manufactures and deploys industry-grade drones – and Siemens Energy. As a leading operator of power plants, Siemens Energy faces the challenge of minimizing manual inspections and plant downtime to prevent potential losses. Through their Venture Client unit, the corporate matched with Percepto, whose end-to-end solution offers autonomous asset inspection and monitoring capabilities.

Percepto's holistic solution enables fully automated inspections and continuous surveillance of industrial sites worldwide, including high-altitude and difficult-to-access locations. This capability significantly reduces risks to employees while ensuring comprehensive data collection. The partnership with Percepto brings significant benefits to Siemens Energy, including the ability to conduct automatic and remote inspections, resulting in more comprehensive data, improved efficiency, and enhanced employee safety.

The successful pilot conducted at a combined cycle power plant in Israel has paved the way for scaling the solution across Siemens Energy's entire organization. Furthermore, there are plans to implement the technology in eight additional power plant sites located in various regions, highlighting its potential for widespread adoption and impact.

Final Remarks And Lessons Learned

Venture Clienting stands apart from traditional corporate venturing models like CVCs and accelerators. By acting as an early-adopter client of startups, corporates are able to leverage the strengths of startups to address some of their most pressing unsolved innovation needs.

A well-functioning Venture Client Unit offers several advantages for corporates. First and foremost, it allows them to identify and address crucial problems thanks to startups. “Even without the brand recognition of a company like BMW, corporates can still attract and validate the most promising startups by engaging as venture clients. In fact, startups are typically eager to collaborate with clients”, emphasizes Greg. Moreover, partnerships and M&As with startups allow corporates to swiftly adopt solutions with reduced risk.

To ensure the success of Venture Clienting, it’s essential to remember that the primary purpose should be to support the core business. While cultural changes and improved working methods can be considered, the ultimate objective should always be creating tangible business impact and demonstrating sustained success, as per Lars' perspective.

Secondly, a proactive and action-oriented mindset is vital when collaborating with startups. This mindset necessitates discipline, efficient processes, and transparent communication both with startups and internal stakeholders.

Lastly, viewing pilot projects and proof of concepts (PoCs) as starting points rather than endpoints is crucial. The real relevance lies in how these initiatives can be scaled, integrated into the core business, and implemented globally. “After completing a project, it is important not to become complacent but to maintain momentum and leverage it for continued progress”, concludes Lars.