What is corporate venturing (when David and Goliath join forces)

This article appeared in the February 2018 issue of the magazine
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What is corporate venturing (when David and Goliath join forces)
What is corporate venturing (when David and Goliath join forces)

Ramón Ornelas and his team found a way to hack Instagram and post ready-to-sell products. In 2015 he devoted himself full-time to this idea with his new company Polsie. The team had already run through accelerators, started Parking spaces in Houston, but in 2017 they started a completely different program in Mexico, backed by a company that apparently has nothing to do with their industry.

“We’ve been to accelerators before, but it was different with Cinépolis, it’s a ‘cool’ company. The program was in Morelia: we rented a house, it was like being with a big brother,” says Ramón of the four-month program.

Cinépolis has been running a startup acceleration program since 2011, in which they are advised and informed about company processes. The company, in turn, learns how entrepreneurs solve problems by thinking outside the box.

Sometimes leaders are so focused on what they are doing to outperform the competition that they fail to see beyond the realm they lead, and simply interacting with entrepreneurs leads to a different way of looking at problems and, together, being able to find solutions are found to be disruptive, ”says Miguel Mier, Director of Operations at Cinépolis and a sponsor of Seedcamp, the company’s program that went from a three-day workshop in its first editions to an acceleration process.

Linking startups with company formation is a growing trend in Mexico, although it has been the case in the US for several years. Leading companies in their lines have launch acceleration arms that they can team up with or invest with later. The association of David and Goliath works as a team.

Gustavo Huerta, CEO and co-founder of Bluebox, the largest network of business accelerators in Latin America, recognized the concept and adapted it to the needs of Mexican companies. His first customer was Cinépolis.

“The suggestion was to bring the programs to Mexico but understand Mexican culture. Before there was no inadem, there was no talk of an entrepreneurial ecosystem. We started with Cinépolis, which was actually an act of faith because Miguel (Mier) and Manuel (Urrutia, Vice President for Strategy) understood us. Their competitive advantage is that they have always been innovative. They invented the world’s first VIP lounges, ”he recalls.

The acceleration of startups by companies or Corporate venture capital (CVC) helps to bring innovations from the outside to the inside. While startup acceleration programs are not a substitute for business research and development, they can help improve business performance. According to a study by the Boston Consulting Group published in April 2016, those who combine CVC with their research and development division, as well as accelerators and incubators, tend to achieve higher returns.

Photo: Ramón Ornelas de Polsie / Fernando Díaz Vidaurri

Bring innovation

After the first interruption in technological ventures such as Google and Facebookand until the unicorns What Over and AirBnBBig companies understand that disruption would change all industries.

The larger the company, the more difficult it is to develop innovations from within. Because of this, the best option was to bring it through outside ventures. Companies began running programs and actively investing in them.

“Companies are primarily looking for two things: first, they are sales and service growth opportunities, and second, they are exposed to technological threats. Just as Netflix has ousted blockbusters, nobody wants to be next, ”explains Félix Cárdenas, director of the Center for Innovation and ship at EGADE Business School and partner at EFM Capital, an investment fund.

In 2012 there were 84 active corporate venture capital investors worldwide. By the end of 2016, the number had grown to 204 CVCs closing deals and participating in entrepreneur ecosystems, according to CB Insights.

Technology and telecommunications companies invest the most in CVC. According to the analysis company, the top ten are: Intel Capital, Google Ventures, Salesforce Ventures, Comcast Ventures, Qualcomm Ventures, Cisco Investments, GE Ventures and Bloomberg Beta.

However, companies in other sectors are also working to attract more startups to their programs, some of which are JetBlue or Tyson Foods.

Corporate venturing can use several tools in addition to accelerating startups. Are they Hackathons, Mentoring programs, missions of Scouting Finding companies, partnerships with universities, strategic alliances with companies and start-ups, acquisitions or licenses that enable companies to use the innovations in new markets, industries or consumer segments.

“From the head to the employees, they know that innovations come from outside faster than from inside,” says Gustavo Huerta, co-founder of Bluebox, which was founded in 2011 when there was little corporate venturing activity in Mexico.

Gustavo says when they started working the companies paid them as suppliers for 30, 60, or even 180 days so they had to raise their own capital to expedite the ventures. They decided to run a funding round in 2014 where they raised more than a million dollars to pay for the services and have more customers. Then came two more investors.

We’re an outlier because nobody invests in accelerators. “(The investment) made it possible for us to open the tap with customers: We only had one, then eight, then up to 20. We are now 50 employees in the company,” he says.

Big companies like BBVA and Telefónica have chosen their own acceleration and mentoring programs Open Talent and Wayra.

In May 2017, the Center for Innovation and ship of the EGADE Business School of Tecnológico de Monterrey brought together several companies to form a network that encourages business investments by startups. The companies that showed their interest are FEMSA, Cemex, Alfa, Arca Continental, Sigma Alimentos, Ternium Mexico, DeAcero, Cuauhtémoc Moctezuma Heineken Mexico, Xignux, Proeza, Vitro, Axtel, BanRegio, Softek, Neoris and Grupo Quimmco.

Photo: Gustavo Huerta and Juan Pablo Sánchez from BlueBox / Fernando Díaz Vidaurri

The pioneers

The first thing a company that wants to accelerate startups has to do is really believe that innovation is a competitive advantage, emphasizes Gustavo Huerta.

“We understand that the initiative won’t thrive unless you partner with the industry leader. Those who are not leaders face the challenge of how to be. The leader has to believe that innovation is a competitive advantage, not only but de facto. “

It is no accident that the Mexican companies that run their sector are most active in corporate venturing. Cinépolis is the second largest cinema chain in the world and Bimbo is the largest bakery in the world.

Miguel Mier of Cinépolis recalls that the first Seedcamp (a three-day workshop) was held in 2013 with the simple intention of getting closer to innovators.

“The smallest and most agile startups and companies are usually the ones that make products that change entire industries in one way or another. We wanted to have this mentality and started the workshop, ”he says.

Together with Gustavo Huerta, who coordinated the first editions of Seedcamp in Morelia, Michoacán, Cinépolis began developing the first corporate accelerator specializing in digital entertainment. Later, through Bluebox, they attracted more businesses not only from Mexico but also from Latin America.

“70% of entrepreneurs are not Mexicans. Sometimes you need to give them support, help them move, bring your whole family with you after the four-month program, find a place to live in Mexico and even a school for find their children. It’s going to be a kind of family, ”says Gustavo.

Ramón Ornelas from Polsie agrees with this concept. “The whole process with Bluebox is very cool, you adopt a family for a while. We decided to stay in Morelia, start a development team there, it’s cheaper, life is quieter. It was like a spiritual retreat company. “

Photo: Fernanda Guerrero from Chía Mía / Fernando Díaz Vidaurri

The advantages

Fernanda Guerrero, co-founder of Chía Mía, a company that manufactures a range of beverages infused with chia, pitched Bimbo’s board of directors. One of them asked him how they had managed to bring 16 products onto the market and develop innovations in just four years. Fernanda’s answer was very simple: “Because we can agree more quickly.”

As an ally of the companies, Chía Mía helped them innovate, ran small pilot tests in their plant and had the spirit of a startup.

In return, the company received a ton of process, finance, human and good manufacturing practice structure to work with a company on a global scale. “They opened their doors for us Expertise and the sales network is growing. “

Félix Cárdenas from EGADE Business School emphasizes that the startup’s product or solution can be scaled much faster with the company’s infrastructure, market position and contacts.

GoWi, Jorge de León’s startup, started setting up WiFi vending machines, but no one was willing to pay for something that could be found for free in many places. It didn’t generate any revenue for two years until an investor asked it to install WiFi networks in six shopping malls. The problem was there were only three people and a programmer to do this.

“They realized that we have the knowledge, but not the operational capacity, and they have decided to invest more in us than in the company,” says Jorge of this experience. They successfully installed the networks in the shopping malls, which opened the door to more opportunities.

They participated in NAVE, Axtel’s corporate accelerator. Together they managed to develop more services and add value to the existing ones. Now GoWi has four well-defined products: connections to hotspots, shopping malls and public places; WiFi bus that can connect up to 50 people in one bus; Internet at events for up to 5,000 people and Software as a Service (SaaS).

“We work with Axtel in two market models: the mass market and the business market. In bulk, Axtel has a few spots in the streets called Axtel Xtremo. He changed it to call it GoWi Extremo. We had 1,500 points overnight, which makes you a lot better against the competition. “

Photo: Jorge de León from GoWi / Fernando Díaz Vidaurri

The challenges

Israel Cauich presented his first robot chat model developed by SoldAI, his startup, at Week 2015. It was a version that had more to do with predictive statistics than artificial intelligence (AI), but on that occasion there were 30 people wanted to try the registered product. There he realized that he had something good.

In December 2016 he started a campaign for the Freska brand on Facebook with Coca-Cola: You were his first product and his first customer. In 2017 he was selected to participate in Grupo Modelo’s Levadura Acceleration Program, with which he will work on campaigns with chatbots not only in Mexico but also in different parts of Latin America.

“We adapt to our customers’ services and complement, rather than replace, previous investments. In the past, companies were skeptical of our work when there were AI giants like Google or IBM, but they saw that it was easier to use our technology than that of another supplier, “explains Israel, what makes SoldAI special.

Startups can be allies of corporations given the challenges they face with technological advances like artificial intelligence. They can also teach big companies some organizational stuff.

“When we showed the HR department at Axtel our horizontal organizational model, they asked us where the managers or supervisors were. There wasn’t. “

Corporations, especially Mexicans, face challenges when it comes to accelerating startups: The first is to really believe in the model.

“They tend not to tolerate risks and uncertainties. And it’s important to know that 30% of early investment is startups that will go away. We have to have the stomach to endure this, ”says Félix Cárdenas from EGADE.

It is also necessary to end the entrepreneur’s distrust. “You always have to show them that they are not stealing their idea, taking something away from them and letting the company do it itself,” says Gustavo Huerta.

Corporate venturing is still a young concept in Mexico that lacks consolidation. For it to work, explains Fernanda Guerrero, the startup needs to understand why it’s meeting a company, and they need to share the goals. David need not be afraid that Goiliat will destroy him. “If they’re aligned, don’t be afraid.”

Photo: Israel Cauich from SoldAI / Fernando Díaz Vidaurri

With information from Marisol García

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