Partnerships, Investments and Acquisitions – how corporations and startups work
These are the three most common methods for corporations to work with startups, but what are the real benefits and risks of each, you may ask. Fortunately, UBI Global has this data and we’re ready to share it with you.
Corporations work with startups but don’t invest by making them part of their vendor network. The corporation treats the startup with billable hours, services or goods just like a typical vendor. There may or may not be non-disclosure or non-compete agreements depending on the nature of the relationship. This is advantageous to the corporation because they have no exposure via investment. It benefits the startup in that they are certain of constant income for their resources.
A partnership may also be in the form of a business model that shares risk and reward between the parties. The startup may agree to brand or co-brand a product, service or technology and take advantage of the marketing power behind the company that they don’t have. The company gets exposure to a new and different market with only the risk of their reputation on the line. The startup gets the cache and brand awareness of the company plus a fairly certain supply and demand relationship as well.
Very straightforward on the surface, investing in a startup gives a certain amount of shares to the company in exchange for a direct capital infusion of funds. The benefits to both sides are obvious as this is a fair, tit-for-tat relationship on paper. The startup, in this case, would benefit highly from involvement with a business accelerator program that ensures future success of the investment for both sides.
This is fairly self explanatory; it could be a billion dollar buyout or an acquisition of very early technology along with employees and resources. Whatever the size and scope, the end result is the same; the startup is now part of the company. The company obviously faces the risk of the new technology failing to be sustainable for them in some way while they are out the capital from the buyout. It does prevent, however, any competitor from coming to market before them with the same thing. For the startup, the reward is financial along with becoming part of the company and the security and benefits of that relationship; the only downside being autonomy lost and, possibly, further innovation using the same methods as when they were a startup.
At UBI Global, our business incubation knowledge and data is the most comprehensive in the world. We can provide you with the best success rate no matter what your business model may turn out to be.