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Over the past few years, enterprises have come to a realization. They realize that running Proof-of-Concepts (PoCs) with startups gives them the ability to determine the validity of a technology or solution easily and quickly. Enterprises also recognize the need to stay up to date with the startup world in order to ensure they are constantly on the cutting edge. It is crucial for them to be aware of the latest tech innovations the market has to offer. The result? An increase in enterprises desires to collaborate with startups on PoC opportunities.
At prooV, we love seeing startups and enterprises collaborate, not just because that is the first step towards a successful PoC, but because we genuinely believe in the win-win situation. When an enterprise runs a PoC with a startup, and if and when it ends successfully, the young startup can instantly leverage their post PoC success and see exponential growth. Not only does the startup benefit, but the enterprise comes out of the situation with a found solution to a problem that was once threatening their firm. Not only is the finding of the solution a winning result, but the process of finding the solution is done quickly and by using less resources than anticipated.
As enterprises recognize the benefit of working with startups, more and more are taking a quick response to ramp up their innovation potential. Enterprises are creating their own incubators, either in-house or external, leaving one to wonder – are enterprises becoming the next startup incubators?
The Need for Incubators
To understand if enterprises are in fact becoming tomorrow’s incubators, one must first understand what an incubator does beyond the simple Wikipedia definition of, “helps new and startup companies to develop by providing services such as management training or office space.”
Simply put, young startups need support, and incubators are a form of support that can be truly game-changing for these companies. Though startup founders are innovative by nature and have the ability to think outside the box, they often lack the ability to scale their solutions or finance them, making them in dire need of external assistance. Incubators support young startups by bringing them together into a shared working space where they receive mentorship, facilities and office supplies, and even funding opportunities. Beyond connecting startups to potential investors, incubators connect innovators with other innovators, strengthening the collaborative nature of startups and breeding further innovation.
But, while the idea of bringing together mentors, having a trendy working space, and the ability to source funding sounds great, incubators are not a free-ride-to-success. Incubators often have a rigorous application process and the more prestigious they are, think TechStars and Y Combinator, the more demanding the application process. Even more demanding for the startup, is the need to give away equity to the incubator before reaching a high enough valuation. Some incubators will actually invest capital into the company in order to receive equity, however there are others that require equity in exchange for acceptance. Joining an incubator comes with a cost of letting go of precious equity without any guarantee of funding or growth to follow.
The Enterprise Incubator Star
Having all of this in mind, it is clear why the corporate-run incubator has quickly taken off. As startups’ need for support grows and enterprises desires to run PoCs with startups increases, corporations realize that creating their own incubators might be the solution they’re looking for. While there are no formal statistics as to how many corporate-run incubators exist, New Markets Advisors believes that there are a “significant” number of Fortune 500 companies that have incubator programs.
So why do corporations want “in” on the incubator trend? With in-house incubators, corporations have ‘first picking rights’ for startups technologies, giving them a front row seat to the latest innovations in their field and the best opportunity to merge a new technology with their existing product or solution. Enterprises looking to expand into new verticals are able to take advantage of in-house incubators to test various solutions on a small scale and have the option to only develop the most successful ones.
For startups, the pro’s of joining a corporate-run incubator are many; while there is no funding guarantee as with non-enterprise run incubators, a successful PoC or product within a corporations incubator can quicken the growth of a startup by providing resources, global infrastructure, and a potentially massive and already existing user base. Furthermore, established enterprises are often able to bring mentors with real-life experience and powerful connections to their industry, which can often translate into long term relationships between the startups and the industry leaders.
Tomorrow’s Incubators
Enterprises are doing everything they can to push forward innovation, mostly through creating incubators. In the long run, the goal of a startup is to not only prove their solution, but scale it, and whether done through an independent incubator or an enterprise led one, if the result is a successful PoC, they’ve done it. What can be better than collaborating with a large scale enterprise, testing and scaling a viable solution with their support, and (hopefully) moving forward post successful PoC?
Yep – that’s what we call a win-win.
