Last week our investment team heard from several agri-food tech startups about their frustrating attempts to engage with corporates.
Ironically, we often hear similar frustrations from corporates: they theoretically see working with startups as an opportunity, but struggle in practice to unlock either the promised strategic or financial benefits.
As a sector, we have to do better. We must expand the toolkit for corporates to engage with startups.
One big reason corporates find it hard to work with startups is that they struggle to look beyond the two most common models for engagement: making an equity investment or becoming a customer.
With equity investing, corporates often feel it’s too risky to ‘pick winners’ to engage with when the landscape (and companies themselves) are evolving so quickly. Likewise, taking strategic capital can be a risk for startups.
And while a customer relationship might seem simpler, startups often don’t yet have the scale to be a viable supplier or fully commercial partner, making it a difficult model for both parties.
Fortunately, there are plenty of other mutually beneficial - and often simpler - ways for corporates and startups to engage in agri-food. Here are a few we’ve seen work well, and that corporates often overlook.
Access to product development and technical support - Corporates have whole armies of humans and resources to design, build, and test products. They also have established relationships with partners (e.g., suppliers, R&D and technical advisors, etc.) who are experts at de-risking technological developments. These resources can be hugely valuable in helping startups.
Support for validation at scale- Corporates are often uniquely well-placed to help startups ensure their product works in real-world conditions. This might include:
Support for customer acquisition- Supporting startups to move from their early-adopter customers to the mainstream can be a unique value add. This might look like access to lead generation channels (e.g., field days, digital campaigns, showcases, etc.). Other options include access to pre- and post-sales technical support, customer service resources, or logistical deployment support (e.g., warehouse space).
Advisory and in-kind support- Perhaps the lowest hanging fruit for corporates is offering startups in-kind support. Common examples we’ve seen include:
To unlock the power of the startup engagement tools above, it’s critical that corporates acknowledge that not all startups are the same. Corporates must instead consider how and why to work with each specific startup.
An obvious factor is the stage of the startup- what resources do they have and what do they lack.
But stage is more nuanced than just the number of employees and amount of funding.
Corporates need to understand whether the startup is solving for technology or market risk to figure out the kind of help that can be meaningful. Do they have a functioning product? Can they build and deliver it repeatedly? Have they confirmed who will use it and who will pay for it?
Corporates who adapt their engagement model to the risk profile of the startup, rather than wait until all the answers are “yes”, can partner earlier and access more value, sooner.
Corporates must also be self-aware enough to acknowledge their own strengths & weaknesses. What assets and resources can they bring to bear that the startup cannot access elsewhere? (Hint: it’s very unlikely that money is the answer). What challenges are they struggling to solve that a startup would find easy to tackle?
Answering these questions can help corporates select the tools that will (and won’t) be relevant.
Startups are looking for partners. And corporates have both more to gain from, and more to offer to, startups than they realize, especially in agri-food.
By building a toolkit of engagement tactics, corporates can unlock more value sooner and cheaper.
Tenacious Ventures Management Pty Ltd (CAR 001275760), Tenacious Ventures Management Partnership, LP (CAR 001298484), Tenacious Ventures Fund II Management Partnership, LP (CAR 001298483), and Tenacious Ventures Fund II Staple Co Pty Ltd (CAR 001298487) are Corporate Authorised Representatives of Sandford Capital Pty Ltd (ABN 82 600 590 887), Australian Financial Services Licence No 461981, and are authorised to provide advisory and dealing in connection with investments to wholesale clients only.