Mick Liubinskas, co-founder of incubator Pollenizer agrees large businesses are starting to get serious about investing in early-stage ventures.
“But they are taking their time to get their heads around the start-up space. It’s difficult for them to take a risk and disrupt their own market, but they know that if they don’t someone else will,” he says.
Patrick Llewellyn, CEO of 99designs, believes part of the reluctance by corporates to wade into the start-up market is the fact that many were burned making poor investments in digital ventures during the early days of Web 1.0 that did not deliver any real sustained success.
“In the past, NAB, Telstra and all the major media players operated quasi funds or capital allocations to invest in start-ups or early stage business opportunities that met with varied levels of success,” he says.
“There were some well executed classified plays like seek.com, carsales.com.au and realestate.com.au, and Atlassian is leading the charge for self-funded success stories of the last 10 years.”
“But across the board we haven’t seen enough winners from Web 1.0 to really encourage corporates to continue investing.”
“It’s the same reason why there isn’t a vibrant venture capital market in Australia.”
“Investors tended to pull their heads in post the first internet investment bubble and went back to investing in property and things they know and understand.
“But over the last two years we are starting to see an improvement in the Australian funding landscape.”
“We’re also starting to see new styles of angel networks and incubators and accelerators coming in to support early stage businesses develop.”
The flipside, according to Llewellyn, is reluctance among start-ups to accept funding from corporates.
“It’s often not attractive to take money from corporates at the early stage of a start-up’s development as it can make the entrepreneur feel like they are locked in to a certain path,” he says.
“Getting money from a corporate often comes with strings attached and it can limit the flexibility you have.”
“For instance, you might not be able to sell to one of their competitors and it could limit your ultimate liquidity options.”
Nevertheless, Dale McCarthy thinks most large corporates will establish separate businesses for investing in pre-profit companies over the next few years.
“Large corporates are faced with a structural challenge,” she explains. “They need to invest in early stage businesses to fund their future growth.”
“Their investment criteria will be around leveraging existing assets through early stage businesses. Large financial institutions will also set up more speculative venture funds.”
“Over the next few years, it’s very likely that we’ll see retail, financial services and media businesses making more speculative investments through fund structures.”
Top five tips for getting on the radar of big business:
1. Do your homework and understand what category of business individual corporates are interested in investing in. There’s no point in approaching, say, Nine as a biotech start-up when history shows they are hot for digital, web-based businesses.
2. Get the right team in place. Corporates are more likely to invest in businesses that have people on the team who have been involved in successful businesses previously.
3. Don’t take no for an answer. If a corporate knocks you back once, don’t be shy about knocking on their door down the track with another venture.
4. Get your pitch right. Make sure you can clearly and quickly articulate what your business does, how it will change the market and the problem the business solves.
5. Show fiscal responsibility. Have a clear plan for how you will use any funding you receive.