3.1 SHOULD WE INCUBATE AND ACCELERATE IN A CORPORATE INNOVATION LAB?
INCUBATION AND ACCELERATION LABS
Startups and scaleups can greatly benefit from incubation or acceleration programs. Incubation and acceleration labs enable startups to put themselves on the radar of corporates. In addition, there are various incubation and acceleration programs organized by research institutions, venture capital funds and other types of organizations, which are supported by corporates who are active in the same verticals on which such programs focus.
Corporates establish or get involved in such labs so they can become acquainted with a broad variety of new business ideas from startups and scaleups in their business fields, and provide facilities, resources, expertise, mentoring and potentially equity to develop promising ideas or speed product development and time to market.
In general, these labs are focused on making products and technologies of startups and scaleups available to the corporate by enabling them to develop their business further. The corporate can track multiple startups and scaleups in parallel in its incubator, assuming that close contacts with innovative companies gives it a competitive edge.
There exist an incredible variety of incubation and acceleration labs run by corporates, from labs which only provide facilities and some other resources to labs which treat the startups and scaleups as if they are an internally run business providing them with similar support services and resources.
Best practices for structuring the relationship between the startups and scaleups and the incubation and acceleration labs of corporate are dependent on the depth of the programs. A number of general principles apply to nearly all labs.
Corporate Innovation Labs can be a very effective way for corporates to discover and develop new businesses in collaboration with startups and scaleups, with strong support from the corporate, but set up in the protected environment of the innovation labs.
Corporate innovation labs are recommended if the following conditions are met: a corporate has taken the strategic decision to stimulate and acquire access to promising ideas, new technologies or new businesses by providing active support in the innovation lab; and the existing organizational structure and culture of the corporate is unable to support those business ideas coming to fruition.
The innovation lab will provide the right environment, support, and freedom to operate for such growth initiatives – especially when they are adjacent to the core corporate business or disrupting existing business.
Philippe De Ridder, CEO & Founder Board of Innovation
The corporate will have the following objectives while establishing a corporate incubation and acceleration lab:
• Exposure to a broad variety of new business ideas from startups and scaleups in their business fields.
• Track multiple startups and scaleups in parallel, giving it a competitive edge.
• Explore opportunities to co-create new products and services with startups and scaleups.
The startup will have the following objectives while joining a corporate incubation and acceleration lab:
• Benefit from access to facilities, resources, expertise and mentoring.
• Develop promising ideas or speed product development and time to market.
• Access to (equity) financing from one or multiple corporates.
Intellectual property (IP) rights are valuable assets that enable companies to pursue significant revenue streams and leverage reliable, proven deliverables for customers in a timely and cost-efficient manner.
Legal clarity and certainty concerning the IP rights of the startups and scaleups and the corporates is of paramount importance, requiring at a minimum for appropriate non-disclosure agreements to be executed, ensuring that the disclosure of confidential information remains guaranteed and such disclosure is not considered as giving any license or other rights to the intellectual property of either party, unless otherwise agreed.
Managing IP rights in a lab truly depends on the purpose of the corporate’s incubation and accelerator lab. If the startup is expected to make certain valuable technology assets available to the corporate, connecting to the system of a corporate through technical or programming interfaces, the core technology is unlikely to be affected, requiring partners to only agree to specific IP regimes in respect of the interface. The more access is required to the core technology of a party with co-creation efforts to be undertaken, the more complicated the IP regime tends to become.
Entrepreneurs need to attentively examine the proposed IP regime to ensure that no IP ownership questions arise that imperil their long-term IP strategy or other objectives. Corporates are encouraged to establish clear and fair IP principles for their innovation lab programs and ensure that IP experts are available in case any questions arise.
If the purpose is for the cooperation to result in the development, by the startup or scaleup and the corporate, of radically new products, it is mandatory for the partners to think through and agree all IP-related issues in a co-creation agreement to be negotiated and signed by the partners before the project starts.
Further on in this book detailed best practices are described to design and structure co-creation arrangements.
Providing cash amounts under the form of loans or equity to be invested in startups and scaleups makes incubation and acceleration programs slightly more complex as partners need to agree on the valuation of their investment and many other investment aspects.
The best approach to be taken to facilitate these discussions is to either provide a fixed valuation against which the equity investment is made, or to provide a convertible loan with a reasonable discount (e.g. 20 %) to the next equity financing round.
It should be noted that in view of the complexity and given the fact that corporates opt for relatively small cash amounts as part of their programs, many elect not to provide such amounts as equity or convertible loans.
It is more common for corporates supporting external incubation and acceleration programs to either provide funding to captive venture funds established within such programs, or to co-invest alongside such investors.
For corporates and startups planning to engage in a commercial relationship, an incredibly large range of collaboration arrangements is available, from a relatively simple license, to value added licensing, funded development or co-creation partnerships, as elaborated upon in this book.