The past ten years are characterized by an accelerated growth of entrepreneurship and the creation of new businesses offering innovative products and services.
It is imperative for businesses to not only develop innovative ideas internally, but to also use external ideas through collaboration with partners. Companies can share risks and costs of R&D, obtain access to valuable intellectuel property assets and thus speed up innovation processes and performance.
The focus of this book is on the perspective of the startups and scaleups intending to scale their business through collaboration with corporates, research institutions and investors. No startup or scaleup can go-it-alone entirely and is required to collaborate with other partners to ensure growth.
In this book a large variety of potential collaboration models are grouped under the term “corporate partnering transactions” in order to stress the different manners in which startups and scaleups can use collaborative transactions to scale their business to the next level.
Corporate partnering transactions are often reduced to “corporate venture capital” investments (CVC), which can be defined as a corporate taking equity stakes in startups or scaleups to gain insight into novel technologies and markets, to influence the decisions of such companies and potentially purchase them.
In our experience it is crucial for startups and scaleups to think beyond (corporate) venture capital financings and actively use a vast spectrum of corporate partnering arrangements to scale their business. An expansive approach and analysis of corporate partnering transactions requires a broad perspective, covering several types of partnering models for collaboration between corporates, research institutions and investors on the one hand and startups and scaleups on the other hand.
Corporate partnering transactions are incredibly wide in scope, making it complicated to ascribe a single set of defining characteristics for all types of transactions.
Villeneuve, Gunderson and Kaufman1 have provided a useful definition by attributing the following unique, common characteristics to such transactions:
• Continuous collaboration: the collaboration “lives” over a defined or undefined period of time, with continuous interaction between the partners for the duration of the transaction, requiring the rights and obligations of the partners to be fulfilled over time with appropriate governance mechanisms to allow for flexibility within the relationship.
• Inter-linked transactions: corporate partnering transactions typically consist of a combination of various types of transactions. The typical transactional approach per type of transaction is insufficient as all transactional elements need to be combined in a unified, workable and consistent business relationship.
For example, an R&D joint venture combines the transfer and/or licensing of intellectual property by partners to the joint venture with R&D and distribution arrangements involving the joint venture, its partners and potentially third parties, together with sophisticated funding, governance and dispute resolution arrangements.
A corporate partnering arrangement is thus a system and an ongoing interdependent relationship, which is considerably more difficult to understand and structure than more traditional relationships. The art of structuring successful corporate partnering arrangements requires the design of the components comprising the arrangement, as well as the system that defines the relationship between these components.
The tech industry in particular has been very active and adept in designing and using corporate partnering transactions to ensure growth. The arrangements generally combine the contribution by the startup or scaleup of technology assets, other resources and R&D activities with a contribution by the corporate of an investment in the further development, through R&D and/or equity/ debt funding arrangements. In general partners are also required to agree upon the attribution of ownership, manufacturing and distribution rights to the outcome of the arrangement.
A non-exhaustive summary of potential corporate partnering transactions between startups and corporates is set forth below:
• Corporate incubation and acceleration labs, which enable startups and scaleups to pitch a broad variety of new business ideas in their business fields to the corporates setting up or participating in incubation and acceleration labs, and provide them facilities, resources, expertise, mentoring and potentially equity to develop promising ideas or speed product development and time to market;
• Licensing, which enables startups to monetize their intellectual property assets by licensing to corporates, and apply them to new markets, industry sectors, and customer segments;
• Value added licensing, which enables customers to integrate innovations developed by startups into their products and services;
• Co-creation arrangements, which are arrangements for the co-creation of products and services, in a bilateral or multi-party context;
• Research institution spin-off arrangements, which are collaborations between startups and research institutions for putting promising research & development findings and results at the disposal of the startup;
• Venture capital investments, which are financial minority investments by venture capital funds and other purely financially driven types of investors;
• Corporate venture capital investments, which are strategic minority investments of corporates in startups and scaleups, by the corporate itself or a dedicated venture fund, sourced from within their incubation and acceleration labs or externally;
• Joint venture partnerships, which are alliances by corporates and startups and scaleups creating a joint entity to develop solutions and bring them to market, in a bilateral or multi-party context;
• Acquisitions and acqui-hires, which are acquisitions of young companies and their commercial-ready products by corporates in order to secure human capital and/or access new technologies, skills, expertise or markets, or young companies pursuing buy & build strategies themselves.
The book sets forth transactional and IP strategies for designing and creating corporate partnering transactions, making a distinction between non-equity (Section 3) and equity (Section 4) based transactions.
The distinction between both types is to a certain extent artificial, as all corporate partnering arrangements share the continuous nature of interaction between the parties, with various types of transactions being inter-linked. However, since the use of equity requires complicated institutionalized arrangements, it was deemed appropriate to treat them in a separate chapter.
Except for the chapters on spin-off licensing and investments by venture capital funds, all models primarily relate to the business relationships between startups and scaleups on the one hand and corporates on the other hand, in a bilateral or multilateral context.
Inside-out corporate venturing models as means to originate startups and scaleups or scale them in collaboration with corporates are described briefly in Section 5.
This book has been born from practice. Over the course of many years we had the privilege of working with hundreds of entrepreneurs and companies from a variety of sectors and industries, helping them to scale their businesses. Thinking about, analyzing, designing, negotiating and implementing an incredible broad range of corporate partnering transactions has been enormously satisfactory. The analysis of the projected and actual performance of many transactions has allowed us to distill the elements required for the design and implement successful corporate partnering strategies and best practices.
It is our hope that our expertise in designing and structuring corporate partnering transactions provides entrepreneurs, executives, innovation experts and transaction professionals with much needed strategic and practical guidance to scale businesses to the next level by using and leveraging the vast scope of potential collaboration opportunities.
David Dessers
Managing Partner
Cresco
1 Villeneuve, T., Gunderson, R. and Kaufman, D. (1997), Corporate Partnering: Structuring & Negotiating Domestic & International Strategic Alliances, Prentice Hall Law & Business, Chapter 1.