Startup sourcing: how to find the best startups to collaborate with
By Julie Durban - 17 March 2021
It’s no mystery that most startups that take off and become scale-ups or unicorns have large corporates in their capital. The largest companies in the world have shown their interest in working with startups. They are looking for innovation, fresh approaches and entrepreneurial spirit.
But before launching collaborations, it is necessary to find the right startups to work with. This involves sourcing startups, either through internal means or by outsourcing the search.
Here are tried and tested ways for large groups to find the best startups to collaborate with.
Identify your sourcing needs
Sourcing does not only imply searching but also qualifying and shortlisting, i.e. sorting out and identifying the innovations that will serve the needs of the group.
To properly identify the startups with which to collaborate, large groups must first and foremost know the needs of their market and their business. Having an overall view of the ecosystem and the technologies at stake in their sector is the first condition for orienting their sourcing and making it relevant. However, this initial approach is not enough. It is also essential to know the business expectations within the organisation. Which technology is most suited for which use case? Innovation should respond to a real operational need and/ or be applicable to internal processes.
Every large group or company that wishes to collaborate with startups must build up its understanding of current trends in order to be able to select the best solutions. In short, know what is on the market and know your criteria. The best startup solution for one company will not necessarily be the best one for another. The business units can therefore support the open innovation teams not only to identify future tech stars but also to identify those that could solve key pain points for the group or its customers. Indeed, they should prioritise the solutions that have a potentially strong ROI, by benefitting the company’s revenue or customer satisfaction.
Get to know the wider startup ecosystem
Market knowledge is not effortless, especially when it comes to keeping up with the startup ecosystem. Knowing your needs is one thing, but it can have certain drawbacks, such as only looking for what you want to find. Meanwhile, the market itself can inspire open innovation teams to launch new areas of exploration. Solutions can be found where they are not expected, so it is important to keep an open mind about new technologies and be familiar with current trends to know what will be interesting for the company.
It can also be relevant to consider the potential of a technology beyond its initial scope. Often, young startups position themselves on a market niche, when in fact they could apply their technology to other sectors. For instance, a blockchain solution for the validation and tracking of legal documents could also be suited for the certification of luxury products.
To keep an eye on the ecosystem, open innovation teams turn to the best places to detect startups, i.e. specialised trade fairs or startup acceleration programmes. Virtual and in-person fairs dedicated to startups and new technologies have proven to be essential places to detect hidden gems. They give startups a place and a limited time to present their project, allowing companies to quickly evaluate different options. Other channels may also be relevant for finding the best startups to collaborate with:
- Universities and colleges with laboratories dedicated to innovation
- Conferences on relevant topics
- Online databases and platforms (such as Crunchbase, CBInsights and Early Metrics)
- Social media (Twitter, Telegram, Clubhouse and LinkedIn)
Leverage data to source the best startups
Since it is important to be able to find suitable candidates efficiently, the classification model underlying each database is crucial. Early Metrics has developed its own classification model that relies on relevant filters to get to the right solution. The startups identified (over 35,000) can be filtered by:
- Trends and sub-trends
- Themes tackled
- Founding date
- Business model
- Strategic orientation
- And more…
Use a startup rating agency
Early Metrics, as a rating agency, has developed several types of market research products to facilitate startup sourcing for its clients. Its Ecosystem Mapping allows to gain market-wide insights by qualifying and classifying startups (even without rating them). Once this knowledge has been acquired, the Scouting product enables a more precise search within a market segment, highlighting key technologies and business models in the relevant space. These research outputs help narrow down the scope of interest before potentially launching the rating of a startup, to validate its growth potential and fit with the group.
The KPIs will differ depending on the sectors targeted by the large group. For example, the expected commercial traction will be differently assessed for medtech startups versus e-commerce ones. Rating agencies therefore provide a finer qualification than public databases. Moreover, some large companies have their own databases and only call on rating agencies to validate a specific partnership candidate.
The different sourcing methods can complement each other. There is no single best method and using a database does not prevent you from say going to conferences. Some clients of Early Metrics’, such as BBVA, choose to rely on the agency to carry out market intelligence. Others will use startup ratings to validate in-house intelligence and present the best startups to the procurement department. Other groups will opt to work with a variety of suppliers and partners. Finding your own mix is still the best recipe for success.
Measure the fit with the group
Qualifying a startup is not limited to assessing the entrepreneurial project as such, but also involves measuring the possible synergies with the group. The growth potential of a startup can indeed be correlated to the means that the group will make available to it for its development. In its early stages, a startup can be quite malleable (its business model and scaling approach not yet being fully formed). This creates opportunities for co-development with the corporate. It’s essential to know which weaknesses the group is ready to accept and which strengths it requires.
Moreover, large companies will find it easier to turn to a startup that has already collaborated with other corporates. The history of commercial pilots or partnerships is therefore a good indicator when choosing a collaborator. This track record can provide reassurance if the company is about to enter into a test phase with a startup.
Become an ambassador for top startups
As we have seen, sourcing startups is a long-term endeavour. It requires the internal mobilisation of teams to keep an eye on the market, to know the business needs of the various business units, to stay connected to the ecosystem and to call on rating agencies. From all these channels, a more or less detailed knowledge of the startup ecosystem and technological trends inevitably emerges. Large groups can thus support each other and the startup ecosystem by sharing their experience. In a non-competitive context, a corporate can refer their sourced startups to other companies, to spark new synergies for different use cases. This type of sourcing, which is more passive but collaborative, is based on recommendations and tends to develop among open innovation teams. In short: sharing knowledge can lead to better startup sourcing for all.
To go further, large groups can become sourcing sites themselves through in-house mentoring and awareness programmes, or even intrapreneurship (hosting and financing the emergence of innovative projects led by employees). Thus, without necessarily meeting an immediate need for the group, the best startups will be able to identify the group as a partner of choice. It is therefore a question of reputation: startups will naturally turn to large groups that are close to the ecosystem, open to innovation and with a history of encouraging partnerships.