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Startups Benefitting from Large Company Partnerships, Queen City Angels’ Steve Baggott Shares the How and Why

Drawing upon both his corporate career and experience as an angel investor at Queen City Angels, Steve Baggott shared insight on how startups can build relationships with large companies to accelerate their success.  Baggott was interviewed by the Angel Capital Association’s (ACA) Theresa Sedlack in a recent webinar entitled, “Approaching Corporates: Catching the Big(Co) Fish”.

Baggott’s background made him an excellent choice for this topic, having had a 32 year career at Proctor & Gamble before becoming an angel investor.  Through his role of overseeing P&G’s Corporate Development & Open Innovation Program for 17 years, Baggott became aware of angel investing--- eventually falling in love with it and pursuing it after his retirement.

To begin his talk Baggott described the nature of the relationships between startups and large companies. 

“There is the analogy that people use that it is like mice dancing with elephants. That is very true. The only twist is that it is not even so much that the elephants step on the mice, they don’t even realize [they do]...,” Baggott said. “It is just that the cultures are so different”.

But things are improving because large companies have come to realize that they cannot innovate everything they need internally, so they now partner to accelerate innovation, according to Baggott.  They also realize they need to be more entrepreneurial and less bureaucratic.  While the difference in size of the two parties brings challenges, Baggott encourages entrepreneurs to understand who they are engaging with so they establish the best rapport possible.

“Don’t assume that the people on the corporate side you’re talking to really understand what it means to be an entrepreneur or to be an angel investor.  They really don’t understand that the person across the table has maxed out three credit cards… and done a second mortgage…,” Baggott said.  “Take the time to talk with whomever you are working with at the big corporate so at least they understand the journey you have been on…because if the pilot of the startup fails, the person on the BigCo side will keep getting their paycheck at the end of the month.”

Baggott then identified the benefits that startups may gain from corporate relationships: The large company can serve to validate or refine the startup’s use case in a real world setting; they can extend the capabilities of the startup through mutual collaboration and the resources they bring, and the startup potentially has a smoother path to an exit by working directly with a likely suitor.  While these are strong incentives for startups to pursue partnering, particularly because they are already engrossed on internal projects.

“It is important for a startup to recognize that whatever innovation they bring to the big company, the people they are talking to at the BigCo already have full plates…Whatever you bring them has to be good enough to displace something they are currently working on,” Baggott explained. 

Baggott described the three common paths open to a startup to approach a potential corporate partner. First, many large companies have a web portal for inbound leads that they track—typically receiving thousands of unsolicited submissions per year.  That web portal and Baggott’s next recommendation of cold calling have low chances of success.  In comparison, Baggott is keen on finding a mutual connection who will make a warm introduction.  Some of these introductions may be found within the angel’s portfolio companies—so a pre-existing relationship potentially may be parlayed.

While angels may have an extensive network of contacts, intermediaries such as EvergreenIP are emerging to offer an alternative approach.  In EvergreenIP’s case, their services focus on the “top of the funnel”, handling the inbound submissions.  Other firms may specialize by product or industry and they are on the lookout for the specific type of innovations that fits their corporate clients.  They understand the BigCo’s needs and the language they speak, Baggott explains.  He gave Pilot44 as an example. In broad terms, these intermediaries often handle a range of services that may include the setup of the startup’s pilot program.

While a partnership with a BigCo may move the startup to an exit sooner, there are two potential down sides.  A tight partnership may dis-incentivize other potential suitors from approaching the startup or the BigCo becomes the only logical purchaser.  In the latter instance, Baggot offered the example of how jointly developed intellectual property may become difficult to disentangle with the BigCo partner and result in the dampening of third party buyer interest.

Baggott also warned against one very common mistake: wasting too much time on the wrong connection.

“As a startup you have invested months and months of time with a champion at the BigCo….unknowingly you have built that relationship with somebody so low in the organization that they cannot deliver for you in the longer term,” Baggott said. 

Baggott iterated a number of reasons as to why that contact is unable to deliver.  To counter that circumstance he recommends the startup to ask a lot of questions.  A key one is to ask how they will move toward a contract or corporate development work.

And once the startup is in front of the decision makers, he warns against using their usual allotted 30 minutes to speak solely about themselves.  It is better to leave time to learn about the needs of the BigCo because that may possibly lead to the startup to adjust its offering to create a better fit.

Baggott’s most fundamental point addressed pursuing the right partner and he offered a “punch list” to follow.

“Do they have a stated strategic intent around open innovation and is that endorsed from the top,” he said.

If they do not, Baggott recommended they be placed low on the target list.  If they do, he then offered the next criteria to evaluate them.  

“Try to understand what the track record of success is of that company when working with other big companies, mid-sized companies, startups etc...”

Baggott noted that press releases or other sources help create a picture of how the large company collaborates with outside parties.  From this emerges a short list of potential companies to approach.

“What does it feel like when you engage with them?  What is the chemistry between the two parties?  Do they treat you with respect?” Baggott enumerated his key points about building a relationship.

His last point deals with the asymmetrical relationship of the very large company working with a very small one.  Baggott encourages the startup to assess early on whether respect is being given to the startup and there is an appreciation of what they are trying to bring to the large company.  

“If it is taking you two months to negotiate the NDA, that is probably a sign that this is not going to work and I would move on,” Baggott said.