Evaluating Startups: What Metrics Matter the Most?

Catapult Posters New (2).png

In the previous blog, we have discusses what are the “5 most important questions to ask your organization and yourself before going to bed with startups?” Now that you are ready to dive into the startup world, let’s review the essential metrics for startup evaluation to determine how suitable the case is for your needs and how likely it is to survive long-term.

It is important to understand that the company evaluation for early-stage startups and more advanced growth companies (aka scale-ups) can and will differ. The younger (the more early-stage) the company is, the more essential it is to remain focused on finding the first paying customers as soon as possible to find and prove the product-market-fit. Wherein growth companies fight for the firm position on a market space comparing to its competitors, set a steady revenue stream, scale its operations, grow the team and attract new investment/partnership opportunities. Hence, identifying what stage company your corporate seeks for will then determine what metrics matter the most in startup evaluation.

Since Catapult’s services rely heavily on data, only more advanced growth companies are to be seen in the data-pool, and consequently to be validated for startup-corporate collaboration. Metrics presented below correspond to the needs of corporates to find and collaborate with more advanced cases.


What metrics matter the most when evaluating a startup from corporate perspective?

 
2.png

FINANCE DATA

  • Investments & Investors

  • Turnover

  • Valuation estimations

  • Estimates of the runway with present funding


3.png

TRACK DATA

  • Descriptions of the product/service

  • Growth speed

  • Growth speed of the company compared to competitors

  • Presence in different medias weekly compared to competitors


1.png

TEAM DATA

  • Founders & their success with previous ventures

  • Team members & their background

  • Employees growth

  • Board members & Advisers

 

In the next blog posts, we’re going to dive deeper into each data-driven metric and understand how to comprehend data to make conclusions on startup evaluation.

 

5 Questions to Ask Your Organization Before Partnering with Startups

Heiman Realtors.png

The global business landscape is transforming at a speed of light. Why? - Rapid digitization. Not only did it boost the creation of many new products and services, but a new way of thinking. Big companies, aka corporates, are now stepping up and speeding up the game by finding external technologies and innovations rather than developing those in-house.

In fact, based on the results of a recent survey (study by the Unilever Foundation) of 204 corporate brand managers and 114 startups about how their companies planned to collaborate together: 80% of corporates believe that startups can have a positive impact on a large company’s approach to innovation; 89% of startups believe they’re able to deliver business solutions which can scale. Great numbers, right?

Before acting on them and starting collaboration with startups, let's review some crucial questions that each corporate and its CTO (or Head of Digital) has to answer. 


imageedit_1_6041480850.png

What questions you should ask your organization and yourself before going to bed with startups?

 

Question #1: Do you know what you want to achieve?

Sounds basic and trivial? Maybe. But often companies embrace startup-corporate collaboration for the wrong reasons, that are not aligned with company’s short-term and long-term strategies, across departments or among corporate’s leaders. Understanding what is the main target and why to partner with startup is crucial. It is also about setting preliminary goals in accordance with available resources (budget, people, time, know-how etc.) within organization.


Question #2: Did you decide what type of collaboration is suitable for your organization?

There are many ways to build collaboration with startups. Are you seeking for new technologies, innovations and solution providers to collaborate with? Is your main goal to find an investable company? Are you serious about acquiring a promising startup? Or perhaps you are looking into establishing in-house acceleration program? Or it is just about becoming a client for an interesting startup company utilizing / redistributing their products and services? Could it be something entirely different? Drawing a clear path for partnership is not only one of the main criteria for startup scouting and validation, but a fundamental internal strategy to be agreed upon in advance with staff involved in venture collaboration.


Question #3: Do you have a dedicated person or a team for venture collaboration?

Undertaking a project like finding new technologies or building sustainable relationship with startup(s) is a herculean task, that is not to be tackled alone. It would mean recruiting/assigning a dedicated person, or a team, or even an entire department to oversee venture-collaboration activities. It is of the essence to ask: Can we validate ourselves which startups/technologies are the right ones, or we do recruit an external partner with in-depth knowledge about startup ecosystem? Are we going to scout relevant technologies through digital tools, consulting firms, events or elsewhere, and what human resource do we need in accordance to the chosen path? Assigning roles and responsibilities before diving into the world of startups and growth companies is one way to minimize risks and assure successful collaboration.


Question #4: How do you feel about the future of your industry, and your company’s place in it?

Take a look at your industry, its trends, its market leaders, its growth. Nowadays, timing is a pressing matter. With more Ubers and AirBnBs challenging big traditional players, corporate giants need to act fast to the changes in the industry, predict future trends and compete with new, more agile growth companies and technologies. Approach it as a standard interview question: “How do you see your organization in 5 years?!” And continuing: Will the industry still exist? Are you confident that your current direction will strengthen your position on the market in the near future? Are you fast enough to find promising technologies, growth companies and innovators? What are other corporates doing in this focus area and are they succeeding?“ Senior management needs to understand how new technologies may impact their business field in order to recognize and develop relevant solutions.


Question #5: Are you ready to adapt startup culture?

Good startups are like good programmers. You don't choose them, they choose you. Ask yourself: what can we offer to a startup? Are we sexy enough? Can we move along with the same speed? Here are just a few major differences and pitfalls in innovation and organizational structure that you might face: (1) Startups cannot be approached top-down way, but rather at eye level. (2) Failure is a natural milestone for a young company, wherein in many corporates even the slightest sign of failure has a heavy cost for those involved, hence are often avoided and not openly acknowledged. (3) Things move at a speed of light in a startup company - few months can mean growth or death valley, new corporate deals, radical pivoting etc., wherein corporates might take months just to make a decision on venture collaboration.

At the end of the day, it’s all about expectation management, ambition level, speed and adaptability. Senior management has to be ready to adapt, make fast decisions, and throw overboard conventional and tested ways of thinking, i.e. be curious and open-minded.


Let’s see whether you’re ready to collaborate with startups?

imageedit_1_6041480850.png
 

Share/Download this content via SlideShare

Corporate-Startup Collaboration: Barriers and Solutions - The wrap-up & Recommendations

Digital technology is undeniably altering every industry and driving changes in business models and creating online platforms. Companies with the ability to change faster and co-create efficiently are much more likely to survive these disruptions. Collaboration with startups and scale-ups is an increasingly important mechanism for corporations to stay on top of the innovative and changing markets, and allows them to play in the same space with the disruptors without being played out from the game.

For corporations already taking part in some sort of collaborative programs with startups, we can't emphasize the speed of this process enough. In this blog series, we have suggested ways for corporations to streamline startup collaboration. Companies that aren't yet utilizing startups in their business development needs, we urge you to start NOW. Although startup collaboration, (heck, any partnerships) is risky, not taking advantage of the opportunities that scale ups bring is way riskier. We all know examples of once great companies, who ruled the markets and had no worries in the world of losing that competitive edge. These companies lacked the vision and drive to innovate and lost to the disrupters.

If your company isn't playing with the startups yet, we're urging you to at least compare the costs and benefits of that option to your current corporate innovation strategy. And finally, when you come to your senses, we're here to help! We are experts in finding the right startups for your business development needs. If you're ready to disrupt your industry fill out THIS form and we'll help you write your next success story!

Our final tips and conclusions for Corporations:

screenshot-infograph.venngage.com-2017-09-06-16-14-16.png

Corporation-Startup Collaboration: Barriers & Solutions (part 7.)

The Catapult team is back from the summer holidays! We hope that everyone enjoyed their time off and were able to recharge their batteries. In case you have forgotten, we were in the midst of an article series focusing on the challenges and solutions of corporation-startup collaboration. We are picking up from where we left off, which was internal barriers that affect the collaboration and what are the most common challenges in initiating the collaboration. Today's article focuses on the challenges in the phase to of collaborating, the establishing of the relationship.

Phases of collaboration (3).png

Establishing the Collaboration with a startup

This phase is challenged by the unclear communication and frustration caused by the poor translation of the startup's technical skills. Startup's aren't always the best at explaining why they're product is the best in the market and what the advantages and benefits are to the corporation. On the flip side, startups sometimes feel that their products or services advantages don't always translate to the corporate side.  

Startups should be careful not to use too much startup jargon or put too much focus on the technical details. The corporate-side wants to know what problems the startup can solve and to fully engage the other party, the startups needs to show some promising figures as to convince their value. Scale-ups should focus on communicating where they fit in the organization and what they can offer to the corporation. Corporations on the other hand, shouldn't categorize where the startup fits too harshly. Involving startups in the process of defining the needs and finding the problems, can be very productive and bring fresh perspective and untraditional approaches that can lead to unexpected solutions.

Once the two parties find an understanding, the next step is to build mutual trust. Issues on the startup side, can surface from uncertainty about the corporation's motivation in the collaboration. Startups can be nervous about collaborating with much larger companies and are aware about the asymmetry created by the size of the companies that might set a different direction if things were not to go as planned.

From the corporation's side, trust issues often arise from hesitancy over competence, that stems from differences in professional cultures and attitudes. Differences in professional culture and attitudes can result from the more relaxed and less serious appearance and behavior of startup entrepreneurs, that can be interpreted as unprofessionalism from the corporate side.

Trust issues may also stem from the lack of information about other partnerships that  each side might be looking to establish and the length of the time that it takes to come to a deal. The other party might feel like the other side isn't as committed, and this can lead to unsynchronized expectations, that results to ineffective resource allocation and possibly bad vibes. This type of situation can occur for example, if a startup turns down other opportunities because it's expecting collaboration, which doesn't end up happening after all. 

Tips for corporations

• Be clear about the collaboration process, your motivation, timing and communicate expectations clearly with the startup. ''A quick no is always better than a long maybe.''

• Make sure that the team who's negotiating with the startup, has at least one member with technical understanding, so you get a better understanding on what the startup can do for the corporation and if there are other possible uses for it. 

• Ask for a comprehensive one-pager that has all the relevant information about the startup business (business model, market situation and opportunities), including their value proposition before the first meeting.

• Differences in the startup culture do not necessarily indicate a lack of seriousness or professionalism. 

A Closer look into the partnership types

Based on the corporation's strategic objectives, corporations can use different structures to carry out the strategic partnerships with startups. The figure above describes five different partnership types starting from the type that involves the least involvement to the type that's the most involved.

Procurement contracts are fairly transactional and require little formal integration, but have a laborious qualification and search process.

Distribution partnerships and agreements have the corporation side to distribute the startups offering. This form of a partnership is also very transactional and doesn't require a lot of integration, but do require some strategic alignment and agreement over the communications part.

License agreements, where the other partner, in most cases the corporation, licenses the startup's IP for exploitation. In this type of partnership, a bit more integration is required since the technology needs to be integrated into the other parties systems. Sometimes these license agreements involve equity or cash payments.

Co-Development agreement is a deeper form of collaboration, where both of the parties share resources in order to develop a product or a service together.

The form of partnership that requires the most involvement, are Joint Venture agreements. Joint ventures take co-development agreements to a deeper level, where sharing resources is turned into an entirely new legal entity with its own structures and processes. 

 

 

 

 

 

More info

Why Corporations and Startups Should Become Best Mates?

Today's startups are a significant source of innovation, as they employ emerging technologies in inventing and reinventing products and business models. Corporations that are brave enough to embrace a more open innovation strategy, increasingly look to startups as a source of external innovation. It has been proven that this type of co-operation is mutually beneficial, although, sometimes a challenge.

Startups: Stirring Up The Competition

Studies have showed that virtually all new net job creation over the past three decades has come from new businesses that are less than a year old. New businesses create on average 3 million new jobs each year (USA) compared to older companies of any age, type or size that in aggregate, create a net average of 1 million jobs annually. In the UK entrepreneurs made a new record as 80 new companies were being born per hour in 2016. From these new businesses approximately half make it to their fifth year of operating. Data also shows that where the average life-span of a company used to be 75 years, it’s now estimated to be approximately 15 years. This means that the younger companies that are more agile and innovative, are taking over the markets, and the majority of the most successful companies in the world at the moment, have been founded after the 21st century.  In order for the corporations to keep up with the markets and stick around for that 75 years, they need to collaborate with startups or change their working culture dramatically. More than often though, more mature corporations lack the business structures, time and the know-how to actually make the collaboration with startups happen. Everyone in the business and corporate world loves numbers, so it’s about time to take notice of them. Corporations need to realize the value startups can bring to their business. Startups spark innovation, speed and well, balls, that corporations often lack. 

Why Corporations are Falling Behind

Central elements for an innovation process are considered to be the mobility of resources and the alignment of incentives. Innovations are the most disruptive for the existing markets in organizational structures and management processes, which makes implementing these innovations challenging for more mature corporations. These challenges stem from the decision-making processes. Corporations tend to favor decisions that fit the company’s timeframe and risk profiles, that are characteristic of its on-going business. When risks occur in product life cycles that are prolonged and difficult to predict, corporations tend to stick with their existing patterns. In a corporate setting, risk taking is not as encouraged as it is in a more entrepreneurial setting and this type of shortcoming in the incentives can lead to a slower innovation process. 

Instead of hiring entrepreneurs, corporations are admitting the areas where they need help and are now pitching to startups and innovators. Many corporations are involved in hackathons and even have their own accelerator programs, but for some reason the implementation part is too often unfulfilled. Some corporations even have a department that takes care of investments in new businesses and is responsible for new business development and acquisitions. These companies are doing what they’re supposed to, but tend to do it inefficiently. The most common way of finding startups for their business development needs (or as we at Catapult say the scanning of  startups) corporations attend different startup events all over the globe. This is a great way of networking, but not the most effective way to find the startups that actually have a well established product and already have market proof. In most cases these later stage startups are too busy to attend events like this, but they are the players corporations should want to side with. By attending startup events and organizing hackathons, the company is most likely to go through roughly 60-100 startups a year. Now, that’s a good amount of companies in general, but there is a more efficient and fool proof way of using your time and resources. Another way of finding startups is scanning services, like Startup Catapult’s service called Leaders Group. By outsourcing these types of services you can save money and time and find startups that are a perfect fit to the corporations business development needs. These automated platform services use a data-base of over 100 000 startups instead of the 60 or a 100 and only pick out the ones that are perfect for your defined business development needs. If the corporation wants to use innovations in its business development, then why not do it in a more modern and automated way that's effective and saves your valuable resources. It’s an easier and more efficient way to actually get the ball rolling.

Pitfalls, But Mostly Benefits of Working Together

One of the biggest pitfalls of corporation-startup  collaboration involves issues with agility. Successful startups can be adamant on keeping their own identity, pace and their own way of doing things and can be reluctant to work with larger established companies. They like autonomy, ping pong tables and bars in their offices. Startups have in general, a risk-taking spirit that can seem intimidating and reckless to the slower-paced corporations, but really what new businesses are doing, is that they’re reacting to the markets faster. This doesn’t necessarily mean that new businesses are taking careless risks, they just have lighter structures which enable faster decision making and development. Of course taking risks doesn’t always lead to the best outcome, but that’s not the point. In the startup ecosystem making mistakes is allowed and encouraged even. Making mistakes allows startups to learn and implement what they have learned into practice, instead of wasting a year on product development and after launching it, realizing that it’s not at all what the customers are after. So, lighter business structures make the collaboration run a bit smoother, and so does not involving lawyers. Ask any startup entrepreneur and they will tell you that lawyers only come up with obstacles and risks and tend to slow things down to the point where innovation is killed. 

If you have ever worked in a large company, you know that decisions take time between all the conference calls, rounds of approvals, and the view points and weigh-in different people with different goals and agendas. Corporations should utilize the risk-taking innovators, aka startups, and let them run the project. Startups get moving quickly without having to go through extensive protocols so the job gets done for the corporation. The product made by the startups does not risk the corporation’s financial security either, since they haven’t had to implement a new department, acquire new resources, or onboard any new employees.

A startup-corporate partnership gives freedom to both parties. Corporations can pursue their market opportunities quicker and startups have the freedom to execute on innovative ideas with less limited resources. In addition to the product itself, corporations can benefit from startups culturally as well. Studies show that companies that have less strict areas of responsibility are more innovative, because fresh views and ideas come up more often when stirred up and shifted in a group.

Startups shouldn’t feel like they’re “selling out” when teaming up with a bigger player. What startups, that are full of hype, innovative ideas and have the drive to change an industry by creating something new, usually lack is capital. Since a corporation typically has plenty of capital, it seems pretty obvious why startups would benefit from a relationship with a larger company. These types of connections not only provide startups the needed resources and large distribution channels, they can also provide startups branding and PR expertise, as well as give them visibility and what’s even more important: credibility. If partnerships between big companies and startups bud, the opportunity for acquisition can make sense for both parties. Combining the agility and nimbleness of startups with the resources and distribution channels of large companies can lead to very profitable partnerships and win-win situations.