Game of Startups: Corporate Intrapreneur Accelerators [1]

Technology and digital trends are radically disrupting the competitive landscape of many industries: media, transportation, hospitality, retail and utilities are all scrambling to avoid becoming the next Business School case study as in Blockbuster vs Netflix or Wallmart vs Amazon.

The Financial Industry is particularly worried: In the US alone there are more than 8,000 startups trying to disrupt lending, payments, remittances, personal finance, equity finance, banking infrastructure & backend, amongst other finance verticals. (WSJ, June 2015).

The CEOs of fortune 100 companies know that it is no longer sufficient to compete against established players; below the radar startups are the most dangerous and disruptive threat.

One way that enterprises have tried to deal with this challenge is through setting up Corporate Venture Capital funds (CVCs); in the 3rd quarter of 2015 CVCs accounted for $2.3 billion in startup funding, representing 14% of all VC investments and 22% of all deals (PWC-NVCA)

And yet CVCs largely fail in their strategic goals. The General Partners of CVCs are focused and remunerated based on financial metrics, whereas the sponsoring enterprise motivation is strategic. This leads to a general lack of integration between the companies in which CVCs invest and the operations, strategy and challenges of the sponsoring enterprise.

Crucially, CVCs tend to copy the existing business model of VCs, which entails playing to enterprise weaknesses rather than to their strengths. It is difficult for a CVC to effectively compete with the established networks, reputation, and deal flow of the most successful VCs, so CVCs tend to become follow on investors of late stage rounds.

Another strategy that many CEOs are exploring to pre-empt digital disruption is to set up corporate accelerators. Either on their own, like Telefónica with Wayra, or through a partnership with leading accelerators such as Techstars (e.g.: Barclays), many enterprises are sponsoring accelerators, incubators & industry focused hackathons.

But this focus on external entrepreneur based corporate accelerators repeats the mistake of not leveraging the strengths of dominant enterprises in human capital, domain expertise and commercial distribution.

In doing so, enterprises fail to leverage the huge advantage they could have by deploying their most entrepreneurial employees: These employees enjoy deep domain expertise and extensive professional networks for rapid commercial validation of novel solutions.

A model that plays to the strengths of the enterprise is a Corporate Intrapreneur Accelerator.

The strategy of this approach is:

  • Leverage the "wisdom of the crowd" of employees through a competitive application process, a "Virtual Investment Game", to incentivize employees to create, select and engage with new business models and products, while fostering employee "buy-in" of the winning concepts;
  • Filter the most promising potential projects & teams through the participation of "Mentors", successful entrepreneurs, Angels & VCs, as well as senior management during the final selection process;
  • "De-Risk" the process for employees by maintaining the compensation of winning teams during the intrapreneur accelerator program and guaranteeing a promotion upon graduation should the start-up not be funded after "Demo Day".

This process encourages existing employees to think outside the box through pro-actively launching potential projects, and to compete via "virtual investments" in selecting the most promising concepts.

By continuing to pay the salaries of winning teams during the acceleration program, and guaranteeing a return and a promotion should the team not achieve funding goals, the downside for corporate intrapreneurs is significantly reduced.

The program takes place far from headquarters, in entrepreneurial hot spots such as Silicon Valley, so as to ensure a "non-legacy" approach.

Some participant teams will successfully achieve their funding goals after the conclusion of the accelerator program. The enterprise, with a small initial stake, is in a privileged position to engage with these graduate startups after their launch through Pilots, commercial relationships, joint ventures, successive funding rounds, and M&A transactions.

Accelerator graduates that do not achieve funding and return to a promotion within the Enterprise receive a best in class and hands-on intrapreneurial training, and empower the enterprise to effectively deal with the challenges of disruptive business models.

The outcome is a Win/Learn/Win situation for all parties, regardless of the ratio of funded teams after graduation.

Fortune 100 CEOs know that their companies need to become more agile in anticipating and pro-actively engaging with emerging business models.

However, in the game of startups they need to play to their strengths rather than to their weakness, and leverage their most valuable asset; their employees.

[1] Accelerator programs combine "Mentorship" by successful entrepreneurs with a hands-on practical curriculum focused on helping startups launch and scale. The first entrepreneur accelerator was launched by Y Combinator in Silicon Valley in 2005, and has been the source of many successful startups, with a cumulative value of $50 billion, including Airbnb, Stripe, and Coinbase (