In a world of constantly changing technology, the overall business model is shifting from one that valued setting up brick-and-mortar businesses and expanding them, to one that is much more agile, and in the age of digital services, often doesn’t require the business to be just in one place. However, one thing hasn’t changed: the desire for corporate longevity. Unfortunately, recent studies have demonstrated that newer businesses are more than 30% less likely than older companies to survive over the next 5 years. One way to combat this decrease in corporate longevity is to be prepared to continually innovate and remain relevant, and in recent years, successful companies have found a new way to do this: by partnering with up-and-coming startups by providing business grants. Here’s how this happens.
The “Venture Capital Ecosystem” Model is on the Rise
Many companies including Google, Intel, and several others have already developed dedicated venture capital funds and have benefitted from the resulting rapid expansion that comes with it. Studies have shown that over the last 5 years, that the majority of growth in several sectors have been driven by a massive collection of small startups, rather than by the few dominant companies.
This model and become so pervasive that even non-tech companies like Cambell’s (the soup company), Pfizer (the pharmaceutical company), and General Mills are getting involved. Moreover, the Venture Capital Ecosystem has expanded from companies and venture capital companies to regular people with the advent of equity crowdfunding and microinvesting sites, interestingly once startups themselves, suggesting increasingly that this is the way of the future for economic growth, innovation, and ultimately, large company longevity.
A Win-Win Situation for Both Large Companies and New Startups
Despite the growth that is being promoted, not every startup is successful, rather, the vast majority fail. Interestingly,independent analyses have suggested that startups could be more successful if they collaborated with more established businesses. While startups excel at generating novel and successful concepts and are often more in-touch with emerging and latent demand, they struggle with scaling and expanding their ideas and often lack the facilities to do so. Conversely, large companies that are well established tend to develop a kind of stagnancy and a disconnect with their market. Although they are well equipped to expand and produce new ideas and products, they often lack the innovation.
For companies that collaborate and fund startups, they are able to marry these distinct skill sets resulting in success for both companies. According to Forbes, 58% of startups successfully figure out a clear market need for the product or service that they have, and companies have major advantages in procurement, distribution, manufacturing and marketing. Together, these increase the likelihood for product success, and can revitalize stagnant companies, staving off decline.
As with most types of grants, business grants from large corporation can have conditions, and they can vary from company to company. Startups may be required to share intellectual property ownership or profits from sales. However, if the initial product is a success, the collaboration with a big-name company (i.e. Google Ventures) can increase acquisition costs for the product and can bring attention to the startup for future venture capital infusions as the company grows.