What makes the Venture Client Model a game changer for start-ups

Venture clienting is the new alternative to venture capital and accelerators: start-ups gain a large industry client, get the chance to implement their product or technology in a real-life setting and obtain funding to further improve. It’s a win-win for everyone.

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The Venture Client Model – different from CVC&A

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Collaborations between corporates and start-ups have become more and more common. And it’s no wonder, as both parties greatly benefit by learning from each other: Corporates are on the lookout for out-of-the-box ideas and innovations while start-ups profit from mentoring, feedback and funding.

Most collaborations are still ensued by corporate venture capital (CVC) and accelerator models. But, according to analysis, only 10% of CVC portfolio start-ups manage to establish any form of partnership with the parent corporation of the CVC. The venture client model is a new strategy, seeking to improve the CVC and accelerator model by making start-ups fully-fledged suppliers for corporates.

In the venture client model, corporates don’t act as investors, but as clients. This, in turn, gives start-ups the chance to test their business model and product with a real customer and in a much more hands-on way. In return, established companies can effectively test start-up technology before going into partnership.

The concept was first introduced by Gregor Gimmy in 2015 at the BMW Startup Garage in Munich. His words: “If you get $100m funding from Sequoia, that’s on the road to success but it doesn’t mean success. But if a BMW boss says I’m betting on your technology, here’s a purchase order, then you’re done. That’s success.”

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The fast-track to product-market fit

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The hands-on approach of gaining an early client for a new product has a lot of pros for start-ups looking for funding as well as validation of their idea:

Technology Validation and real-world Feedback

By gaining a venture client, start-ups get the chance to establish their technologies and products in a real use-case environment.

The direct interaction between the user and the start-up’s technology makes a huge difference for both parties. Implementing their solution to a corporate’s problem allows start-ups to get hands-on and real-world feedback about their technology. This enables them to evaluate their product-market fit and improve the product to suit the needs of the client, which is invaluable no matter the outcome of the venture client collaboration.

Boosting Growth by gaining insights

For start-ups, gaining a large industry client means gaining public traction and a reputation for quality. Working with a global market leader boosts start-up valuation and will make finding new clients, investors and talent much easier moving forward. Also, with a venture client start-ups earn money through performance - which builds them up much more quickly than if they simply seek funding.

Direct cooperation with key decision-makers within the corporate allows start-ups to gain valuable insight and in-depth knowledge of the industry. They can grow their network and connect with experts in their niche and often receive valuable coaching and mentoring, contributing to the advancement of the start-up.

Funding without risks

The venture client model allows start-ups to generate revenue at an earlier stage in their product or service development, offering a source of income to support ongoing enhancements. This, in turn, enhances the likelihood of achieving long-term success by securing funds for continued development.

Another not insignificant advantage for start-ups is that they need to worry less about their team being organisationally integrated into the company, the boundaries becoming blurred and, in the worst case, products and expertise becoming too closely interwoven with the sponsoring company. The customer relationship creates clear boundaries and ensures that start-ups remain what they are - independent, growing companies and not subsidiaries or innovation departments.

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Let’s go – how does the Venture Client Model work in practice?

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Acting as an early adopter for a start-up’s new technology or solution is risky. For corporates, the most important thing is a structured approach to determine whether the start-up's technologies and products actually fit their needs. Do they have the expertise and solutions to tackle the corporate's specific problems? Start-ups should also take a close look at the needs of their corporate customers.

It is important that start-ups openly discuss the topic of investor customers at the beginning of the partnership and jointly analyse which criteria and conditions need to be met. If there is no specific need, start-ups should choose a more suitable partner.

Collaboration Agreement – outlining conditions and setting goals

The selected start-ups enter into a collaboration agreement with the corporate, outlining the terms and conditions of the partnership. This may include payment agreements, access to resources such as office-spaces and mentorships, and a timeline for the product’s implementation.

Pilot phase – seeing if the solution works

A pilot project is set up to test the new solution. This can be a small sample of the start-up’s solution that is implemented in a real setting. Usually, pilot phases last around 4 weeks. If the solution works and promises success, the collaboration can continue.

Adoption phase – long-term partnership

Successful ventures may lead to scaled contracts, as the corporation may become a long-term partner. Next steps involve negotiating a roadmap for future utilization. This could be:

• Sustained patronage
• Licensing the start-up’s solution
• Mergers and acquisitions (M&A)

Additionally, the startup can leverage the success story for marketing and attracting further clients and investments.

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How to find potential venture clients that fit your niche

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Submit your start-up to platforms bringing together start-ups and corporates

To make matching start-up solutions and corporate challenges easier for everyone, there are more and more platforms emerging that help do just that. Usually you will be asked to submit your start-up, stating your product, solution and goals. The platform will then reach out to you when they’ve found an opportunity in your area of expertise.

Keep an eye out for corporates sourcing potential start-ups

Many large corporates are actively looking for start-ups as innovation sources. They establish venture client units to invite and engage with relevant start-ups that offer solutions to their specific challenges.

To find corporates matching your niche, make sure to identify your unique value proposition and know exactly what sets your solution apart from others. Create a pitch deck and get ready to convince some soon-to-be clients.

How Wayra supports the venture client model since 2017

Telefónica’s innovation arm, Wayra, has been pursuing the venture client model since 2017. As an open innovation hub, Wayra connects technology-orientated start-ups with Telefónica's business units in order to bring promising innovations to the telecommunications company.

Wayra empowers start-ups to collaborate with a strong partner, helping them gain a competitive advantage in their business through understanding the mindsets and motivations of both sides and knowing how best to promote their collaboration. With the venture client model, start-ups are granted access to dedicated teams inside Telefónica that understand their vision and strategy. This model not only offers financial and legal support for rapid growth but also fosters better results and faster innovation.

Under Wayra's venture clienting model, start-ups receive four months of support, consisting of four weeks of preparation, known as pre-acceleration, and three months of collaboration with Telefónica. During this time, start-ups also receive coaching and mentoring by industry experts.

Wayra´s venture client model enables start-ups to improve their operations and benefit from a global network. You have an innovative idea we might like to implement? Pitch your idea to Wayra and find a corporate to collaborate and build your vision with.

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