In a bustling co-working space in Singapore's Central Business District, a small team of engineers from a local artificial intelligence (AI) startup is excitedly preparing for a crucial meeting. Their client? Not another cash-strapped startup, but a multinational corporation with deep pockets and a pressing need for innovation. I have watched this scene become increasingly common in Singapore and it exemplifies a new business model that's breathing life into the startup ecosystem amid a global funding winter: venture clienting.
A symbiotic solution in challenging times
For years, large established companies have invested in startups alongside venture capital funds, often seeing strong returns but gaining little in terms of synergies with their core businesses. However, a more symbiotic relationship is emerging, where corporates not only provide capital but also serve as a ready market for startups to test-bed their innovations and scale their businesses.
Venture clienting is a game-changer for both startups and corporates in Singapore and the region. It addresses the critical need for startups to achieve scale in our relatively small market, while helping corporates stay ahead of the innovation curve.
This model couldn't have come at a better time. Startup funding in Southeast Asia halved to US$7.96 billion ($10.67 billion) last year, according to data compiled by DealStreet Asia, and the funding winter shows no signs of thawing as interest rates are expected to remain elevated.
Setting up for success: The venture client infrastructure
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Several multinational companies have embraced client venture models to fast-track innovation, including IBM, Siemens, Bosch, Telefonica and Johnson & Johnson. In the region, companies such as Telekom Indonesia, Maybank, UOB, Singtel, Grab, PSA International, City Developments and Thai Union Group are leading the charge with innovation pilots, centres and program funding deployed in-market.
PSA International, for instance, has set up unboXed, a venture client unit that identifies internal challenges, scouts for promising startups, and facilitates pilot projects.
Telekom Indonesia’s MDI ventures fund invests in and supports startups, providing opportunities for them to pilot and scale their solutions within Telekom’s network and services.
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Thai Union’s global innovation incubator (Gii) collaborates with startups to pilot innovative solutions across their operations. For example, cybersecurity startups can work with Thai Union to address security challenges in their supply chain and digital transformation efforts.
These programmes allow corporates to tap into cutting-edge technologies that address a specific need. Beyond funding, it's about creating partnerships that drive real value for both parties.
The process typically involves:
- Identifying internal challenges or problem statements within the corporate organization
- Scouting for promising startups
- Facilitating pilot projects or contracts
This enables the client to test a startup's solution before committing to a larger-scale deployment. However, many corporates often underestimate the complexity of organisational change management and stakeholder engagement required for successful collaboration.
Learning from global success stories
German carmaker BMW's Startup Garage is a prime example of venture clienting done right. The unit scans the globe for cutting-edge solutions that can address BMW's various needs. Selected startups embark on a four-month pilot project to test and validate their technology's impact. If successful, the startup becomes a supplier and long-term partner while maintaining its separate identity.
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One such success story is BMW's partnership with German startup HERE Technologies, which now provides real-time traffic information to BMW drivers in over 70 countries.
Asean: Ripe for the picking
Singapore's unique business environment, combined with the vast potential of the Asean region, creates a compelling ecosystem for venture clienting. The city-state's strong intellectual property protection and government support for innovation serve as a springboard for startups and corporates to test and refine their offerings before scaling across Asean's diverse markets. This region offers a rich landscape for collaboration between agile startups and established corporations, with access to a young, tech-savvy workforce, this positions Asean as an ideal testbed for innovative solutions that can later be adapted for global markets.
Challenges and the road ahead
While venture clienting offers numerous benefits, it's not without challenges. Cultural differences between startups and corporates can lead to friction, and aligning expectations on both sides is crucial. Developing an understanding of the corporate DNA, open communications, well-structured equitable agreements and project milestones are essential to setting the partnership up for success. Most of all, both sides need a giant dose of adaptability and agility in mindset for shared success.
As an indicator of how quickly an established company can drop from the pinnacle,
the average tenure of companies on the S&P 500 Index is predicted to fall to just 15 to 20 years in this decade, signaling that the urgency for corporates to innovate has never been greater. Venture clienting offers a promising path forward, allowing companies to tap into external innovation. Corporates will gain a better understanding of global trends and technology roadmaps that will impact the business in the medium to long term as well as develop a more entrepreneurial mindset within the organisation.
As for startups, the approach gives them the scale and resources they need to succeed. Having a large corporate as a client offers strong validation of the startup's technology or service, making it easier to attract further funding and customers.
Andreesen Horowitz, the noted Silicon Valley venture capitalist firm, once said that “the battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets scale”.
By working closely together via venture client partnerships, startups will gain access to a greater market while the corporate is able to quickly incorporate new technologies and scale their operations, essentially creating a win-win outcome.
The writer sits on several boards, including Jollibee Foods Corporation, Certis Group and is an independent venture advisor.
