Search, pivot, scale: the startup view of strategic partnerships
More and more, startups and corporates are teaming up with the intertwined goals of innovating industries and making communities more sustainable.
At Elemental Excelerator, a growth accelerator program based in Hawaii, one of our key strategies is to connect the world’s most promising energy, water, mobility and agriculture startups with utilities and corporate investors that are eager to stay ahead of the curve on pioneering technologies. As part of this effort, we recently hosted a workshop about fostering an organizational culture of innovation at Vector, New Zealand’s largest distributor of electricity and gas, and a leader in the transformation of the energy sector.
During a town square discussion, three CEOs of Elemental Excelerator portfolio companies shared some stories about how they approach working with partners and investors, and how utilities and corporate funders can make the most of their relationships with startups. Here are some of their observations.
Search for opportunities you might not have seen
Arcady Sosinov, CEO and co-founder of FreeWire Technologies, a manufacturer of mobile electric vehicle charging and energy storage systems, explained how a partnership can deeply impact a startup’s business model.
"Startups are always in search mode," he said. "You don't know all the various different parts of your business model. You don't even know all the various parts of your business." Interest from a strategic investor, he said, is itself a signal of market pull worth pursuing.
"We have to be opportunistic as startups. We may have come up with a go-to-market strategy a year ago, but the fact is that an investor comes in and they're willing to invest several millions of dollars in your business, that is a sign of there being a market," he said. "If there are certain people willing to invest in you to try to solve their pain points, you have to follow that money because there will most likely be a path to success."
Stay focused and pivot
Nicholas Flanders, CEO and co-founder of Opus 12, offered a different view. He explained that one key challenge of navigating strategic partnerships as a startup is staying focused.
To get to market, he said his company — which develops devices that recycle CO2 into different chemicals and fuels — needs a significant period of time devoted to scientific development. That means that they "have to say no pretty often" if there is a product that a potential partner wants but has not been developed yet.
"There’s this word ‘pivot’ that gets used a lot for startups. For us it means one foot is always planted," he said.
Instead of piloting the company in a new direction, the pivot means sticking firmly to one product — in Opus 12’s case, a certain molecule derived from CO2 emissions — and then swiveling in search of the right application, the right scale, the right geography or the right partner for developing it.
"We like to keep 80 percent of our focus on that first molecule, and then 20 percent goes toward scientific development of the next wave," Flanders said. "That’s an area that partners can help influence, but we like to keep it to just that 20 percent."
Make sure the idea can scale
Luke Fishback, founder and CEO of Plotwatt, said that his startup weighs a potential partnership by the ability to scale out of it. "If a customer or investor comes to us with an opportunity to deploy our technology, we ask ourselves if this is going to be a one-off or is this going to be something that we can rinse, repeat and scale?"
Fishback also cautioned startups to take a sober look at what a potential partner is asking of the company. "Startups should have one miracle that their business model is contingent upon, but not more than one. If you're a two-miracle business, you've got a tough row to hoe," he said.
In Plotwatt’s case, the miracle was conjuring algorithms to analyze data from smart meters and provide energy savings to businesses. Judging whether to proceed with a potential partnership, he said, can come down to asking whether there’s a path to success that leverages the miracle already in place.
"If a partner comes to us and says we just need to do these couple of other miraculous things, that's probably one that we're going to pass on," Fishback said.
During the discussion, the entrepreneurs also each identified one thing they wished more potential partners would take to heart:
- Get to "no" faster. One of the best things a startup can hear from a potential investment partner is a quick and clear no, Fishback said. "Too much innovation is getting stymied by politeness," he said. He described how one investor took PlotWatt through the fastest and most thorough due diligence process he had ever experienced. It was respectful from the start, and its final decision not to invest was completely unambiguous, Fishback said. "An unambiguous no is the second-best answer [a startup] can get," he said.
- Strive for accelerated contracting and minimal points of contact. In Opus 12’s case, interacting with one consistent person and a simple process cut the contracting phase from over a year to six weeks. "If you’re trying to be innovative you’ve got to move really quickly," Flanders said. "This is one way to accelerate that."
- Create a quick, non-binding term sheet. Startups often need more validation than a verbal commitment, Sosinov said. He recommended creating a non-binding term sheet that outlines the scope of the partnership, so startups can show their investors and team members that it’s an opportunity worth spending resources on.