Start-ups as a driver of growth for mid-sized companies

In­no­va­tive pro­ducts are key to a com­pany’s suc­cess. In the past, the en­tre­pre­neu­rial per­so­na­li­ties in mid-si­zed com­pa­nies were them­sel­ves the dri­ving forces be­hind in­no­va­ti­ons. This usually in­vol­ved im­pro­ving exis­ting pro­ducts wi­thin or on the pe­ri­phery of their core busi­ness. This re­sul­ted only ra­rely in ra­di­cal in­no­va­ti­ons. But ti­mes have chan­ged. Ac­ce­le­ra­ted once again by the Corona pan­de­mic, we are in the midst of a di­gi­tal re­vo­lu­tion. This ma­kes it all the more im­port­ant for mid-si­zed com­pa­nies to pick up on new trends and make them eco­no­mi­cally via­ble. To keep up with the com­pe­ti­tion, com­pa­nies must con­stantly re­invent them­sel­ves. But no­wa­days, that it is ea­sier said than done. So­me­ti­mes tech­no­lo­gi­cal change me­ans that com­pa­nies have to look for and de­ve­lop in­no­va­tive so­lu­ti­ons out­side their own core busi­ness, even if they are dis­rup­tive com­pa­red to their pre­vious busi­ness mo­del.

Start-ups as a driver of growth

Es­ta­blis­hed mid-si­zed com­pa­nies are still cau­tious when it co­mes to col­la­bo­ra­ting with start-ups. But they are in­cre­asin­gly rea­li­zing that it is bet­ter to ac­ce­le­rate their own in­no­va­tion or to par­ti­ci­pate in dis­rup­tive busi­ness mo­dels and tech­no­lo­gies be­fore they end­an­ger the com­pany’s own busi­ness pro­spects.

So how do you find the right start-up for a col­la­bo­ra­tion? The first step is to ana­lyze the tech­no­logy trends in or­der to iden­tify which dis­rup­tive de­ve­lop­ments could th­rea­ten your cur­rent busi­ness mo­del and which tech­no­logy you need to fur­ther de­ve­lop that busi­ness mo­del. The se­cond step is to get in touch with the start-up scene. In­for­ma­tion por­tals for start-ups, in­ves­tors and es­ta­blis­hed com­pa­nies can give you an over­view. Fi­nally, it is im­port­ant to find the right type of coope­ra­tion.

Collaborating with start-ups

There are dif­fe­rent sorts of coope­ra­tion bet­ween mid-si­zed com­pa­nies and start-ups. The col­la­bo­ra­tion can range from mere sup­port or a clas­sic coope­ra­tion to an in­vest­ment mo­del. Start-up events can pro­vide the first step in get­ting to know each other. Mid-si­zed com­pa­nies gain new mo­men­tum as they gather in­sight into in­no­va­tive trends. In­iti­ally they might sim­ply opt for a loose coope­ra­tion: smal­ler in­di­vi­dual pro­jects can even­tually lead to a suc­cess­ful and long-term coope­ra­tion. Ano­ther pos­si­bi­lity is a tar­ge­ted coope­ra­tion with uni­ver­si­ties and re­se­arch in­sti­tu­ti­ons.

An even more po­pu­lar idea is to es­ta­blish a part­nership. This in­vol­ves pur­suing a clear goal, such as de­ve­lo­ping a new pro­duct or car­ry­ing out a spe­ci­fic pro­ject. Va­rious forms are con­ceivable, ran­ging from ope­ra­tio­nal coope­ra­tion and a de­ve­lop­ment part­nership to a joint ven­ture. This can also be achie­ved th­rough the col­la­bo­ra­tion of in­no­va­tive minds from the start-up scene to­ge­ther with the com­pany's own in­no­va­tion ma­nage­ment.

Importance of the right framework

The clo­ser the coope­ra­tion, the more im­port­ant it is to cle­arly de­fine the pa­ra­me­ters from the out­set. The pro­ject goals and the form of coope­ra­tion must be de­ter­mi­ned. The pro­ject bud­get and the time frame must be spe­ci­fied. Fur­ther­more, ar­ran­ge­ments must be made to pro­tect com­pany se­crets and to se­cure the rights to know-how and work re­sults. Clear exit stra­te­gies should also be de­fi­ned in case the pro­ject fails. Agre­eing on ap­pro­priate ru­les builds trust and avo­ids misun­der­stan­dings at an early stage.

Investment models

One pos­si­ble in­vest­ment mo­del is to pro­mote young start-ups th­rough busi­ness in­cu­bator or ac­ce­le­ra­tor pro­grams. By pro­vi­ding ex­per­tise and fle­xi­ble working equip­ment, fi­nan­cial re­sour­ces and ser­vices tailo­red to the needs of the start-up, an es­ta­blis­hed com­pany can help bring the start-up's pro­ducts to mar­ket ma­tu­rity. In re­turn, the com­pa­nies of­ten re­ceive sha­res in the start-up.

In­vest­ments in the form of ven­ture ca­pi­tal are ano­ther pos­si­bi­lity. In this case, mid-si­zed com­pa­nies pro­vide fi­nan­cial re­sour­ces to at­trac­tive start-ups. They also pro­vide sup­port in the form of know-how, con­ta­cts and mar­ke­ting. By pro­vi­ding equity ca­pi­tal, in­ves­tors can ex­ert con­side­ra­ble in­flu­ence on the suc­cess of the start-up - and they in turn be­ne­fit by ex­pan­ding their field of busi­ness and from new tech­no­lo­gies.

Spin-offs are ano­ther op­tion for coope­ra­tion bet­ween mid-si­zed com­pa­nies and start-ups. This op­tion ma­kes sense if an idea can­not be rea­li­zed in the com­pany’s busi­ness con­text, but the com­pany still wants to sup­port it th­rough fi­nan­cial and other re­sour­ces. This form of coope­ra­tion usually fo­cu­ses on ope­ning up fu­ture mar­kets.

Un­like the pro­vi­sion of ven­ture ca­pi­tal, the ac­qui­si­tion of a start-up by the mid-si­zed com­pany me­ans ta­king it over com­ple­tely. Ob­viously this also me­ans that the start-up lo­ses its in­de­pen­dence. This al­lows the ac­qui­ror to quickly de­ve­lop new tech­no­lo­gies and mar­kets.

What to look for in any case

Re­gard­less of how the coope­ra­tion with a start-up is set up, it is im­port­ant not to over­look the fol­lo­wing as­pects:

• The sha­red de­ve­lop­ment ideas as well as the short- and long-term goals of the coope­ra­tion should be care­fully ana­ly­zed.
• Mea­sura­ble suc­ces­ses, such as the mar­ket launch of a pro­duct or spe­ci­fic de­ve­lop­ment steps, such as cer­ti­fi­ca­ti­ons, scaling or in­ter­na­tio­na­liza­tion, should be de­fi­ned.
• Spe­cial pro­vi­si­ons should pro­vide in­cen­ti­ves to keep start-ups on board.
• Exit sce­na­rios, ac­cess to in­tel­lec­tual pro­perty rights, li­cen­ses and rights to in­ter­vene should be cle­arly de­fi­ned from the out­set.
• Last but not least, it is im­port­ant not to take away the he­art and soul of the start-up. The grea­test dan­ger is try­ing to in­te­grate the start-up into your com­pany’s or­ga­niza­tion and make it re­port to you in a way that ta­kes away its free­dom and crea­ti­vity.

The at­tor­neys at Eb­ner Stolz pro­vide le­gal sup­port for all ty­pes of coope­ra­tion bet­ween mid-si­zed com­pa­nies and start-ups. As a full-ser­vice law firm, we also pro­vide sup­port in all busi­ness law is­sues in the life cy­cle of mid-si­zed com­pa­nies. Please feel free to con­tact us.