Panel | Corporate Innovation in a Downturn

This is the first of two instalments of the Corporate-Startup series, covering the basics of engagement between the two—and how to innovate in a downturn. Stay tuned for the second, which focuses on the frustrations both sides find with working together, with some no-punches-pulled honesty. 

As the innovation landscape is rapidly shifting, corporates, startups and VCs alike are rewriting the collaboration playbook to face the challenges ahead. As news of hiring freezes and budget cuts are becoming increasingly frequent, corporate innovation and corporate venture capital (CVC) leaders find themselves needing to build the case to justify the continuation of open innovation, scouting and CVC units. To stay ahead, tech entrepreneurs need to make a note of this and become laser focused on what makes them unique to help them become effective vendors, strategic partners, investees and acquirees.

In October this year, Andrea Kerwat and Bindi Karia hosted our first Corporate-Startup networking event at the Bankside Hotel in London. The goal was to convene founders and CEOs from our startup ecosystem with corporate innovation leaders for an intimate and informal discussion around the state of innovation in a downturn. 

The event began with a panel discussion on the state of corporate innovation, followed by a ‘speed-dating’ networking session where corporate innovation leaders were matched up with founders and CEOs from our portfolio.

Here we recap the panel conversation moderated by Bindi. To encourage openness and honesty, the debate observed the Chatham House Rule and thus the contributions summarised below are not attributed to individual speakers.

What remains is a frank and punchy exchange of views from both sides of the table, as the panellists – hailing from both tech startups and corporates – discuss how best to work together and, crucially, how to navigate shifting innovation priorities in a downturn.

In the startup corner, we have two seasoned CEOs, one whose company is innovating in causal AI; the other whose technology is revolutionising the back-end infrastructure of financial service institutions.

Opposite, sit two corporate leaders: one from the CVC team at a global bank; the other who heads up the innovation team at a multinational travel conglomerate.

One of the corporates describes their team as a compass with which to navigate other parts of the organisation. “We act as the gateway for many different startups to know where to go within the business to get the answer they want. one of the biggest parts of our work is to off-book advise those companies how to navigate us. We are a bit like the United Nations, and so sometimes you need a really strong diplomat to help with your use case.”

The second corporate concurs: “Any person who's attempted to understand who the right person is within a corporate will find that it’s pretty challenging. We spend a decent amount of time with our most senior stakeholders, our CEOs, of which we have many across different operating companies. The best stakeholders understand what the red button issues are, where we should be actively seeking or scouting out new technologies, and where – importantly – there's P&L, resources and the will to push things through.

“Depending on how sophisticated a startup team might be, they may not be aware that there is procurement to get through, there's pen testing and cyber to get through. If you're touching any data, there might be data protection to get through. We can create a way in which we align all those processes. And we can ensure that if you hit the acceptance criteria for value, you have the ear of the right person in terms of P&L and the CEO if you need funding. This strategic alliance will ensure that one of our team is partnered with you to build that relationship.”

Entrepreneurs are battling to grow their businesses, but they also have to understand very unique structures and the things that the corporate needs in order for the relationship to work.

One CEO speaks to their unique position not as a partner to corporates in financial services so much as suppliers to them. “And not only that,” he continues, “we supply them with mission-critical technology. If it stops working for an hour, you read it on social media. If it doesn’t work for a day, it’s on the front page of the Financial Times.”

As you would expect, some of those customers are also strategic investors, because they want to secure their position in terms of what the startup is doing, where they’re heading, what they’re investing in, how much money they spend. 

In that sense, this company is quite different in its relationship with corporates because they have never gone down the partnership route. “We’ve never worked with stakeholders on creating value propositions. We had to do it the hard way, and that is: compete with very large tech companies for contracts, RFPs, big MSAs, audit, security reviews, pen testing… the whole shebang.”

As a result, we're probably one of the most audited companies in the market—every one of our customers come in with their own team and want to look at everything. Not only once—time and again, every single year, they come back and want to test what we are doing from a security perspective. In that sense, we are a supplier, not a partner. Our performance is measured in our long-term enterprise contracts.

That said, it makes the engagement with our customers, and our investors very clear and very clean. 

For our other startup CEO, because the technology they offer is so poorly available in the market, the conversation with corporates tends to become a ‘buy versus build’ argument which – because of the complexity of Causal AI – buy tends to win out.

 “We're very lucky that we get very large corporates come inbound to us saying ‘We need this technology’ [Causal AI], because either regulation is demanding it, or they are reflecting the imperative to move from decisions based on gut towards decisions in collaboration with a machine. Increasingly, they also want to be able to B-test their decisions, for example, explore what the business outcome would look like if they went in a slightly different direction.

It's a privileged situation to be the only company in the market that can provide this product powered by this new technology. And we have a lot of headwinds going to work in our favour. Like the EU regulation, the US recently published a new AI regulation as well, supporting this type of approach.

We get slightly a more favourable treatment from corporates because there's no one else that can provide these capabilities. And, you know, if you look at organisations like Walmart, it's their strategic imperative to bring causal AI into their enterprise. So, you have two options, you either build it, or you buy in the platform. For us, if we can convince people that building is not going to be easy, our sales job becomes much easier.”

This dovetails nicely into the last thread of discussion, which is the title of the panel: corporate innovation in a downturn.

Bindi notes that many of corporates are choking their innovation budgets. She asks the panel to impart their perspective: for startups, are they noticing a longer sales cycle and difficulty in convincing decisionmakers that now is the time to invest? For corporates, are they seeing innovation budgets cut? Does the CEO still believe in innovation?  

One startup CEO speaks to how, because their corporate partners are also customers, they are firmly bought into the technology: “for now at least we're not seeing a scaling back of their ambitions to transform their business with our technology. What’s more, payments are a fairly resilient business: even in a downturn, payment volumes stay high. We're optimistic in terms of our outlook, but again, that may change.”

This confirms to the group that some tech is simply recession proof. You don't need to be subject to an innovation budget because you're so core to the infrastructure of the organisation. 

One corporate agrees. “It’s the most resilient businesses that are doing the best stuff. Those that enjoy the best stakeholder relationships and have put in the time and effort to educate their customers, take that customer on a journey with them, and to be as transparent as possible to help us advocate for them. Companies that struggle most are those that don't have that stakeholder alignment. So, when the stakeholders do change, there isn't enough internal buy-in to convince them to continue the relationship. Personally, I’m finding that the startups that have a bit of grey hair seem to be executing on that level. Battle scars are key. And often what we saw, especially during COVID is that decisions were made a lot quicker: crisis focuses the mind."

On the startup side, one CEO speaks to the importance of targeting your use case according to the times. “We are a horizontal platform and therefore can apply our technology to many different use cases. Particularly in a downturn, we notice almost immediately that use case ROI matters much more.

"For us, the use case around supply chain management is being very, very active right now. Meanwhile, some of the other use cases – which may have been more focused on blue-sky innovation – are slowing down substantially. Those in which we can very easily calculate ROI are running even faster than before.”

“Being in travel, our business over the pandemic was quite unsteady,” laughs one corporate exec. “It is testament to the importance of innovation on key issues. For example, we virtualised our accelerator programme very quickly and it became the largest we ever ran. It is possible to do incredible things in in extreme circumstances.”

“But even if you're scaling back, and you’re changing the focus of your innovation, you still have to be super strategic and super meaningful.” 

Bindi closes the discussion by thanking the panellists for being honest and transparent, and concluding with a high-level summary. “Key takeaways from this debate: know your customer; relationships really, really matter. Finding your use case in a downturn matters because you can sometimes pivot your technology to meet the needs of corporates.

Know your stakeholder and understand their fiscal and budgetary cycle. And finally, be prepared for a debate on buy versus build—and know how to win it.”