Corporate Investors Move Into The Accelerator Market

Big banks do it, big phone companies do it, and even the biggest entertainment companies do it: After years of neglect, the world’s biggest companies are throwing their weight (and a few dollars) behind new technology startups.

It wasn’t always this way.

Historically there’s been one big backer of early-stage companies and that’s the investment arm affiliated with the sultan of search, Google Ventures, according to data from CrunchBase.

There are several reasons for the surge in corporate accelerators launched in recent years, said Yael Hochberg, a visiting associate professor of finance at MIT Sloan School of Management.

On one level, industry observers like Hochberg, say this new corporate activity is another example of corporations looking for the next new thing in investment.

“Back in the 1990s during the first wave of corporate venture capital, there was a lot of talk about VCs making a lot of money and then the corporates piled in. Accelerators like TechStars and [Y Combinator] are the new hot thing,” Hochberg said.

However, there are legitimate business cases to be made for corporate accelerators as well, she said.

“Over the last few decades one of the things that has definitely been happening with corporations is that they’ve moved to an open innovation model or outsourced R&D. They’re doing less basic research in house and essentially looking to bring that in through acquisitions,” Hochberg said.

With the cost of developing new technologies coming down so dramatically, it makes sense for corporations to take smaller bets on new technology offerings, according to Hochberg and her peers.

These days companies from Siemens to Coca-Cola to Warner Bros. have an accelerator program. Even the National Association of Realtors has one. But the recent surge belies the fact that a preponderance of investment dollars from corporations goes to later stage funding rounds, according to CrunchBase.

The chart below shows seed and angel-stage investment activity for corporate investors tracked by CrunchBase:

And here’s a graph of Series A and B stage investments from the same pool of investors.

Sometimes corporations start these programs only to pull back on them after only a few years. Facebook launched an accelerator in the early days of the phenomenon only to mothball it within a couple of years. The jury is out on whether corporations can provide the right kind of support that an early-stage entrepreneur needs.

For SK Telecom Americas, the business development arm of the Korean mobile telecom giant SK Telecom, the decision to launch its accelerator program was a matter of necessity as much as an invention. The company simply saw a lack of early-stage investment among venture capitalists in what its executives describe as “core technologies.”

“There was a lot of frustration being created not only among the entrepreneurs but also the strategic companies weren’t getting access to new technologies from startups, because those companies were not being formed,” said Min Park, president of SK Telecom Americas.

To help launch early-stage companies investing in core hardware technologies, SK Telecom Americas has put aside up to $10 million from its own balance sheet to set up the SKTA Innovation Accelerator.

The accelerator has already launched two stealthy startups – Pavilion and Etopus – which will receive up to $1 million in working capital, professional services, development tools, and workspace to develop their computing architecture and high-speed interconnection related technologies (respectively).

SK Telecom is also arranging development partners for the startups that come through its program to give them guidance on how to develop their technology and begin to take it to market.

It’s a plan that correlates to the thesis on corporate venturing that MIT’s Hochberg proposed.

“A lot of what startups are about is experimentation. [Now] you can experiment at a cost of about a tenth of what it was a decade ago,” Hochberg said. “[Businesses] can actually go out and get a sense of whether these things are going to be successful a lot more quickly and at a much lower cost.”

Photo from Flickr user Image Editor under a CC BY 2.0 license 

|Big banks do it, big phone companies do it, and even the biggest entertainment companies do it: After years of neglect, the world’s biggest companies are throwing their weight (and a few dollars) behind new technology startups.

It wasn’t always this way.}

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