Traditionally, when we think of startups gaining traction, a venture capitalist plays significantly into the success of a hot young company. You might have a great idea or product, but you don’t have any capital. VCs and angel investors provide that cash-infusion so many startups need to get out of the garage and into the hands of actual customers. Beyond the traditional VC route, there are other options available to budding startups hoping to break into the market.
Leading into our Venture Conference next week, BuiltWorlds sat down with some prominent people working in other open innovation projects focused on the built world and talked about what they provide young companies hungry for success.
1. Strategic Investment
As the built world continues to adopt technology at a rapid pace, many “legacy” companies we’re familiar with have created specific arms that hunt down interesting startups that will ultimately benefit the “legacy company.”
One example of this is Hilti’s Tech Office, which covers a lot of ground, according to its Director, Vivin Hegde. The office is “the eyes and ears” of Hilti, identifying emerging trends and making sure internal business unit leaders understand them.
“We also act as a scouting and investment office, identifying how to partner with strategic companies through investment, partnerships, market reach, or simply just being a customer of theirs,” Hegde said.
It is crucial that the startups are strategic for Hilti, and will ultimately help the manufacturing giant down the road.
“We don’t invest just based on financial returns,” said Hegde. “It has to be strategically relevant to us.”
The Tech Office is “stage agnostic,” but Hegde says many of the companies in their portfolio are in their seed or A stages. At that level, Hilti provides them with a fair amount of support simply beyond capital.
“We provide a deep knowledge of applications and the construction industry,” Hegde said. “A lot of startups come from outside the industry, where they need the industry exposure and access to innovators in the space. We can help provide them with that.”
While open innovation projects like Hilti’s Tech Office look for companies that have already gotten started, incubators actually “grow” young companies, providing them with resources they need to get their feet off the ground.
“It’s in our DNA to be entrepreneurial,” said Mike Latiner, the President and Principal of Treehouse Adventures. “Everything we’ve done, we’ve started companies ourselves.”
Much like the Tech Office acting as Hilti’s open innovation arm, Treehouse Adventures spun out of Clayco. The company’s Founder and CEO, Bob Clark, was frustrated with the lack of innovation in the industry, so he decided to spur that innovation.
Companies started by Treehouse gain access to office space, legal assistance, marketing resources, and accounting.
“Most importantly, Clayco will be a client of the product, which is really nice starting off,” said Latiner.
Additionally, with Clayco being such a large player in the AEC space, especially here in Chicago, companies get actual access to jobsites.
“People on the ground know what they need,” said Latiner. “This is a real-time R&D lab that is active and real.”
It’s in our DNA to be entrepreneurial.
While incubators actually grow new companies, accelerators provide established startups with a fixed-time program, intended to jump-start the startups’ success and growth. DreamIt Ventures puts startups through a 14-month, onsite program.
“The accelerator will provide intense coaching by their staff and will also bring in speakers and mentors on a regular basis to help educate the startups as to the skill sets they will need to build their business and raise a seed round,” said Andrew Ackerman, DreamIt’s Managing Director. “The capstone of these programs is some variation on demo day where startups pitch on stage in front of an audience of (presumably) angel investors in order to raise their seed rounds. In exchange for this opportunity and an initial cash investment of plus or minus $100K, the startup gives the accelerator a 6-10% equity stake.”
DreamIt shifted a few years ago to focus on more mature startups, and offering to invest in a company’s subsequent round of funding as opposed to “a large upfront equity stake.” Therefore, the accelerator only invests in companies that have gone through their program.
In terms of industry connections, DreamIt puts startups in its program through a “two-week, multi-city Customer Sprint.”
“This maximizes the effective use of our startups’ time,” said Ackerman. “And...when a startup is looking to explore a new customer segment or go to market strategy or channel, this enables them to validate or invalidate that approach months faster than it would otherwise be possible to do so.”
This gives companies the boost needed to move on to the next phase of their development in a short amount of time, which is invaluable.