In this perspective we’ll discuss the challenges in industry and investor matchmaking. We’ll outline the rising trend of matchmaking in general and how it contributes to the challenge of start-ups and SMEs to kick-start and scale. Subsequently we’ll depict specific challenges the of the New Space ecosystems can resolve in industry matchmaking as this is unfortunately not yet an effective nor a widespread practice. The role of the investor in this matchmaking can be an important enabler when organized well.
Investor matchmaking is common practice, however we notice that many capital resources are underexplored and start-ups often lack readiness, even though they have only one chance to make a first good impression. Our insights are based on the vast experience of our team and supported with research from third parties. Our innovative approach for the CASSINI Matchmaking is entirely based upon these insights in order to make this action an unprecedented success.
Culture shift from closed innovation to open innovation became a fact, matchmaking is trending
In an ever-changing global economy, reach, access and innovation are among the assets that support a company’s success. Developing cutting-edge products and services, and getting them in front of the right customers is key to business success.
Innovation comes in different flavors. Corporates have always been active in incremental innovation of their products and systems – often making use of new technological evolutions – to improve their core value propositions. While core innovation is an essential activity for companies to be successful, for most it demands a disproportional effort to obtain significant (technical) improvements on the performance of their products and systems. Obviously, the high maturity level of technologies used, and the fact other players are adopting these technologies as well – hence reaching similar performance levels – make it difficult to obtain a unique, sustainable competitive advantage. Nonetheless, incremental innovations remain important to sustain a company’s cash cows (revenue generating value propositions). These research and development activities are typically done in house.
In order to generate adjacent and breakthrough innovations, companies have started to look outside their corporate environment as well. Following PwC’s Innovation Benchmark from 2017 that surveyed over 1.200 executives in 44 countries, already 61% of companies embraced open innovation to generate new ideas and 55% adopted co-creation with customers, partners, and suppliers. Further, about a third of the surveyed leaders indicated that technology drives their innovation roadmap; half of them experiment with and adopt emerging technology platforms to create breakthrough innovations. Of course, this complicates the innovation projects ahead as new technology development, application development and market development must be executed concurrently. These new innovations deliver an extension of the existing value propositions, hence create new opportunities for growth.
Investor backed or corporate backed start-ups are on the rise, but unfortunately lack ability to scale
According to McKinsey, only one in five market incumbents (existing industry players) succeed in scaling their new business initiatives after their initial success. Also, in the world of start-ups where only one in two hundred become actual scale-ups according to the Growth Institute, scaling is considered a fundamental challenge. In general, these are discouraging failure rates. But does it have to be that way?
Probably not. Two-thirds of all value creation is achieved through scale-ups according to McKinsey’s research. While most companies focus on setting up new businesses, the payoff is found in the ability to scale. Based on an analysis of US venture capital data, two-thirds of value is created when a company can penetrate a target market and capture a significant portion of that market as illustrated above. VC firms have a clear understanding of that value. Of the $135 billion invested by US VC firms in 2018, 63% was deployed to enable successful start-ups to scale their product or service (series C funding and later). Any scaling venture is the product of an investment or partnership resulting from a successful match. Among the start-ups that successfully built a product and completed at least series B funding, only 22% succeed at scaling independently, says the McKinsey study. Following the same research another 27% are absorbed at some point through an M&A transaction with a corporate partner and are successful. Early partnerships with corporates are therefore often vital because they create a pathway for more intensive collaboration or an M&A transaction. About 51% manage to sustain themselves but cannot scale, or they just die off.
This challenge is particularly important for the European Earth Observation (EO) industry. According to the 2019 Copernicus Market Report, 30% of the EO companies in Europe are considered small, even 66% are reckoned micro. We should create more unicorns from the vast pool of EO SME landscape and matchmaking with corporates is a proven tactic.
While there’s less data publicly available about the success of corporate-backed ventures, we observe similar patterns there as well. Many corporates operate “innovation factories” to launch new businesses, but few of them ever become a sizable new business unit of the parent. At Verhaert, we operate multiple of these innovation factories, helping our clients to achieve a better result. And we succeed in that. Even though the results are a bit better with investor backed ventures, both venture models (corporate innovation factories and investor backed start-ups or SMEs) seem to have difficulties in setting up a sustainable growth business.
This inhibits the success of matchmaking events significantly. All stakeholders have had disappointing experiences in the past. In particular, larger scaled events with the goal to set up industry matchmaking have delivered dispiriting results. We’ve done a thorough analysis of the causes behind this and thought deeply on how to resolve them in the view of the New Space ecosystem action.
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