Corporates Looking To Start-Ups For Help

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Coders who worked at Rovio, the Finnish company behind Angry Birds, and at computer graphics firm Futuremark left in 2009 to form Rightware to help mobile companies improve their user interfaces.

Then Audi came along. It was looking for a way to remain competitive in the emerging world of connected cars and asked for help in creating a virtual cockpit.

Cisco Chairman John Chambers meets with start-ups at Numa in Paris

Rightware seized the opportunity and eventually pivoted to focus primarily on the auto industry. Today Audi and 15 other auto manufacturers are using Rightware’s Kanzi software to create their user interfaces. The seven-year-old Finnish start-up says it expects its technology to be used in more than 25 million cars by 2022.

Rightware is just one example of how young companies are working with big corporates in sectors that until recently would not even think about doing business with start-ups. More than 1,000 large companies now have corporate venture arms, according to GVC Analytics, a nearly 80% increase over 2011, and that number continues to grow.

So it is no surprise that keynote speakers at Mobile World Congress include senior executives from Ford and General Electric and that corporate venturing will take center stage at 4YFN, a separate conference focused on innovation in the mobile space taking place February 22-25. Executives from BMW, Zurich Insurance, Bosch and Airbus are among the scheduled corporate speakers at 4YFN.

Bosch’s Light Bulb Moment

Bosch, a maker of everything from household appliances and garden tools to automotive parts and AI-powered cookware, usually connects to start-ups through its venture arm, Robert Bosch Venture Capital.
But the Stuttgart, Germany-based global conglomerate, which reported sales of over €70 billion in 2015, wanted to test other ways of bringing innovation in from the outside so it set up Internet of Things labs at two Swiss universities: St. Gallen and the Swiss Federal Institute of Technology (ETH).
“What is interesting for Bosch is to look at what is going on at universities and try to come up with our own cool ideas. Then we do lean start-ups, fast iteration start-ups, and push them forward,” says Markus Weinberger, director of the Bosch IoT Lab and a scheduled speaker on a corporate venturing panel at 4YFN.
Zurich-based ComfyLight, the first start-up to be spun out of the lab, makes a light bulb that doubles as a home security system. When you enter a room, ComfyLight automatically switches the light on, and turns it off again when you leave. Over time it learns how you move around at home so it can simulate your movements perfectly when you’re out, turning lights on and off to make it look like someone is at home. What’s more, ComfyLight’s presence sensor detects unexpected movements in your home while you are out and alerts you to what’s happening via your smart phone. The company, which has racked up a number of awards, is one of 24 finalists in a start-up competition sponsored by 4FYN. The winners will be announced at the conference.
ComfyLight was co-founded by PhD students Stefanie Turber and Marcus Köhler in 2015, based on three years of research and development around the Internet of Things.
It raised close to €1 million in its first round of investment from two private angel investors and Bosch. At press time it had raised in excess of €100,000 on Kickstarter to finance the production of its first series, more than double its goal of €50,000.
Turber, ComfyLight’s CEO, says the Bosch lab “provides you with the right resources and support without a formal relationship with the company, which is important to do independent research.”
Bosch helped with the prototyping and field tests and Weinberger served as the bridge between Bosch and the lab, aiding to get things done. That said, Turber says working with a big corporate requires patience.
“As several stakeholders on the Bosch side need to participate in taking a decision, it naturally takes time until an internal consensus is reached with all views considered,” she says. “But as a start-up you often don’t have time, you need resources and want things done next week.” For example, it took several months for Bosch to figure out how it could technically invest in a start-up outside of its venture arm.
The product is expected to be on the market by summer.

Corporate investors are flocking to invest in the Internet of Things (IoT). Over the past six years corporations and their venture arms joined in rounds that funneled $3.2 billion into the IoT space, across more than 260 deals, according to New-York based analysts CB Insights; 2015 deals included a $115 million investment into France’s Sigfox, an IoT carrier, from backers that included not just telecom operators like Spain’s Telefónica, Japan’s NTT DOCOMO venture arm and South Korea’s SK Telecom but French energy company GDF Suez (now called Engie) and Air Liquide, a France-based provider of gases, technology and services. And 2016 is already off to a strong start for corporate IoT investment with U.S.-based networking gear maker Cisco’s February purchase of IoT platform company Jasper Technologies for $1.4 billion.

Transforming Industry

Players outside the tech industry are moving into IoT to transform their factories or connect products to stay competitive, says Nicholas Pappageorge, a tech industry analyst at CB Insights. As examples he points to Robert Bosch Venture Capital’s October 2015 investment in PubNub, a San Francisco-based global data stream network that enables connection and management of IoT devices as well as GM’s $500 million investment in Uber-competitor Lyft, part of the automaker’s plan to develop an on-demand network of self-driving cars with the ride-sharing service.

The GM Lyft announcement, and the August 2015 sale by Nokia of its HERE mapping and location service to a consortium of German carmakers — including BMW, Daimler and Audi — for €2.8 billion, comes as automakers work out how to respond to the attempts of technology companies such as Apple, Alphabet and Uber — Lyft’s biggest rival — to reshape the global auto industry.

By 2020 there will be a quarter billion connected vehicles on the road, enabling new in-vehicle services and automated driving capabilities, according to analysts Gartner. During the next five years, the proportion of new vehicles equipped with this capability will increase dramatically, making connected cars a major part of the Internet of Things.

Meanwhile, payment giants like American Express Ventures, Visa, and MasterCard Worldwide are investing heavily in mobile payments technology, which is changing the face of everything from business payments-processing to how college students split the bill at restaurants.

Reluctant To Go The M&A Route

Embracing start-ups is an acknowledgement by corporations across industry sectors that to stay competitive they have to bring in innovation from the outside. But how do they do this? How do Goliaths find their way to the small and agile Davids? What are the challenges for both in working together?

In the past five years Europe has had some high-profile M&A deals that worked well — Amazon snapped up Lovefilm, Google bought DeepMind, Activision Blizzard purchased King Entertainment and Adobe acquired Fotolia — but globally the success rate of M&A deals is not great. Consider HP’s $11 billion acquisition of Autonomy, which led to an $8.8 billion writedown and the filing of a lawsuit by investors.

Some corporations are reluctant to go the M&A route because “of the low success rate,” says Nikolay Kolev, partner at Deloitte Digital Deutschland. “No one at a publicly-listed company wants to overpay for something that doesn’t fit and be put on the spot.” And “spray and pray,” investing small amounts of money into multiple start-ups, “does not work,” he says.

Fortune 500 companies are sitting on $3 trillion in cash reserves which could more than make up for the lack of growth capital in Europe, says Kolev. “But what corporates are not willing to do is to throw money into something as a bet. What they do want to do is to invest into incremental business and the strengthening of their own core businesses.”

That is why some corporations are building stand-alone start-ups and recruiting entrepreneurs to run them. Barcelona-based Heywood & Sons specializes in helping companies such as Bayer, BBVA and Samsung do just that, says Daniel Martin Callizo. “We give companies the ability to leverage their assets and catch up with the market by building a business outside of the company,” he says.

Following Rocket

“When you acquire a start-up it takes a lot of time and it is not clear what problem they will be solving and whether it is aligned with the company’s core business. And, a lot of the value is in the talent and the talent usually leaves. We can create the start-up a corporation wants and give them full ownership and then tomorrow help them integrate it into the company or keep it outside.” The entrepreneurs Heywood & Sons recruits to run these entities “have absolute freedom on a day-to-day basis on what to do” but they are following a prescribed path.

“It is similar to Rocket Internet in a way,” Martin Callizo says, referring to the company created by Germany’s Samwer brothers that is famous for developing a blueprint for building successful Internet retail businesses.

Another strategy being tested by corporates is opening accelerators and inviting independent scale-ups and start-ups “to build a business for you,” says Deloitte’s Kolev. “The corporate specifies what it would like to have and the scale-up or start-up from day one has a real business customer.” To ensure success Kolev advises corporates to “pre-agree key performance indicators and pre-agree on price. You need to ring-fence it and keep it at arm’s length.”

BMW is pursuing yet another approach. “We want to be the first client of a start-up in the automotive industry,” says Gregor Gimmy, founder and head of BMW Startup Garage. As long as BMW is the first customer the start-up is free to work with other automakers during the program. If a start-up’s product is a good fit for BMW “instead of an investment they get revenue in the form of a purchase order,” he says.

Opening Labs in Universities

Start-ups accepted into BMW Startup Garage are invited to work in BMW’s R&D Center in Munich for four months, working directly with the engineer responsible for the relevant technology. “Our main metric of success is if a start-up continues to work with BMW after the program,” says Gimmy.

Other models being tested by corporations include opening labs in universities and then taking stakes in relevant independent companies that spin-out (see the box to the right).

Zurich Insurance Group, a Swiss global insurance company, has opened Zurich Innovation Lab, which incorporates internal and external ideas from employees, universities and start-ups and then prototypes selected products and services. Ideas tested include the use of disruptive gadgets in assessing insurance claims. So far the insurance company has done several pilots with start-ups.

Corporates have to decide, “do I build a lab, an accelerator, do I do it inside the company or outside, do I do it alone or with other corporates?” says Kolev.

London, for example, has seen an explosion of incubators and accelerators that are either run by or involve corporates. Some, such as Microsoft’s, are company specific. Others focus on verticals such as banking, advertising or real estate.

A Global Innovation Network

Another model is for corporations from multiple industries to connect to start-ups in an external independent accelerator. That’s the approach of Numa, a French accelerator that counts Google, BNP, Cisco and Airbus among its corporate sponsors or partners. (Cisco Chairman John Chambers visited the Paris office in 2015.)

In addition to connections with start-ups, Numa offers training to teach corporates how start-ups think and operate and to help people on corporate teams learn how to work differently.

It also organizes over 1,400 annual events aimed at growing the Paris start-up ecosystem.

In the past year Numa has opened in Moscow, Bangalore and Casablanca, with an unnamed South American city expected to be added soon. At press time Numa was in negotiations with mVenturesBcn, a program of Mobile World Capital Barcelona, promoter of 4YFN, to partner on a program that would help scale-ups in Barcelona connect with corporates across the world. “We are aiming to create a global innovation network,” says Fred Oru, director of international development at Numa.

“We think Numa can be a great addition to the ecosystem because for this program we want to involve big corporates,” says Susan Boekholt, mobile acceleration hub manager at mVenturesBcn.

Scaling Up and Slimming Down

While finding the best way to work together is still often an awkward process — a perfectly attuned operating system for innovation has yet to be invented — there is now a growing consensus that start-ups and corporates need each other.

When start-ups deal with large corporates the small company will always be at a disadvantage, say industry pundits. It often takes big companies 12 months to make a decision and many start-ups barely have enough cash to last that long.

That said, winning business from big corporates is often the best way for start-ups to scale up and Rightware is a great example of that, says Deloitte’s Kolev.

Compete With Silicon Valley

And working with start-ups is a great way for big corporates to slim down their processes and cut down the time to market, says Olli Laiho, Rightware’s director of product marketing.

“Car manufacturers have to reduce the time to develop a car,” he says. “It takes three to five years and in today’s environment that is too long. They have to cut the time down so they can compete with Silicon Valley. That is a huge challenge but our software is at the forefront of developments that are enabling them to innovate much faster.”

As the automakers and other corporates are finding, it will increasingly take the aid of Davids to help Goliaths battle even bigger giants.


Mobileye

www.mobileye.com
Tel Aviv, Israel
What it does: Advanced driver assistance systems.
Why it’s hot: Mobileye works with over 25 automakers. Its “EyeQ” System-on-Chip will be installed in over 270 models of cars this year. Mobileye recently announced a system developed to position autonomous vehicles in the best drivable path. VW, GM and a third un-named car company are already signed up to use it, representing 30% of all consumer vehicles worldwide.


Rightware

www.rightware.com
Helsinki, Finland
What it does: UIs for the automotive sector.
Why it’s hot: Rightware’s Kanzi software is being installed in models made by Audi and 15 other manufacturers. It says it expects its technology to be used in more than 25 million cars by 2022.


AdasWorks

adasworks.com
Stuttgart, Germany
What it does: Artificial intelligence for self-driving cars.
Why it’s hot: AdasWorks is working with Volvo to help create a system that processes data from multiple sensors in real time to provide 360-degree detection of lanes, vehicles, pedestrians, signs and more, enabling a variety of autopilot functions.


Canatu

www.canatu.com
Helsinki, Finland
What it does: Transparent conductive films that allow touch screens to be twisted, folded or curved.
Why it’s hot: The company says it is working on prototypes of in-car touch screens with 10 auto brands and seven tier one suppliers. It expects its touch screens to be installed in around one million cars by 2018.


Argus Cyber Security

www.argus-sec.com
Tel Aviv, Israel
What it does: Security services for the automotive industry.
Why it’s hot: Founded by cyber security experts, Argus helps car manufacturers, their Tier one suppliers and aftermarket connectivity providers protect connected cars from car-hacking. In January it announced that it is teaming with Check Point Software to create its Intrusion Detection and Protection System.


Teraki

www.teraki.com
Berlin, Germany
What it does: Software that reduces and optimizes Big Data from Internet of Things (IoT) sensors to enable intelligent actions.
Why it’s hot: Launched in March 2015, the company’s technology is being evaluated by several German automakers. It has raised seed money from startupbootcamp, Intel and Deutsche Telekom’s hub:raum accelerator and has been selected by Airbus to participate in its Bizlab aerospace accelerator.

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