As Industry Leaders Seek Innovation, Corporate Accelerators Continue To Emerge

November 19, 2014

More and more established companies are trying to keep pace with technological changes by increasing their presence in the startup community. Although some companies choose to locate divisions such as software in places like the Bay Area, others are taking a more hands-on approach. Corporate accelerators function as startup accelerators that receive significant and public support from established firms such as financial investments, privileged access to resources, official endorsements by the corporation, as well as continued organizational ties. These accelerators, which continue to emerge both in the United States and abroad, illustrate a full-fledged trend in how established firms are using the startup model to innovate within their industries.

Benefits to established companies working in startup acceleration are not limited to financial returns, notes Peter Lehmann in a master’s thesis at the Copenhagen Business School. Accelerators also benefit the startups by allowing entrepreneurs to leverage company resources, while also allowing the existing companies to explore areas of their industry where they are unfamiliar by supporting entrepreneurs. As a result, the corporate accelerator not only offers a window into new technologies and specialized knowledge, but also allows companies to extract new and previously underutilized value from their existing resources. 

Techstars, the mentorship driven startup accelerator that holds intensive three-month programs for startups in Boulder, New York City, Boston, Seattle, San Antonio, Austin, Chicago, and London is perhaps the unquestioned leader in the corporate accelerator space.  Using their model of surrounding the top 1 percent of applicants with the top 1 percent of mentors and investors, Powered by Techstars uses the organization’s established approach to partner with the top 1 percent of brands to found corporate accelerators that drive innovation. Examples of Powered by Techstars accelerators include: 

Other companies have gone about organizing their own accelerators in their own way. In August, Wells Fargo announced the launch of its first accelerator program that will give three companies mentorship, vendor preparation, and between $50,000 and $500,000 in capital, while also allowing startups to remain non-exclusive. Launched at SXSW in 2012, Media Camp is a joint initiative of Turner Broadcasting in San Francisco and Warner Bros. Entertainment in Los Angeles, offering a 12-week program designed to offer entrepreneurs with workshops, mentorship, and networking, in addition to an initial investment of $20,000 with no minimum percentage of equity, unlike many accelerators. In a similar fashion, Nike established the Nike+ Accelerator  in 2013, providing 10 startups each with $20,000 in funding and expansive resources to work in Portland for three months and develop apps and products connected to Nike+. To expand on this program, Nike created the Nike+ Fuel Lab, a collaborative work and testing space in San Francisco designed for selected partner companies to further develop products and integrate the NikeFuel system.

With the hopes that lean startups can give them additional creativity and agility, in 2013 Coca-Cola created the Coca-Cola Founders Program to provide funds ranging from $1 to $1M to help experienced entrepreneurs around the world, while also providing some of the resources available to one of the world’s largest companies. Declaring itself as “a new model for creating startups,” Coca-Cola partners with experienced entrepreneurs before they create a startup, providing development assistance using lean startup methods, serving as a formative strategic partner, and once the business model is proven, acting as a minority shareholder.  A key differentiator of this model is that the Coca-Cola Founders Program invests in founders first, before they have a startup or an idea, and does not dictate a strict timeline.

This October, Johnson & Johnson Innovation, a development arm of the global pharmaceutical and health care product company, announced that it would be using the same template from its existing California and Massachusetts centers to open its fourth incubator in Houston’s Texas Medical Center, one of the largest biomedical research clusters in the U.S. Prepared to house up to 50 life sciences startups and slated to open in early 2015 in a 30,000-square-foot facility, the companies at J-Labs@TMC  will receive access to Johnson & Johnson Innovation resources such as educational events, funding opportunities, and access to R&D experts, and are not required to give up equity or rights to their products to participate.

Volkswagen Group of America Electronics Research Lab has teamed up with the Plug and Play Tech Center, an established business accelerator in Sunnyvale, CA, to back 10 startups working on technologies for motor vehicles. In a similar fashion, German publisher Axel Springer SE launched the Axel Springer Plug and Play Accelerator in 2013. This program, based in Berlin, operates a three-month program three times a year, providing office space, coaching, workshops, networking, and €25,000 ($31,344 USD) to startups focusing on digital technologies.

Although not working directly with startups, several companies are locating offices to developed tech hubs to support business development, capitalize on talent pools, and experience the spillover effects found in innovative spaces. One example is McDonalds, who opened a Silicon Valley-based office that will work to spearhead the company’s goal of using digital technology to enable convenience. Similarly, Target’s  Innovation Center in San Francisco was opened to explore technology innovations that impact the company’s core commerce, such as the website’s search experience or smartphone integration. Other companies have, in a way, outsourced their innovation. For example Walmart purchased e-commerce startup Kosmix in 2011 and formed a research division named @WalmartLabs, while Home Depot spurred their “Innovation Lab” concept by purchasing the software company BlackLocus.

Danny Chrichton, a Ph.D. student at Harvard University’s Kennedy School of Government, notes that one criticism of the corporate accelerator model stems from how corporate involvement can curb the development of the startup. Writing in TechCrunch, Chricton cites that problems may occur if competitors don’t engage in startups that come from a rival’s program, if corporations fail to continue to fund and support its startups, or if these developing companies fail to receive diversity in their mentorship and guidance.  Copenhagen Business School’s Lehmann notes that it also remains to be seen if assisting corporations can successfully (and consistently) transition ventures from their accelerator to alternative incubators, to venture capitalists, or to the marketplace. Because the chances of turning an early stage startup into an exit are low and the timeline is long, active corporations may limit their involvement over time, bringing the long-term stability of the corporate accelerator model into question.

After competing directly against the startups looking to disrupt the industries they’ve dominated for decades, established companies are now looking to support these same firms for a variety of reasons. Large exits, technological developments, access to innovative new employees, and public relations exposure are among the reasons for established firms to enter the corporate accelerator space. Ultimately, however, just as startup accelerators are a recent phenomenon, so too are its corporate counterparts. As these programs continue to gain traction and graduate new classes of well-connected and well-funded entrepreneurs, their true value will become more apparent.

 

incubators, private initiatives