Watchouts when building corporate ventures

Five essential success criteria corporate startup CEOs should keep an eye on within the first 100 days

Beyond venture capital and M&A, corporate ventures have become the third pillar for incumbent corporations to innovate and grow their business with new (digital) business models.  Since 2015, Excubate has been supporting corporate clients to successfully build and scale their own startups. Drawing from this experience, we have identified five essential action areas every corporate startup CEO should bear in mind when building a new venture.

While some of those action areas are valid for any startup out there, the context a corporate  startup navigates in brings unique challenges to the table. To list some of them: Setting up the right governance model, defining the ‘organization’s spine’, making cultural fit a top hiring criterion, avoid running into the ‘building trap’, and getting your brand out there. Of course, this list is far from being exhaustive and highlights Excubate’s view on the most important topics. For each area we have identified concrete actions to take within the first 100 days of building a startup. We consolidated all of these in a “100 day plan to corporate venture building”. Learn more about the watchouts in this article.

1. Set up the right governance model

The relationship between a corporate and its startup is tricky. Best case, the corporate equips the startup with an unfair advantage to succeed in the market. Worst case, a mismanaged relationship and governance can nip the startup’s potential in the bud. Therefore, corporate startup CEOs need to define the right governance model with corporate leadership as early in the process as possible. Key areas to agree upon are oversight and responsibilities among both parties, organizational design and reporting structure, management accountability and authority, performance, and incentives. In all dimensions, it is key to come to a preferably simple model which ensures an appropriate degree of freedom for the corporate startup – and of course, to adhere to it.


Within the first 100 days of the startup, corporate startup CEOs should especially aim for ensuring authority on financial transactions and corresponding processes. From our experience, corporate startups should be empowered to independently conduct financial transactions (at least up to a certain amount) to speed up the acquisition of the gazillion things that need to be acquired within the first 100 days – or else CEO’s might find themselves and their team waiting for essential tools or even a coffee machine because they are stuck in corporate purchase processes.

2. Define the ‘organization’s spine’

Drawing the right boundaries isn’t only important between corporate and startup: also within the startup itself, CEOs should establish ‘guardrails’ which work as underlying principles for future development of the company. With the early leadership team, CEOs should jointly agree on company vision and objectives, the targeted organizational design, ways of working and company culture. These guardrails function as the company’s north star, providing both leadership and the team with guidance on where the company is heading towards.


Of course, they will be subject to change over time. But from our experience it is advisable to set up an initial version of guardrails within the first 100 days. Defining your cultural guardrails early on will help tremendously in onboarding new employees as it provides them with guidance. With rapidly growing team size, it will become increasingly difficult to align and establish a harmonious culture the longer you wait. Plus, quite frankly your team will become busy with operational tasks, focusing on getting the solution to the market. Having guardrails established by then allows for smoother processes and ensures that your team’s focus remains on creating value for customers.

3. Make cultural fit a top hiring criterion

Your hires have a tremendous effect on the company – not only in terms of direct success but also in terms of the company culture developing. They will shape the working and communication style of your future organization and influence your ability to attract and retain needed talent. For small, young companies, the cultural fit of every new employee is especially important as one single misfit can impede the entire intended organizational culture.


Therefore, especially for key hires within the first 100 days, make cultural fit a top hiring criterion to ensure new hires bring the ‘right’ mindset: hands-on, can-do mentality and pushing for outcomes not processes. From our experience, the proverb ‘hire slowly, fire quickly’ holds true. We recommend to initially fill positions in an interim way with freelancers rather than compromise on quality of new hires in the long run.

4. Avoid running into the ‘building trap’

Getting an MVP out as fast as possible to make valuable learnings is key for startups. One shouldn’t get stuck in analysis paralysis. However, from our experience it pays off to take the time to validate assumed customer needs and your initial solution thoroughly enough. To avoid running into the ‘building trap’, don’t ramp up product development too early. Product development needs input and costs money – chances are high you will develop features with only little value for customers just to ‘keep the machine up and running’, leading to a self-fulfilling prophecy (“the start-up won’t fly”) and/ or inevitable pivots later.


During the first 100 days we recommend hiring external software development firmsf needed, get additional resources on board to remain flexible with your product development, like UX researchers. Also, from our experience it’s essential to build up customer feedback structures to be able to continuously validate solution ideas already early on.

5. Get your brand out there

Especially in corporate context, a lot of startups tend to operate in stealth mode for too long and don’t disclose their ambition openly. One potential reason can be hesitance of the corporate to go to the market –or even to approach existing corporate clients– without a high gloss polished brand and still premature products. However, we have seen that doing exactly that early on is a key factor for success. From our experience, it’s essential to start talking to customers early on –even for just communicating the company vision– to get timely feedback on ideas and build up crucial relationships to potential future partners.


Ideally, we recommend establishing and getting your core-brand out within the first 100 days. If you find yourself struggling due to prolonged alignment with e.g., the sponsoring corporate, we suggest to either create an interim brand appearance (you can always pivot later) or to agree on a company brand and keep it separate from future solution brands.


From our experience as a company builder, taking these five actions early in the venture building process will save you a lot of trouble later. As mentioned, this list is far from being exhaustive. Excubate has a battle-proven approach for successfully building, launching, and scaling your new business models within 6-18 months. We’ve consolidated our learnings into the Excubate 100-day plan for corporate venture buildingwhich includes the most important deliverables, methods, tools, and watchouts to help you navigate through the first 100 days and ramp up your corporate startup with the steepest slope possible. Learn more about the Excubate venture building approach on our website.


Do you want to know more? Then get in touch with us!

Startup Due Diligence: Nailing a moving target

Key takeaways:

  • Traditional M&A DD approaches are too analysis-focused and stiff
  • Outcome options are much broader (acquisition, cooperation, partnering)
  • Decisions need a combination of data-driven and gut-driven input
  • Team is just as important as figures
  • You need to be attractive for the startup too – and make them trust that you will deliver
  • Have a contingency plan in place to not lose ground when M&A fails
  • Finally: Don’t take “nailing” the startup too literally – it needs to keep moving

What’s the deal?

In the dynamic world of digitalization, startups are scaling faster than ever and adapt even more quickly and agile to a fast-changing environment than corporates. Scaling globally within a few months is a clear desire of most startups and many – e.g. the communication tool Slack – show that it’s possible. This tempo pumps up the pressure for existing companies to not only innovate and scale new business themselves at higher speed, but also to consider partnering with and acquiring these fast-moving startups. The challenge, however, is not only their impressive multitude across all stages of development (up to 50 million new firms are founded globally each year, most of them vanish, of course). On top, these companies are changing and moving so quickly, that a newly identified startup may have doubled its size and changed its business model already 3 months later.


Still, and despite all the notions of agility and fast decision making, a clearly structured Due Diligence (DD) process is needed to find the right partner in the abundance of startups. However, in the dynamic startup environment, a classical DD approach may come to its limits due to its somewhat rigid and heavily fact-driven approach. Usually, a dedicated team follows a highly standardized process to evaluate a small number or even only one target. DD projects are opportunity-driven, following a “sniper approach,” as the corporate often already knows which company they want to acquire and there are not many options in any given market anyway. The Startup DD,  in contrast, requires more of a “shotgun” approach at first to make sure no valid opportunity is missed out on. Further, the methodology needs to be agile, as startups in a fast-developing market are moving constantly and change happens within days.


In the startup space, it is also more difficult to collect relevant information than in a classical DD: either the needed input is not available or the startup’s management team does not have the time to provide or even create it, considering that reporting mechanisms, internal controlling, process and KPI frameworks may not have been established yet. Compounding the difficulty, the data is likely to be changing rapidly, anyway.

Timing is an essential driver for “fit”

The timing of the M&A is critical: Early-stage startups are more likely to rely on financial support, and being acquired may alleviate immediate financial needs. Logically, once the startup becomes larger, it either reaches a more stable scale and does not necessarily rely on an acquisition to keep growing, or the acquisition price increases substantially. Buying the company with only 75% certainty therefore may pay off more than waiting for another half a year to reach 95% certainty, as the acquisition price goes off the charts and other corporates jumped on the bandwagon.


The corporate should be very clear about the benefits the acquisition can provide to itself as well as the startup, e.g. providing access to more R&D or sales and marketing resources that accelerate the startup’s growth. The acquisition may give the startup a financial boost, optimized costs and/or increased revenues via new technologies or features built into own products; therefore, the timing of the acquisition should match the startup’s development stage – which, again, is tricky, given the fast development pace. Finally, scaling up from a prototype-stage with little volume to the corporate production volume of tens, often hundreds of thousands of units, is the toughest part and often the breaking point. Think of a car manufacturer with millions of units each year into whose production process a startup product needs to be embedded. In the DD phase, this aspect should be examined very closely.

Analysis is king, but agility is King Kong

Classic DDs follow a rather deterministic, structured and at times „technocratic“ approach, which is – rightly so – strongly data-driven to arrive at a specific valuation for the desired target. Yet, given the unpredictability of the moving target, acquiring a startup may need an entrepreneurial decision – and hence a leap of faith – on the corporate side. A too analysis-driven approach may provide a false feeling of predictability that in fact isn’t really there and may put the corporate into analysis paralysis.


The Excubate methodology builds upon a thorough understanding of the corporate and the startup worlds along with their respective business models to balance the characteristics of a dynamic environment with a data- and fact-based reliable model.


To provide an objective and pragmatic comparison of different startups, we map the entrepreneurial objectives of the corporate with regards to where they want to play (products, customers, markets) and how they want to win (processes, decision logic, incentives, capabilities, organization) with the startups’ ability to complement or counteract these. Based on this, we build an assertion logic that clearly outlines what the corporate is looking for. We typically derive a specific assertion tree similar to  the example below.

For each hypothesis, criteria are defined that need to be fulfilled to prove the hypothesis. Based on this, the criteria are weighted on a scale from 0 – 3 (0 = “just informative”, 1 = “less important”, 3 = “very important”). This helps identify key criteria and potential show-stoppers.


Based on this catalogue, each startup is evaluated along the criteria on a scale from 0 – 100% for the level at which they deliver on the criteria. To assess this objectively while staying pragmatic, the evaluation needs to be as data-driven as possible, but at the same time as entrepreneurial as needed. This is an iterative approach to evaluate the startup fit and both, the criteria weighting and the startup evaluation, need to be challenged and adapted constantly with every new learning. This way, we can “force-rank” all relevant startups against each other and a ranking can be maintained throughout the Startup DD project, based on the current status of analysis.

Excubate approach

Studies have shown that more than half of all M&A deals fail. Key reasons may be that the valuation has been too high in relation to the value created, the acquisition’s synergies had not been carved out enough or a cultural misfit led to failure. This problem can be illustrated by the well-known cases of failed large mergers, and it is becoming increasingly prevalent among the mergers between corporates and startups. To avoid this, we typically follow 3 steps to complete a successful startup DD.

1) Get clarity on the corporate’s strategic and tactical goals (1 – 2 weeks)

The Startup DD starts in a very early phase when there are still many uncertainties: What are the corporate’s strategic goals with a new type of business and technology? Which type of collaboration is the best solution? An acquisition is a tactic to execute the corporate’s strategy for a business vertical, and not a strategy in itself. This means, prior to the process of the startup evaluation, all other alternatives should have been considered, i.e. cooperation, licensing, building in-house, partnering or co-investing. Also, in many cases, the objectives of a corporate are not fully clear in the first place, especially in the field of digitalization and new business development. So even this first phase may end up as a learning experience for the corporate.


The corporate may be kick-starting a certain business, trying to secure a basic technology or patent for further innovations or just trying to prevent disruptive competition. Software maker Atlassian, for example, recently acquired Trello, a startup re-inventing Kanban-based project management and attacking the corporate’s JIRA from below. Atlassian acquires two startups per year, not only to leverage their technology, but to bring their startup culture to the company – therefore one of the prerequisites is that the founders stay in the startups after the acquisition.


Based on the defined strategy and tactical objectives, the specific assets, processes and capabilities, the corporate can and wants to inject need for clarity. Will the corporate bring in customer access, sales/service power, technology, brand? And how should these be combined with a startup in a partnership or acquisition?


Important cornerstones need to be pre-defined to keep the number of potential startups manageable, e.g. their industry focus, minimum revenue, footprint or ownership model. Furthermore, it is helpful to think about the company size upfront: Should the startup be already established and generate revenue or should it still be in an early phase to leverage the corporate’s development capacities? These cornerstones are the blueprint for the detailed criteria catalogue described above.


Besides the internal perspective on the strategy, the market environment is equally important to understand – and naturally also a very dynamic one if we talk about the startup space and rapidly developing markets (think of markets to trade 3D printing capacities, that are just emerging today). Interviews with experts are crucial to derive strategic perspectives and conclusions beyond what is available in research reports.

2) Identify and evaluate relevant startups (4 – 6 weeks)

Based on pre-defined cornerstones, a long list of potential startups is created. Researching market studies is a good starting point to get an overview of relevant players. National and international startup data bases, such as Spotfolio and Crunchbase, help to collect further relevant information and KPIs. Existing contacts, the personal startup and founder network should be leveraged to complete the picture. The goal should be to find as many relevant startups as possible to have a wide choice (that then should be narrowed down quickly and rigorously) – the number of interesting companies, however, highly varies with the entry barriers of the respective industry.


Along with the iterative development of the criteria catalogue – and therefore the definition of key criteria and show-stoppers – the long list can be shortened down piece by piece. We recommend to get in touch informally with the most interesting startups as soon as possible, by visiting startup conferences, panel discussions or directly setting up phone calls. In these first discussions, usually reasons for immediate rejection show up, e.g. that the management team is unable or unwilling to enter discussions, new show-stoppers are discovered or the startup simply is not ready yet to discuss potential collaboration models. After each interview, the criteria catalogue is updated, and the evaluation logic is refined, cutting down the list to 5 – 8 potential acquisition targets.

There is an important learning for the corporate here, which is that it needs to be sufficiently attractive to the startup as well. We see it all too often that startups, while seeing tremendous value in cooperating with corporates, refrain from even entering discussions because the respective corporate has a history of proposing and promising, but then not delivering. Having a reputation of actually moving quickly and pragmatically helps a corporate tremendously in gaining credibility with startups.


With the remaining startups, workshops are conducted to get information that cannot be collected through desk research, e.g. their F&E focus and budget, growth strategy, soft factors like company culture, and sensitive KPIs. Focus should be on the high-ranked criteria, e.g. relevant technology features or the maturity and scalability of the sales process, to create a sufficient assessment. Discussions on first potential collaboration models show with which constellation the corporate’s assets can be leveraged most effectively. After the first round of workshops it is usually quite clear which ones are the top 3–4 companies to start a more detailed discussion on a potential joint growth strategy.


Those discussions may also lead to a change of the strategic direction, e.g. if the corporate detects unforeseen synergies between two startups and decides to acquire both. Another outcome may be that starting with a partnership and acquiring later is the better choice, based on the startup’s potential in relation to its state of development and therefore the risk that the corporate is willing – or not willing – to take.


To get an external perspective on each company, which is the most important aspect of the customer-centric startup world and its methodologies, it is an imperative to conduct customer interviews. In a 15–30 minute, rather hands-on and pragmatic call, we discuss aspects like sales process, customer satisfaction, product and service request handling to cross-check the information provided by the startup. Furthermore, scanning relevant online forums and portals to analyze reviews and customer feedback completes the external perspective.


At this point we typically arrive at the prime candidate that has shown interest in an acquisition and opens its books for further and final investigation. The deep dive business model DD needs to be conducted, i.e. developing a scenario plan for value creation (case calculation).


Besides that, a financial DD and a legal DD will of course be completed as well. Both, however, should exhibit a similarly pragmatic approach as the process thus far. Otherwise there will still be a substantial risk of stalling. This may mean that both parties involved on the financial and legal side run a simplified and shortened process, ensuring that “bet-the-farm”-risks are minimized and major show-stoppers identified. It would also pay off to allocate more progressive finance and legal experts to these DDs than it would typically be the case in traditional M&A.

3) Execute acquisition and link up the startup with the corporate ecosystem

This is of course the trickiest step. And there are plenty of well-known insights around mid- to long-term incentivation of the startup tea­­­m to stay with the company (earn out) as well as a thought-through communication approaches for both the corporate and the startup to avoid culture clash. We don’t want to further elaborate on these here, but focus on finding an actually working approach for integrating processes and organizations, as we perceive these to be the tough part and actual enabler of culture integration and ultimately success of the whole endeavor.


To make the acquisition actually work on that operational level, an appropriate (not too little, not too much) integration needs to happen. Based on the insights from earlier DD phases, the areas and processes to integrate vs. to leave alone need to be specified and scoped out. For example, if it’s crucial to have an integrated go-to-market to leverage the corporate sales power and customer access for the startups products, an integrated sales process and team needs to be designed. R&D and production could and maybe even should remain fully separate for optimal performance. If the startup product, however, needs to be integrated into the corporate supply chain and scaled up to thousands of units, this integration needs to be put in focus.


Since the cooperation/ M&A of a startup is rarely just a financial investment approach, but has a strategic objective, we always suggest that our corporate clients have a contingency plan in place for the not unlikely case of the acquisition not working out. A failed M&A approach could easily eat up months of valuable time to build a new capability or business and put the corporate in the back seat on the market. The alternative should always be building the business internally with sufficient funding and firepower, that would otherwise have gone into the acquisition.

Startup Cooperations: The way corporates enter the right partnerships and waste less time on legal paperwork

Startup cooperation is the new oil (for corporate innovation)

In the past, corporates tried to diversify their portfolio by investing into or outright acquiring startups or building their own incubators. Often, these measures help with marketing, but are not unlikely to fail on delivering on larger objectives. Not only are startups usually not interested in pure capital investments, because they don’t want the corporate to steer their business, but also there is no realistic chance for a sustainable collaboration as long as the investments are not sufficiently in line with the corporate’s strategy.


Collaborating with startups should be more than just a marketing “shtick” – corporates even depend on startups to leverage technology know-how and a certain entrepreneurial approach that is not the corporate’s core business and way of working. E.g. a corporate trying to establish a substantial IoT business may need to cooperate with an already established startup, e.g. a predictive maintenance expert, to build its IoT business.


A well-known example for startup cooperations is the BMW Startup Garage. BMW routinely scouts startups with innovative technologies, products or services that can be integrated into BMW products and therefore add value to the corporate’s core business. Instead of investing into the startup and acquiring a share, BMW buys products and services from them and delivers a revenue stream to the startup.


As a second step, when the business relation is established, BMW may consider buying a stake in the company. Cooperation means building a balanced and sustainable partnership between the corporate and the startup.


But finding the right startups to cooperate is hard, because there are too many and not enough at the same time. We suggest to follow a funnel approach with four clearly structured steps to identify and evaluate the right startups that actually fit with the corporate’s strategic focus. This fit is what we consider the crucial part that needs far more thoughtfulness than corporates have historically shown.

Step 1: Align with strategy

Cooperation with startups isn’t done for cooperation’s sake. It needs to follow purpose and focus – and needs to be aligned with the strategic focus areas the corporate has defined – on a specific level. For example, if a corporate decides to move into the IoT space and has set focus on e.g. predictive maintenance, startups with expertise in sensor technology or advanced analytics are highly interesting for a cooperation and need to be channeled into the funnel. A corporate will likely have multiple of these focus areas in parallel, which is why the funnel will be sliced horizontally and needs to be managed in parallel.

Step 2: Identify the right startups

To identify potential cooperation partners, criteria should be defined to create a longlist of relevant startups, which should include the strength of their technology, their business model, their sales muscle and their management team. A topic-oriented overview of local and global market players needs to be developed and the funnel should be filled broadly and then narrowed down quickly. National and international startup databases should help find relevant companies. Leveraging personal startup and founder networks helps to quickly identify additional relevant companies. The longlist should be shortened to a list of about 10 startups to enter more specific discussions with.

Step 3: Scope the cooperation opportunity

To scope a potential cooperation model, we look at three things:

a) Overlap and complementarity of critical success factors of both businesses (e.g.: How much is owning tech IP a deciding factor?)

b) Synergy and support potentials of the business model canvas elements of both businesses (e.g.: How much do we use the same channels to address customers, maybe even competitively?)

c) Ability to align critical processes across the businesses (e.g.: How could and should the sales process be interlinked to deliver on scope synergies?)

a) Critical success factors

understanding the critical success factors of both businesses and how they play out with or against each other, is an important first step. We look at 15 different success factors, structured into categories management capabilities, operating capabilities and proprietary assets. In which ones is the startup strong and where can it be supported by the corporate’s expertise? What do we need to leverage (e.g. customer access, brand, IP) and where do we need to leave the startup alone (e.g. HR, regulations)?

We need to understand in detail how the building blocks of the two companies match and where they complement each other. This evaluation is the base to define which type of cooperation is the best option.

b) Synergy and support potential

In a second step, we typically work with the Excubate Corporate Startup Canvas to compare the two business models and identify synergy and conflict potential within each of the 12 canvas elements. Is the startup approach cannibalizing or complementing the corporate’s business model? How do value propositions compare, how do customer segments overlap, specifically? This results in a thorough analysis of similarities, synergies and conflicts that is highly valuable when designing the cooperation model with a startup or comparing options across multiple potential startup partners.

Step b) is obviously not fully free from overlaps with a), which we see as a benefit. We are challenging the discussion from a 2nd perspective (specifically looking at synergies and conflicts) and, thus, refine the view developed in a) to ensure a most thorough analysis.

c) Align critical processes

The third step is to identify options to link the core processes of both parties. For example, if the startup should be utilized as a “sales engine”, the different sales processes need to be analyzed in detail to fully describe how they can be aligned and in which step of the sales process the startup should be integrated. This analysis helps derive potential process dependencies or bottlenecks. Typically, the most important processes to consider are development, sales and customer service, and it’s key to focus on these and not boil the ocean by looking at all processes. The biggest levers are rarely internal processes like finance and HR, but sometimes it may even be those, e.g. when recruiting and building a team is critically important.

Step 4: Enter the cooperation and survive the honeymoon phase

When a potential cooperation model is identified and scoped out in detail, legal alignments should be made and contracts need to be set up. The objectives and deliverables for both sides should be clearly defined.


However, companies often end up creating an extensive legal paper and stretching this phase over an extended period, thus – in fact – often killing the cooperation before it started. Our above approach and analysis ensures a more trust-based approach that clearly outlines the win-win abilities of both parties in a very transparent and business-oriented way and makes extensive legal agreements less important. Both parties should trust in this cooperation and keep the contracting process lean, knowing the nuts and bolts of the cooperation upfront. We are convinced that if the first three steps followed a clear approach based on a thorough analysis, a fertile ground is created for a partnership on eye level with mutual goals and incentives. And wasting time and money on complex legal issues is minimized in the first place.


The “honeymoon phase” (i.e. the first six months of the cooperation) should be clearly defined and well managed to avoid that the cooperation fizzles out before it even started to gain traction. The onboarding process needs to be structured, a meeting and interaction countdown should be followed and roles be defined to start working the cooperation.


Building a strong startup cooperation muscle is getting more important for corporates to ensure their ability to innovate effectively and sustainably. Building this muscle is, however, far from trivial and can result in substantial loss of value, credibility and reputation if not done right. Building on experience and a thought-through methodology will help maximize the benefits of startup cooperations.


For more information, experience and an individual approach for your startup cooperation efforts, talk to Excubate: