TSM - How a tech company can become seed investor in startups

In 2011, Marc Andreeseen, general partner and cofounder of Silicon Valley venture capital firm Andreeseen Horowitz, stated that “software is eating the world” and will continue to do so.

Fast forward to now. We are reaching the end of 2014, and now more than ever there is an “entrepreneurial explosion” in which new companies are disrupting every niche of every industry. There are building blocks that allow for faster iteration (APIs, open sourced code, cheap hosting, free education on programming frameworks, etc.), industry methods that make it accessible for an aspiring entrepreneur to launch a company (eg, the lean startup), and accelerators and programs that offer hands-on support and assistance throughout the journey.

Internet companies have so many resources and building blocks that it’s getting quicker and leaner for them to iterate and find market opportunities. In essence, there are a lot of high quality startup investment opportunities out there, and they’re only increasing.

It was only a matter of time to see tech companies ride this opportunity wave and for good reason. By getting involved as investors, tech companies open a new space where they can get early in exciting projects, make better use of their internal talent and expertise, work with (and for!) amazing people, and brand themselves as experts in certain industries. And very important it is the opportunity to bring in higher profits, through successful investments and also by leveraging the new connections created in the process. 

Tech companies looking to start investing their resources in startups often ask what is required to do that the right way. Similar to angel investors, tech companies have to decide on what resources they have available for investing – best practices advise on maximum 5% to 10% of their total resources, but at least 100-200 man hours per year. Then they need to have a process in place: the deal flow. This process covers key issues: where to find the right startups, how to evaluate an opportunity, how to invest and how manage the investment and partnership.  

Motivation plays a very important role here and by setting clear objectives, a tech company can open a new field of opportunities. The ultimate objective is, of course, reaching higher ROIs. But investing in startups, admittedly risky, comes with opportunities otherwise unavailable. Here are some of them for a company in Europe:

• Marketing – getting involved with exciting projects located in the entrepreneurial centers of Europe is a chance to brand a tech company in a new way; it is a way to position the company above the competition, by showing forward thinking and good will.
• Business development – as part of the startup, you will have the attention and the opportunity to network with high profile entities located in different markets. 
• Skill building and recruitment – the direct effect of your involvement in a startup project will be the creation or expanding of the new skillsets for your employees and getting in touch with entrepreneurs and professionals based in new markets creates talent opportunities.

Now, creating all the above mentioned elements that would allow a company to pursue the opportunity is neither an easy job, nor a job that requires just some attention. But this is where Startcelerate, the startup my team and I are developing, steps in and lifts some of the burdens and facilitates tech companies’ entry into this new opportunity area. 

Very briefly, Startcelerate is a London-based startup that facilitates the direct investment of resources from established companies into startups, covering the entire flow: from discovery, to matching, to the partnership creation and partnership management. Our main product, Startcelerate Pitch & Match event, and our legal framework are the main elements for delivering such solutions. Startcelerate also provides support to tech companies interested in investing in startups by organizing an interactive workshop that covers the very practical issues of how to find, filter and evaluate startups; how to set up a deal flow so tech companies can have an efficient way to work with startups; and how to structure an investment, covering issues like valuation and legal paperwork.

If you want to see live how this works, you can join us as tech company in the next Startcelerate event. We have our next Startcelerate Pitch & Match event in London, ost of October and 1st and 1st of November this year, at Level39 in Canary Wharf, and it is a great opportunity for tech companies to meet startups that fit the companies’ interest. It is also a networking opportunity, as event partners and guests include big universities, accelerators, law firms and corporations from the UK, Germany, Belgium and Holland. 

To get this conversation going, check our event page at www.london.startcelerate.com and drop me a line at tudor(at)startcelerate.co.