Industry Partnering: Innovative David Should Look to Cooperate with Corporate Goliath

At a time when innovators and startups across Newcastle and the Hunter Valley are lauded for their achievements, many people in the industry can appreciate that developing new innovations and bringing them to market is no simple task and, considering the current economic climate, it’s a task that is becoming increasingly challenging.  Many Hunter startups attempt to grow organically or seek out venture capital investment, without fully exploring other, perhaps less common, alternative routes to growth. It is well documented that the extent of organic growth can be limited due a range of factors, including the level of debt available to the business, the level of entrepreneurial spirit in the business and its historical and expected financial performance.

The concept of industry partnering (in broad terms and in the scope of startups) is the idea of involving another business or businesses with a startup in order to bridge a gap when it comes to funding.  Industry partnering as a concept can take many forms, but joint ventures are often overlooked despite representing a clever, adaptable, and functional solution for both startups looking for funding and corporates looking to develop new technology.  A joint venture allows two or more parties to join forces without a permanent relationship, usually to accomplish a specific goal.  Typically, joint ventures are not on the day-to-day agenda for a startup when they should be considered. That being said, a joint venture needs as much, if not more, planning as other key strategies for business growth.

Startups need not only be innovative with their research and development, but also with their business plans and go-to-market strategies.  The key upside for a startup when partnering with a large corporate obviously includes receiving necessary funding and critical cash flow, but can extend to often overlooked benefits such as receiving industry expertise, business strategy advice, access to untapped or inaccessible markets, mentoring, and other key resources.  As a result of these secondary benefits, a joint venture with a large corporate could be an attractive option for a startup, even for those that may not necessarily require immediate funding.

Assuming industry partnering can serve a potentially clever avenue for startups to grow and prosper, the flip side of the coin is looking at how a joint venture is also a way for larger corporations to operate nimbly and achieve cutting edge developments at a fraction of the expense of performing the work “in house.”  With the right partnering arrangement, a corporation can access much needed new technology or complementary technology without having to reallocate resources from their own research and development departments (if such a department exists), without having to hire, train and develop new staff, and with results coming potentially more quickly and on a more cost-effective basis due to a driven startup team that stands to share in fruits of their own labour.  This may also serve as a superior solution to simply acquiring the startup business with “fully-fledged” technology as a purchase involves restructuring, additional costs, and the technology may end up developed without the specific needs of the corporation in mind.

Of course, the key element is linking startups with corporates where the resulting joint venture can be symbiotic, and where the companies can share similar values, goals, and vision.  At present, that may not always be very simple or straightforward.  However, assuming both startups and corporates, with an appreciation for the benefits associated with an industry partnership start to canvass for a matching partner, the pool of potential matches within Newcastle and the Hunter Valley starts to expand.

Once a good fit between a startup and corporate is found, there are a number of key considerations for both parties with respect to a successful joint venture.  For example, the parties must agree to fair ownership, contribution, and control with respect to a joint venture.  With the right advice (and effective legal documentation) an appropriate structure can be created from which the new joint venture can flourish.

There are many complex legal and taxation issues to work through and a joint venture is not for everyone and is not without risk, but in many cases, a joint venture can offer benefits and simplicity in a way that organic growth and venture capital funding simply cannot.  It is also imperative professional advice is obtained, which will often involve a lawyer, accountant and financial adviser working together to design and implement the optimal transaction and funding structure.