Kollaboration
stock.adobe.com/stocker
2022-10-01 Webcontent

Greener together

More and more established companies are cozying up to startups – sustainability is particularly fertile ground for initial collaborations. A useful rule of thumb for working with unequal partners: think big, start small.  

By Manuel Heckel  


Contact

Editor-in-Chief VDE dialog

The market turmoil of late is good for business – there is considerable hope for green hydrogen as an energy source. But the reality is likely to be complicated. Wind farms, solar plants and biogas plants supply power for the electrolyzers, while industrial facilities and households want to be supplied with power. Where should the hydrogen flow? Should it be consumed directly or flow into storage? And at what capacity should companies even run their own plants? Managing all this is a demanding task: “Eventually you get beyond the point where one individual can keep an eye on everything,” says Marcus Rübsam, a longtime SAP manager. 

To solve this problem, he partnered with the father-son team of Armin and David Schwarz to found the startup CibusCell two years ago. Based in Speyer, the company is working on building a kind of digital control center for the world of green hydrogen. The software brings together data from all the energy producers and consumers involved. This approach aims to help keep the future energy system in balance. “The hydrogen value chain must be digitalized,” says Rübsam, “otherwise, we’ll never get the market up and running.”  

CibusCell wants to be in on the action when hydrogen goes from pilot projects to everyday use. And they are getting plenty of interest from industry at the moment: “Many corporations are quite open to our ideas,” Rübsam reports. “We get initial meetings – and then follow-up meetings – very quickly.” Things are similar for other young tech companies making moves with green business ideas. The fundamental skepticism towards startups among many established companies is turning into a growing curiosity. “More and more companies understand that cooperations with startups are vital,” says Christoph Baier, founder of the consulting firm Ambivation. “They can’t develop and finance innovations in every area themselves.”  

The more complex the tasks, the more helpful the startup

Christoph Baier

“Companies can’t develop innovations in every area themselves.” Christoph Baier, Managing Director of innovation consultancy Ambivation 

| AMBI-VATION GmbH

In the past, some corporations and medium-sized companies looked down on startup founders working on modern software, innovative hardware and previously unseen business models. But those days are over. As supply chains grow more complex, global competition more fierce, and regulatory requirements more stringent, companies have to evolve faster than ever before. Startups can focus on individual ideas – without having to consider issues in other corporate divisions. “The startup scene is highly innovative and dynamic,” says Mareen Vaßholz, who is responsible for corporate strategy and digital transformation at the automation and connection technology specialist Wago. “That can help us develop our ideas more quickly.” 

Joint projects in the field of sustainability are all the rage. The pressure to take action is especially great for many companies. But on this issue, in particular, they often lack the resources to make progress on their goals. And it is precisely here that innovations are in demand – ones that were historically not a high priority for the in-house development division. The range of potential approaches is vast. Transparency surrounding company emissions, fleets of electric cars, photovoltaics on the company roof, more energy-efficient production, recyclable packaging – all these are just a few examples of current challenges.  

Startups can step in to help. Just under one in three German startups is already considered a green startup according to this year’s Green Startup Monitor from the Borderstep Institute. The report describes the young companies as “a motor of transformation with their agility and innovative solutions.” And at the same time, the founders are looking for customers in order to grow – almost two thirds of green startups see sales as their greatest challenge.  

How corporations and SMEs work on an equal footing with startups

For most companies, the main question is whether to cooperate with startups at all. To answer this question, it’s growing more important to define exactly what these cooperations should look like. Even if young and established companies are often pulling in the same direction on the topic of sustainability, the partners still have very different requirements and expectations. On the one hand, the corporations and SMEs have large budgets, traditional development cycles and potentially long decision-making paths, while startups have little capital and high agility but comparatively little industry experience on the other. “Cooperation on equal footing is not a matter of course,” warns Baier, the innovation consultant.  

The rule of thumb for an initial cooperation is therefore to think big, but start small. “We don’t immediately think in huge projects,” says Rübsam, the founder of CibusCell. For example, his startup has also prepared its software to simulate complex hydrogen production scenarios. This makes it possible for the program to be run at other companies’ facilities, such as wind farms, for a few days. Ideally, this will pique potential customers’ interest in the technology – and CibusCell knows there is already very serious interest. This cautious approach is meant to ensure sustainable business relationships. “We won’t get rich this way, of course, but it’s a good start,” says Rübsam.  

However, SMEs and corporations are now applying the things they have learned by cooperating with startups in recent years, particularly in the area of sustainability. The search for suitable partners, referred to as “scouting”, has become considerably more professional in many sectors. “Companies today usually know exactly what their business case is,” Baier observes. The challenge is that the goal must be clear, but the catalog of requirements can’t be too narrow – after all, the point is to find innovative approaches. “If you try to be too specific, it will be difficult,” Baier explains. “It’s a matter of seeing which different roads can lead to Rome.”

Great openness for sustainable solutions – if they match the business case

Baier is currently consulting for “innovation challenges” in which industry heavyweight ABB is looking for startups that calculate CO2 emissions or collate the relevant data into reports, for instance. In recent years, several companies have set up their own programs to specifically identify and invest in sustainability startups – Eon has its own cooperation program, Siemens has its specialized Energy Ventures division, and a consortium of OMV, Andritz and Voestalpine wants to promote startups in the energy sector. “In the pursuit of ecological, social and economic action, more and more sustainable development aspects are coming to the fore in society and business – including in the corporate programs for innovation development and startup cooperation,” write the authors of the current Startup and Innovation Monitor compiled by Stuttgart consultancy MM1.  

Graphic illustrating challenges for green startups

A bar graph shows which challenges green startups faced in 2021. The top answer is sales, followed by product development, raising capital, liquidity, personnel planning, profitability, tax and legal issues, regulatory issues, internationalization, work permits for professionals from abroad, exit, company sale and IPO. 

As the current Green Startup Monitor shows, the top challenge for green startups in 2021 remained ­ customer acquisition, followed by product development. Raising capital has now fallen to third place in the priority ranking after coming in first in 2019 and second in 2020. 

Graphic illustrating challenges for green startups
Borderstep Institut für Innovation und Nachhaltigkeit gemeinnützige GmbH und Bundesverband Deutsche Startups e. V.

Close cooperation does not always have to be exclusive

Marcus Rübsam

“Eventually you get beyond the point where one individual can keep an eye on everything.” Marcus Rübsam, Founder of CibusCell 

| CibusCell Technology Gmbh

It can be hard to find the right format for a specific cooperation arrangement. Accelerator programs, where established companies support multiple startups in an initial phase, were highly popular for years. This approach helps to provide a broad overview of current technologies – but it doesn’t always provide concrete solutions. Another option is direct investment. This ensures that the established companies are able to influence promising startups – whether for strategic or financial reasons. However, it can be difficult to identify suitable candidates, especially at an early stage. Startups are also often skeptical when large companies want to acquire too much of their business too soon. “Exclusive collaboration isn’t ideal for startups looking to scale up their business,” says Baier.  

This had led to the increasing popularity of cooperation formats referred to as venture client models. This is when companies look for startups that can help them face a specific challenge – and they become one of the young tech company’s first paying customers. CibusCell, for example, worked with a project developer for renewable energies and other companies early on. The great advantage for startups is that they learn the precise requirements of potential industrial customers through close cooperation. “We were lucky that these companies helped us understand what decisions our customers actually want to make with the data,” says CibusCell founder Rübsam. The advantage for companies that trust startups at an early development stage is that the young tech teams tend to be highly enthusiastic and are often willing to adapt their product to their first customer’s wishes. 

Sources of capital: how green startups finance themselves

According to the Green Startup Monitor, bank loans increased significantly in 2021 over the previous year (from 13% to 20%). If you compare the utilized and desired sources of capital, a clear gap in financing by strategic ­investors is apparent: only 16% of startups receive it, but almost half (47%) want it. 

Graphic illustrating financing for green startups
Borderstep Institut für Innovation und Nachhaltigkeit gemeinnützige GmbH und Bundesverband Deutsche Startups e. V.

Saving costs by sharing innovative developments

Mareen Vaßholz

“The startup scene is highly innovative and dynamic.” Dr. Mareen Vaßholz is responsible for corporate strategy and digital transformation at Wago.

| WAGO GmbH & Co. KG

Wago relies on the venture client model for precisely these reasons. To structure the search more effectively, the Minden-based firm teamed up with other regional companies in the Stratosfare project. “This is a good way for companies to get in touch with each other. And then you can see where things go from there,” says Vaßholz, the Wago manager. A major advantage in the area of sustainability: rather than strict isolation and secret project development, many companies are prepared to share information even with competitors. People are more likely to spread the word about a helpful energy management solution rather than to reveal details about their own production processes. “Especially in the context of sustainability, it’s clear that you can’t always go it alone,” says Astrid Burschel, whose responsibilities at Wago include corporate social responsibility. “Startups are perfectly suited for this area.”  

Economies of scale are particularly relevant for both sides here. For example, the processes for calculating the CO2 footprint are similar in many companies. A startup can therefore perfect its software for this task and then distribute it to numerous customers, including competitors. In turn, the larger companies don’t have exclusive access, but they usually save on costs compared to in-house development – allowing them to concentrate on their core business. “It’s certainly easier to address innovation issues with startups than topics that are very close to the core business,” says Baier.  

Both sides need to stay on course  

The more central a joint project is to the established company’s core products or processes, the more sensitive corporations and SMEs become. “It quickly proves to be a difficult undertaking,” says Burschel – one that requires trust in the young startups to grow first. Even with supposedly simple software projects, the scope of collaboration is underestimated time and time again. After all, startups often bring not only their ideas to business customers, but also a different way of working. This fresh wind is desired by some established companies, but it can still be a challenge. “That capacity for change is associated with a lot of effort,” Baier warns.  

It takes a lot of communication and expectation management to ensure that neither the corporate team nor the startup gets disappointed and cancels the cooperation. “We sometimes have to act as mediators so that both sides understand how the other is ticking,” reports Vaßholz. In her role at Wago, she often brings young tech companies and relevant corporate divisions together. It’s often important for startups to make rapid progress in joint projects – after all, they focus their limited resources on the few first customers. On the other hand, the responsible employees at medium-sized companies and corporations must be convinced that a cooperation with startups is worthwhile. And they need to get a clear signal from their managers that they can commit to these projects – even if the outcome is not always predictable from the start. “Supertankers and speedboats often work together, and they both have to be kept on course,” says Burschel. 

Collaboration tool box

Curiosity about startups is great, but established companies must carefully consider how they want to join forces with young companies. An overview of the most popular options  

Incubators

Dedicated units, often within companies, that serve as a kind of playground for new ideas. Employees or external professionals can try out new business models or products here. Example: Neosfer (Commerzbank Group) 

  • Advantages: It’s possible to lower your inhibitions about approaching the world of startups. Innovative ideas don’t get lost in the corporate shuffle. The company automatically gets a dose of the startup mentality.  
  • Disadvantages: The ideas are at a very early stage – many projects will fail. If the good projects don’t receive further support, they will fall by the wayside. 

Company Builder

These are like the contract manufacturers of the startup world: agencies that build tech companies for and with established companies. The new company can be set up independently of the corporate group. Examples: WattX (Viessmann), Bridgemaker, Mantro  

  • Advantages: The agencies have a lot of experience in building startups. Companies and SMEs can therefore easily avoid initial mistakes.  
  • Disadvantages: The work requires a high initial investment. Scaling up can be difficult if the corporate interest in the startup is very high or very low. Other investors may be skeptical. 

Networks/partnerships

Foundations, universities or private initiatives can form a nucleus to promote startup thinking. Companies support this with capital and contacts – and receive easy access to the teams and ideas. Examples: the German government’s Digital Hub Initiative, Founders Foundation 

  • Advantages: Companies decide how much they want to contribute – and what exactly they want to get out of the arrangement. This reduces the financial risk.  
  • Disadvantages: Projects often don’t go beyond the early stages. For further contacts, the established companies must offer the exciting startups subsequent opportunities. 

Indirect investment

Companies participate in funds as limited partners – they provide financing, but the startups are actually selected and advised by the venture capital provider’s team. Example: High-Tech Gründerfonds  

  • Advantages: This provides established companies with a good overview and initial contacts to startups that may be of interest to them. If the fund does a good job, the decent return is an additional benefit.  
  • Disadvantages: Some funds invest in a wide range of startups. In this case, not every stake will be relevant for each limited partner. The effect may be limited to a financial investment.  

Direct investment

Firms can use their own investment companies to specifically secure shares in startups that are relevant to them. A 15–20 percent stake is typical in the first phase – but it is also conceivable to acquire a majority holding. Examples: Phoenix Venture Partners, Sapphire Ventures (SAP)  

  • Advantages: If a startup product is strategically important, the company has direct access, and financial success pays off for corporate investors. 
  • Disadvantages: Startups may find it harder to win the investor’s competitors as customers. Corporate thinking can take hold as the larger company acquires more shares. The effort and costs are high.