I remember a corporate IT exec telling me after he agreed to a meeting in 2000 with the company I had co-founded
“I am not supposed to be seen with you. Startups are too risky and a waste of time for us”.
That was then – revenues in the form of licenses and services was validation you had a decent value proposition. Indeed I heard from another entrepreneur:“Customer revenue is mother’s milk; VC money is sugared water”. So you banged your head trying to license your technology to grudging, cynical corporate buyers.
Things are changing. Customer revenue is still validation. But increasingly corporations are not willing to just sign one license, they want to acquire startups, especially those that are strategic to their industry.
I have blogged a couple of times about Climate Corp, which has mined detailed weather data to provide farmers supplemental crop insurance. Monsanto, big in agro-business, has announced plans to acquire it for a cool billion. ABB, which does plenty of work with water utilities, has an investment in TaKaDu which mines data to help detect water leaks. GE acquired Naverus founded by 2 ex Alaska Airlines employees for their technology around Required Navigation Performance. Venky Harinarayan sold his startup, Junglee to Amazon in the 90s and then another one, Kosmix to Walmart a decade later.
There are many such examples. The common thread is their unique vertical focus and distinctive IP. Ironically, that is the type of investment many VCs are loath to invest in because are too niche, difficult to spread risk across. So, in that sense corporate buyers are becoming the new VCs.
Things sure have changed in the last decade.