In venture capital, the exit is the prize. This wealth-creating event validates the market value of an organization that began as a fledgling startup. Exit values also provide benchmarks for valuations impacting investment terms across all stages of venture financing. Exits produce success stories and liquidity to drive new fund replenishment and reinvestment.
In 2021, the market was on fire with high valuations and fluid cash funding topline growth. Today, market uncertainty has squelched buyer interest and exit volume has plummeted. According to PitchBook, in the first half of 2023, just $12 billion of exit value was realized compared to more than $350 billion in the first half of 2021. With overall venture activity slowed, startups are looking to manage their bottom-line performance, extend operating cash runway and delay needing to raise money.
More than ever, early stage companies need solid connections to corporate leaders who can help them validate product value by becoming customers.
Here are a few ways leaders within corporations can help startup founders accelerate their commercial success:
Be the voice of the market. Startups are looking to create value by providing innovative solutions to market problems. Industry experts can provide critical feedback on whether the pain point a startup is seeking to solve is real, significant and worth paying for. Candid feedback is crucial for entrepreneurs, even if the message differs from what they hope to hear. For an entrepreneur, input on market need informs whether to keep moving forward or pivot the business.
Provide a practical perspective. A breakthrough solution may solve a problem, but other factors, including price points, data privacy and operating culture can hinder market traction. Entrepreneurs hear ‘no’ a lot. What they need to hear is ‘why not.’ The more an industry expert can help frame why a new solution won’t work, the better the opportunity for the entrepreneur to address barriers to purchase. Companies willing to take the time to explore new ideas and provide constructive feedback not only help the entrepreneur but also help themselves by being open to new approaches that can help them stay ahead of the competition.
Plan pilot engagements. A smaller-scale product trial can provide real-world testing without large-scale implementation risk. The startup must be sure its product is viable and can stand up to market forces, while budgeting the time and resources needed to manage a pilot. Customers must also budget time and resources to help the startup navigate the internal corporate processes needed to ‘go live.’ Piloting new technologies requires effort and planning on both sides. But when pilots work, both sides win.
Consider the end game. Many corporations have formal venture investing teams, which should not deter them from engaging with startups. Welcoming new ideas that tackle business pain points provides new perspectives on disruptive technologies. It also creates an opportunity to test and adopt or even acquire them. Ultimately, engagement is about increasing access to novel technologies to understand disruptive activity better before it disrupts your organization.
Regional economies thrive when the startup and corporate environments are solid and interconnected. Look for opportunities to make connections within our region that can lead to mutually beneficial partnerships. That is the purpose of the Ohio VC Fest happening in Cleveland on Oct. 11 and 12. ●
Jerry Frantz is President of JumpStart Ventures
