In The Race for Technology, Corporate VCs and Tech Scouts need to follow the IP
Updated: Jan 23, 2019
Last year companies spent less on early- R&D than ever before. Compared to 2000, the share of corporate R&D devoted to early-stage research dropped by 25%. But the economy is not getting less innovative, companies are just rethinking their approaches to R&D. Large, diversified conglomerates evolving into more narrowly-focused companies (e.g. United Technologies, General Electric), Subsequently, the role of generalist, early-stage labs within large corporations has declined as companies focus on commercializing technology for their core businesses. In other words, corporate R&D has shifted from research to development.
As early-stage research at large corporations has declined, spending at universities, federal labs, and startups on early-stage research has exploded. While the new innovation ecosystem can help companies keep pace with faster development cycles and reduce lab costs, it creates a new set of challenges. More companies are now competing to access startups and technologies. Corporates are looking for the same things, too: technologies like AI, machine learning, and data analytics with cross-cutting applications. And although demand has increased, most Corporate Venture Capital (CVC) organizations and technology scouts still limit themselves to traditional innovation hubs like Silicon Valley or Boston.
Despite these watershed shifts, the way companies source technology deals has not changed significantly from 10 years ago.
CVCs and tech scouts – typically based in innovation hubs like Silicon Valley – work with business units to develop a “technology wish list.” They rely on a combination of personal relationships, conferences, and demo days to find targets that align with their technology shopping lists. These legacy approaches fail to keep pace with the speed at which the technology landscape is changing and the proliferation of innovation outside of traditional hubs. As competition for technology increases, companies will need to change their approach to sourcing innovation or risk losing deals to more agile, data-driven competitors.
As technology deals become more competitive, companies should focus on two aspects of lead generation and pipeline development
1. Focus on requirements, not buzzwords
Companies often handicap themselves from the outset by developing overly-general lists of technology needs or investment theses. While this is the case for nearly every buzzworthy technology, Blockchain provides a powerful lesson in the risks associated with current approaches to CVC and technology scouting.
When hype around Blockchain grew, many large corporates (and VCs) began looking for investments in the space. As competition for deals increased, startups added blockchain to their names and descriptions to capitalize on the demand when in reality, their capabilities had little to do with the underlying blockchain technology. As a result, CVCs and technology scouts looking for blockchain investments had to filter through significant noise to find deals with actual blockchain companies, all while competing with VCs that had considerable amounts of dry powder, higher risk tolerances, and more agile decision making processes.
Even when companies identify a deal in the space they are targeting, the likelihood it will add real technology synergies is still low. Keeping with the blockchain example, a quick look at the technology shows the dealspace for blockchain (or any other buzzword like AI or virtual reality) is comprised of many enabling technologies with very different value propositions for would-be partners or acquirers.
Take the example of a healthcare company interested in using blockchain to enable international payments. For them, a company in the blockchain ecosystem with strong technology in payment architectures would be a strong fit. However, those companies likely look almost indistinguishable from other blockchain startups focused on less relevant technologies like network architecture or cryptography. Only after substantial due diligence do these differences emerge.
Companies waste precious time and resources chasing the wrong deals and miss opportunities as a result.
To prevent this, they need to do a better job articulating their requirements in terms of real technology needs, not buzzwords. Once companies have a list of specific technology needs, they then need to identify which companies or labs have developed technologies that meet those needs.
At Tradespace, we leverage IP data to determine the technologies an organization has invested in. CVCs and technology scouts can search every global patent in a specific technology segment to find startups and research labs with the highest concentration of IP in that segment. Additionally, we provide metrics on the strength of every piece of IP relative to all other IP for that technology, allowing companies to prioritize targets with the strongest technology.
By incorporating IP data and analytics into their process for generating leads, CVCs and technology scouts are able to build comprehensive, curated deal pipelines, while reducing the number of companies that fall out after diligence due to misaligned technology.
2. Earlier, broader access to technology
As competition deals becomes more intense, it is essential to identify targets earlier and draw from the broadest possible pool of technologies or companies. To do this, CVCs and technology scouts need to increase their appetites for early-stage technologies that coming out of universities, government labs, and other research institutions. Additionally, they need to look outside of traditional innovation hubs. Returning to the blockchain example, Silicon Valley, Boston, and New York accounted for 80% of blockchain investments in 2017 and 2018, but only 35% of the blockchain technology generation during that same period.
The primary reason investment has focused on these hubs is visibility. Gathering data on technology creation and company formation in 50 different states and hundreds of research institutions is prohibitively expensive and time consuming with current scouting models.
By using IP data, companies have a unique opportunity to build comprehensive, current pipelines of opportunities regardless of geography or organization type.
At Tradespace, we’ve harnessed this data to help companies identify every new technology in a given market and instantly rank those technologies. By tracing thousands of deals each year, we have built machine learning models that predict the value and defensibility of IP coming out of startups or labs. While they are no substitute for due diligence, these metrics let CVCs and technology scouts triage thousands of potential deals to quickly build a short, high-quality lists for further diligence.
The IP approach to lead generation also positions companies for earlier access to deals. While the technology behind most new patents is not usually mature enough to warrant attention from large corporates, we’ve found at Tradespace that they offer critical insight into which inventors, startups, or labs are worth monitoring or even sponsoring. Building a global network of the strongest IP generators is one of the best things a company can do to ensure first access to attractive companies and technologies. As technology generation becomes more globalized, platforms like Tradespace become even more important to companies trying to understand and capitalize on the increasingly complex world of innovation.
Competition for corporate venture deals and technology investments is more intense than ever before. While the global innovation ecosystem has also grown significantly, new models for corporate venturing and technology scouting are necessary to capitalize on it. Companies that fail to incorporate IP data into lead generation and pipelines development will repeatedly lose out on transformative deals to competitors using more agile, analytical approaches.
About the Author
A former management consultant to Fortune 500 companies, Alec founded Tradespace to speed innovation and revolutionize the way companies get value from their IP. Using data on 100M patents and advanced analytics, Tradespace makes it faster and easier for companies to source new technology, get innovations to market, and make smarter technology decisions.
Before launching Tradespace, Alec spent five years with Avascent, the top defense and aerospace consulting firm. He led engagements focused on strategic growth, commercialization and M&A. In addition to his corporate work, Alec worked closely with the Canadian Government to reshape their IP policy to drive innovation. For more information, contact firstname.lastname@example.org