On Wednesday, January 31, I had the privilege of participating alongside several representatives of corporate innovation or venturing teams, entrepreneurs, and early-stage investors in a symposium exploring feasibility of an industry standard, simplified partnership agreement (SiPA) between corporates and startups.
Kudos, first, to the Activation Energy team (Matt, Nikhil, Jeanne, etc.) for their vision in organizing the gathering, and for securing grant funding for the initiative from the Department of Energy’s Innovation Pathways program.
Importantly, such a meeting could not have taken place without the credibility lent by having real live lawyers in the room who not only think such a feat is possible, but have actually drafted a proposed document for us to bat around. For this reason, Activation Energy’s legal counselors at DLA Piper were crucial participants.
Former General Electric CEO Jeff Immelt was quoted in November, admitting, “We have been company killers.” He said this partially in praise of the company’s current CIO and head of corporate venturing, Sue Siegel, who’s helped move the company away from ‘killing,’ and toward learning from and collaborating with startups to create mutual value.
But the broader context of the statement was an acknowledgement of a common truth across the global technological and business innovation ecosystem: In the simplest terms, even in an operating environment where ‘open innovation’ is as common in the corporate lexicon as ‘profit margin,’ setting up the conditions necessary for corporates and startups to explore technology or business collaboration costs more in both lost time and legal fees than most startups can afford.
Activation Energy’s finding, validated through a robust set of interviews with corporate tech scouts and startup executives, is that these costs are mostly in the name of legalese that is simply unnecessary at the exploratory stage. The result, as so many of us know all too well, is that good industrial innovations too often fail to be adopted, and market incumbents too often fail to learn from innovators.
But what about IP, or defining how to split the upside?
Sure, when things reach an appropriate fruition point, a joint development agreement (JDA), technology or product licensing, or investment term sheet might be needed. But there is a stage after basic due diligence has been completed by the corporate – perhaps there is a non-disclosure agreement (NDA) in place – at which the myriad existing legal partnership structures and agreements are simply an unnecessary hindrance. Further, each corporation has their own version of each, requiring a startup to retain counsel just about every time an exchange of business cards results in a second conversation.
The stage we’re talking about, though, could be defined by up front risk identification and the validation that there could even be mutual value in more concrete collaboration down the road. A commonality across the corporates and entrepreneurs in the room – representing multiple industrial sectors and technologies – seemed to be that setting a limited scope of activities to be agreed to quickly at this stage in pursuit of that validation, and to identify those risks, would save everyone significant wheel-spinning.
So, the document we’re pursuing is targeted at meeting a need, for both the startup and the corporate, for a simplified and standardized legal document that formalizes a collaboration to a point of mutual trust and protected interests, but dramatically shortens the time frame through limited scope and careful language selection.
The concept immediately resonated with my own experience at CTG supporting our corporate clients’ technology scouting activities, in which we often see both parties either shrug off a 6-18-month delay as just another cost of doing business or walk away from the table altogether. Nobody in the room balked at the very real opportunity to shrink the time frame down to a matter of weeks to two months.
What did we do?
If you work on interfacing with innovation at a large corporation and are skeptical at this point – don’t worry. We poked and prodded the the concept with just about a thousand sticks – from whether there’s really any need or room for a new contract (what’s not covered by a non-binding letter of intent (LOI) or memorandum of understanding (MOU) that could reasonably be gained by such a document?) to the execution (the likelihood of in-house corporate lawyers adopting an industry standard agreement) – and still we all came away believing something transformative was possible.
To be clear, some corporates are already achieving better than average exploratory time frames via their own innovative approaches. So, we spent part of the day hearing several case studies of recent, anecdotal corporate-startup collaborations from the principals themselves.
We played at different organizational structures, incentives, and cultures to begin to identify conditions necessary for this to work as well as an appropriately narrowed scope for such an agreement.
We learned of new partnership structures that could be emulated and enjoyed a rare transparency among participants as questions and dialogue piled up.
Call to action
Ultimately, we all left understanding that there’s much work left to do. But in addition to an eagerness to attempt it, we already have a set of stakeholders who could make it happen. I know that there are others across CTG’s own list of clients, partners, and network that could contribute to and benefit from the ongoing effort.
If you work interfacing with innovation at a large corporation and are interested to learn more – please get in touch.