Participants at the 2013 Media Camp program, organized by Time Warner’s Turner Broadcasting division.
How do big companies collaborate more strategically with startups, and soak up a bit of entrepreneurial energy themselves?
A growing number — more than a dozen, according to our count — are sponsoring or running accelerator programs. These offer free office space for several months to chosen entrepreneurs, along with mentorship and a chance to meet prospective investors or business partners. There’s usually a small cash stipend to cover the living expenses of each startup team, and sometimes that cash buys a small slice of equity in each venture. Among those who have launched corporate accelerators so far: Nike, Microsoft, Volkswagen, and Kaplan Inc., the test prep and online education company. One key objective: finding and collaborating with entrepreneurs who are working on new products and services central to the sponsoring company’s future.
But is there really substantial upside in devoting time and resources to running a corporate accelerator? After all, it’s much simpler to just show up to a TechStars or Y Combinator “demo day,” schmooze with the participants, and forge new relationships that way.
We spoke with executives at Turner Broadcasting Inc.; Blue Cross Blue Shield of Massachusetts; and TechStars, which has operated accelerator programs for several large companies, including Nike, to understand the rationales for starting a corporate accelerator program — and what to expect as far as outcomes.
Time Warner
Two Time Warner divisions, Turner Broadcasting and Warner Bros., run Media Camp, an accelerator program focused on media startups. The two separate programs take place in San Francisco and Los Angeles.
Balaji Gopinath, Vice President of Emerging Technology at Turner Broadcasting, says, “We opted to do the accelerator ourselves, because if you’re not part of the company, how can you really understand what the strategic levers are here? And our primary focus is to add strategic value to the company.” Any benefits from investing in the startups that participate in Media Camp, Gopinath says, “is icing on the cake.”
Turner started Media Camp in 2012, choosing six startups to participate in the twelve week program. Turner hired a project manager to help oversee the program. (Everyone else who works on Turner’s Media Camp has a “day job” in the company’s emerging technology group.) This year, Warner Bros. started its own Media Camp program in Los Angeles. The Los Angeles program tends to focus more on film and content creation, where the San Francisco program focuses more on new media distribution technologies, says Sandy Khaund, a Turner executive who works with Gopinath on the program.
Khaund says one of the biggest challenges in creating an accelerator program is providing enough value for the startups that participate — and doing the same for his employer. “Turner pays our salary, so we have to do well by them, but we also have to help the startups,” he says. Much of that help takes the form of making connections within Turner (which operates cable channels like Cartoon Network, CNN, and TBS). In one instance, a Media Camp startup called Chute met with an executive responsible for CNN’s social media initiatives, and within a week, they had their technology working on CNN’s website — just in time for the 2012 Republican National Convention. As a former entrepreneur, Khaund says, that kind of speedy deployment is unusual: “I remember how hard it was to get in the door of a potential customer.”
Khaund says that for a typical Media Camp class of about five companies, he and the team review 200 to 300 applications, bring in 10 to 15 entrepreneurs for an interview, and make offers to five to participate. They tend to look for startups that have already built a prototype, as opposed to those with a raw idea. “We consider ourselves a graduate school,” Gopinath says. “We get a lot of people who have been through other accelerator programs, such as Y Combinator and TechStars.”
In terms of metrics, Khaund admits that during the first Media Camp program, “We weren’t very regimented about what the goals were. It was uncharted territory.” But now, the goal for Media Camp focuses on “the number of pilots we can launch, whether they’re gratis or for pay — something where a brand at Turner finds a great product.” He adds that two of the original class of six startups were acquired, and also, “the enthusiasm about working with the Media Camp companies is a lot higher in Atlanta,” Turner’s headquarters.
Media Camp startups travel to Atlanta to meet executives there, and at the most recent demo day event, in San Francisco, Turner Broadcasting CEO Phil Kent kicked things off. Another interesting note: when startups strut their stuff at the demo day, Turner invites its competitors to be in the audience. “The startups need to get exposure to as many big companies as possible,” says Khaund. And the presence of other media companies at the event also can spur Turner and Time Warner execs to start working on partnerships with the Media Camp startups, rather than sit on the fence. Khaund also says that Turner’s relationship with the Media Camp startups is very loose: it doesn’t prevent the startups from serving other media companies, or even grant Turner a right-of-first-refusal if a startup gets an acquisition offer. “We didn’t want the companies to think they’d be locked into Turner if they decide to participate in Media Camp,” Khaund says.
Khaund says he has been hearing from lots of other companies that are considering accelerators. His advice? “It takes a lot of open-mindedness. You have to really be excited about wanting to work with partners. At Turner, we have a great digital team, but you can never have enough great ideas. If your customer is your greatest concern, some of the best ideas can always come from outside. We may not find the next Facebook, but we are looking for companies with that same kind of game-changing potential, companies that are changing the way people watch TV.”
Many companies, says Khaund, are dominated by “not-invented-here syndrome.” Everything good must originate internally. He says, “If you’re that way, you won’t succeed with an accelerator. You have to acknowledge that some technologies might be built faster externally.”
Gopinath says that one key competitive reason for starting Media Camp was to “figure out what the next generation of entertainment products and services will look like,” faster than other large media companies. And by designing and operating its own accelerator program, without a partner, Gopinath says, “you can have a bigger impact on the company’s DNA.”
Blue Cross Blue Shield of Massachusetts
Blue Cross Blue Shield, a health insurer with about 3,500 employees and $6 billion in revenue, traveled a different path. It decided to partner with Healthbox, an existing accelerator program focused on e-healthcare startups, to bring the Healthbox program Boston in 2012.
TemiTuoyo Louis, director of strategic investments at Blue Cross Blue Shield of Massachusetts, says the company initially thought about starting its own accelerator from scratch, as Time Warner did. But “we realized we didn’t have the bandwidth, network, or experience to fully support a program for seed-stage companies.” Louis had been to a demo day run by Healthbox in Chicago, so he began talking with their staff about bringing the program to Boston. The idea had to win the approval of BCBS’ chief executive and chief financial officer. Both executives, Louis says, “believed that participating in the development of new solutions that aim to tackle the most pressing challenges in the industry supports our vision of making quality health care affordable for individuals, families, and employers, while adding growth to our local economy.” (Louis is second from the left in the photo, along with Allen Maltz, CFO at BCBS; Nina Nashif, founder of Healthbox; and Jenna Rose, director of Healthbox.)
The key metrics that Louis has tracked, as BCBS and Healthbox have cycled through two batches of startups, are jobs created; pilot programs launched, and their outcomes; and how many BCBS employees get engaged in the Healthbox program. Louis says that so far, 19 startups have completed 55 pilot tests. About 50 new jobs have been created, and more than 350 BCBS employees participated in Healthbox in 2013, up from about 180 in the program’s inaugural year in Boston.What’s the key to successfully launching an accelerator program? “Be comfortable with assuming risk, get associates involved, always keep the end user/customer in mind, and enjoy the ride,” Louis says.
TechStars
TechStars, which runs its own accelerator program in New York, Boulder, Boston, and other cities, partners with companies like Kaplan and Microsoft to operate their accelerator programs.
Dave Drach is a former Microsoft executive who now oversees business development for TechStars. “Companies are doing two types of things with accelerators,” Drach says. “They’re either trying to develop an ecosystem of startups that work with their product or their technology, like Microsoft and its Kinect platform, or they’re trying to explore a thesis about the future of their industry, like evolving forms of education, in Kaplan’s case.”
TechStars deploys a team of about 10 employees to run each corporate accelerator, and the corporate sponsor pays it an operating fee to run the program. TechStars provides the seed funding — $20,000 in return for 6 percent in equity in each startup. (As a result, TechStars holds onto the equity.) In some programs, the sponsoring company provides the option of additional financing to the teams that participate, in the form of $100,000 in convertible debt. TechStars chooses the companies that are admitted to each program.In terms of the outcome, Drach says that ideally, “We want to see three deep engagements out of a class of 10 companies. Those could be co-marketing arrangements, acquisitions, or an investment.” Drach points to situations like Microsoft acquiring one of the participants of its accelerator program. But he says that there can be powerful cultural benefits, too.
“Nike is an incredibly innovative company as it is, but they had their staff and executives really engaged in their Nike+ Accelerator,” he says. “Just seeing how the startups focused and executed got them thinking differently about delivering products on a rapid timeline.” And for most of the companies that get involved with accelerators, “It’s a really powerful way for them to learn what’s going on in the early-stage tech ecosystem,” Drach says.
Conclusion
But Khaund, the Turner Broadcasting executive, cautions that many companies diving into the world of accelerators are doing it because of FOMO: Fear of Missing Out. “A lot of people are going in thinking that this is the new big thing. It sounds innovative: let me reach out to startups. But the eyes can be bigger than the stomach. You really need to understand how you’re going to measure it, whether your company can accept and work with new technologies and products that it didn’t develop, and what your key performance indicators are going to be — how are you going to measure it?”
Here’s InnoLead’s list of a dozen of the earliest corporate accelerators. Khaund, Drach, and others predict we’ll see this list continue to grow in 2014.
Do you have questions for TechStars, Blue Cross Blue Shield, or Turner? Post them below, and we’ll get answers for you…
