NAT JABANGWE: How start-ups and corporates can help each other grow

African start-ups raised $5.2bn in venture capital in 2021 — more than the preceding seven years combined and a five-fold increase in investments from 2020. This has been characterised by a mushrooming mergers and acquisitions (M&A) trend in which big businesses “buy” start-ups to build core capabilities through strategic acquisitions, thus making them more agile.

At the recent Sanlam Start-Up Summit, agility was top of the agenda, with particular emphasis on the symbiotic relationships between start-ups and established incumbents. Start-ups and major corporations be great symbiotes. The one brings agility and fresh ideas, while corporates can help start-ups with resources, governance insights and scalability.

The past few years alone are littered with examples of these partnerships in play. Pharmaceutical giant Pfizer joined with German pharmaceutical start-up BioNTech to rapidly develop a Covid-19 vaccine, while Toyota’s partnership with Aurora Innovation is changing the world of autonomous cars.

How to achieve agility at scale

Getting the balance right between the fleet-footedness of a start-up and the muscle of a corporate is crucial if we want to improve on the gains of the past. One of the ways to do this is thorough an investment in research and design.

As Tsepo Headbush, co-founder of venture capital firm Bright On Capital says, “Corporates should consider partnering with start-ups as pure research and development (R&D). Generally, R&D is expensive, but the right idea can net significant returns. Conversely, the risk involved is minimal as your enterprise’s outlay would be markedly different if the project were done in-house. By partnering with organisations like Plug and Play, a company that connects innovative start-ups with corporates, established companies can become significantly more fleet-footed.”

Capitalising on corporate muscle

Partnerships are not a one-way street. While corporates get the benefit of being able to experiment without significant risks to their brand integrity or resources, start-ups get access to technical skills, institutional knowledge, infrastructure, prospective clients and funding. 

Teboho Lebakeng, founder and CEO of Digi Pharm, an app that has been described as the UberEats of pharmacies, recently said corporate support gives you the muscle to help navigate governance and compliance issues. This is especially beneficial for start-ups that do not want to get bogged down in bureaucracy and daily operational matters.

With regulation on the rise in almost every industry it can be difficult for new players to take ideas to market. Big players can lend the muscle to tick the requisite regulatory boxes. 

Learning not to fear failure

As the founders of the world’s biggest companies often say, failure is not the opposite of success but part and parcel of it. As a result, neither corporates nor their start-up partners should shy away from risk purely out of fear. If a partnership does fail there are always invaluable lessons to be gleaned from that. Even unsuccessful partnerships allow both parties to build their skills base and foster other partnerships opportunities going forward.

Entrepreneur.com reports that more than half of all M&A deals fail, primarily because of a mismatch between the targets set and the deal’s strategic purpose. It is pivotal to seek strong synergies and ensure that core values between the businesses align. There needs to be a clearly articulated deal rationale, deal structure as well as integration and execution plans.

Society is the biggest beneficiary of these mutually beneficial relationships. InsurTech is a perfect example of how. Ultimately, when corporates and start-ups partner up innovation doesn’t just survive, it thrives.

• Jabangwe is group digital executive at Sanlam.