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Corporate cannibals or shrewd speculators: why are big organisations bedding in early with UK startups?

Selling out has long been been a controversial topic in startup circles. Even going back to the dotcom boom of the mid-90s, many tech companies are born with the sole aim of getting bought up by one of the major players.

We can see it in Facebook hoovering up the likes of Instagram and Whatsapp for eye-watering sums, in Google’s acquisition of Youtube in 2006, and even as recently as Microsoft snapping up Swiftkey for £170m last month.

This common trajectory has been in place for decades now: from promising digital disruptor to increased exposure and public awareness culminating in the inevitable big money acquisition by a multimedia giant.

However, where this used to be a case of the larger tech firms getting their hands on the code, hardware and talent after a startup had become relatively established, there is now an increasing trend for the tech monoliths to get involved even earlier in a company’s lifespan.

Capturing the entrepreneurial energy

In the first couple of months in 2016 alone, there have already been a number of large corporations attempting to capture that startup spirit early on.

Insurance giant Belron have launched their own startup accelerator which looks to harness entrepreneurial energy and channel it into directions that will benefit the company’s worldwide operations.

Zoopla have also been getting in on the act, wrapping their tentacles around four promising UK proptech startups in investment deals that ensure the property group has exclusive access to any of the tech firms’ innovations.

The reasons for getting involved at such an early stage are obvious. Young companies, particularly in the tech sector, have an agility and energy to them that most larger organisations simply cannot replicate. Their pre-existing structures and processes mean they lack the flexibility to truly innovate, so bedding in early with a young startup can be a way of capturing that spirit.

There will always be a parasitic aspect to these sort of deals due to the simple fact that, on the surface at least, such investment is a way of short-circuiting innovation. It grants bigger companies access to that innovative, entrepreneurial energy without having to put in any of the legwork.

A two-way street

Of course, it’s not always that simple nor is it necessarily that sinister. With the startup scene more competitive than ever and investment firms circling like vultures ready to pounce on the latest innovative idea, nascent businesses are having to look for different ways to secure their future success. Sometimes, the temptation of significant investment in exchange for diminished autonomy is simply too great to turn down.

Similarly, thanks to their experience and size, big firms are in position to offer crucial mentoring and advice to startups that can support their future growth and expansion. It can open up doors and new markets that may not have been an option before, not to mention the valuable publicity that comes from such a tie-up.

The importance of autonomy

While it’s clearly a two-way street, the diversity of the UK’s fertile startup scene relies on young upstarts being given the freedom and flexibility to take risks and experiment. Such flexibility and risk-taking is a lot harder to achieve within the straitjacket of an immoveable, hulking mass of a multi-national or established player.

As larger organisations begin to get involved at earlier stages there’s a very real risk that they’re going to hamper the innovative, entrepreneurial spirit that they’re trying to harness. And this, in the long term, will only serve to damage the UK’s world-leading reputation as a place to find investment and grow a young tech startup.

Are big organisations cannibalising startup momentum, or are they a key part of the UK’s entrepreneurial landscape? Let us know what you think in the comments below.