Innovation Quadrant – A Framework for Corporate Startup Scouting

With the startup world so fragmented, how should you as a corporate innovation scout approach it?

Our research process focuses on organizing the chaotic startup landscape into sector reports (such as Financial Technology) comprised of smaller functional categories (like Business Lending, Consumer Lending, and Retail Investing). Each category is in a different state of innovation and thus requires its own game plan.

We have developed the Venture Scanner Innovation Quadrant to act as a framework to guide you in the startup scouting process. Our Innovation Quadrant organizes categories into four states of innovation by plotting the sector categories on two axes. One axis uses average age to show maturity. The other uses average funding to give a sense of traction. These scores are then normalized to draw out distinctions. Knowing which quadrant each category sits in our Innovation Quadrant will help in developing your scouting strategy.

As an example, here is our Financial Technology Innovation Quadrant that is part of our Financial Technology dynamic report.

The four quadrants are Pioneers, Disruptors, Heavyweights, and Established. Each quadrant presents a viable and unique innovation opportunity for a corporate startup scout. In the table below we summarize the four quadrants and opportunities that exist for corporate innovation.

In summary, categories at all stages of traction and maturity present innovation opportunities for your corporation. Dive deep into the Pioneers categories to explore experimental new technologies, scan the Disruptors categories to ensure your company has the right defensive plans, identify possible cash cows in the Established categories, and look for big growth opportunities in the Heavyweights categories. A successful scout will continuously be executing across these quadrants. Leveraging the Venture Scanner Innovation Quadrant as a framework will jumpstart the development of your innovation strategy.

Reach out anytime to discuss how Venture Scanner can help in your corporate innovation and startup scouting efforts: info@venturescanner.com.

How To Navigate The Corporate and Startup Dance

By Carl Doty at Forrester Research and Nader Ghaffari at Venture Scanner

Successfully engaging with the startup community will not only give corporations a competitive advantage but can also mean the difference between future relevance or demise. As a result, corporations of all sizes are launching innovation programs. The corporations’ objectives are chiefly to understand the innovation trends, identify potential disruptions in their markets, and find startups to partner with, invest in, or acquire. These efforts are typically run by a head of innovation, a chief strategy or digital officer, or a corporate development function.

So how should corporations engage with startups and what pitfalls should they avoid? Based on our interactions with corporations of all sizes and from all industries, we see engagement models that work well and others that leave room for improvement. We summarize our key findings in three themes here.

1. EDUCATE: Gain a broad understanding of an emerging market’s scope and activity and define your corporate objectives in response.
2. ASSESS: Research the startups that compete in the market and create an unbiased shortlist of candidates based on your corporate objectives and investment parameters.
3. ACT: Engage with the best startups that align with your corporate objectives and desired business outcomes.

How to Navigate the Corporate and Startup Dance

1. EDUCATE: Gain a broad understanding of an emerging market

Often times when a corporation looks to make an innovation play or a financial investment in a particular category, the immediate impulse is to reach out to startups that they have seen repeatedly in the media. Similarly, the corporate “scout” might reach out to venture capitalists or an accelerator in their network, which by design leads to biased referrals. Other paths may include sponsoring an incubator or arranging a Silicon Valley tour.

All of these tactics limit your exposure to the startups within your network and thus cloud your view of the market as a whole. And while they may help spark some innovation inside an enterprise, they by no means remove the hard work needed to gain a complete picture of an emerging market. The absence of that broad perspective will introduce risk into your process, whether you’re looking for M&A, equity investments, or strategic partnerships. When done right, this step with foundational market intelligence sets the stage for the mission critical decisions that follow.

2. ASSESS: Define an unbiased shortlist of startups

Understanding an emerging market is one thing but narrowing a field of hundreds – if not thousands – of startups down to a manageable shortlist for your objectives is hard to do. The key to the shortlisting process is to avoid bias. The inputs into this step should include your unique corporate and product strategy, as well as the startup characteristics that will best align to that strategy. As part of this filtering process, it’s wise to conduct interviews with startup candidates to gain a deeper understanding of their product roadmaps and sources of differentiation. Most organizations are not well resourced for this, so an objective partner is invaluable. The output of this step is a shortlist of startup candidates based on an unbiased process that brings to the forefront the companies that have the strongest strategic fit. Once a firm shortlist of startups has been established, it’s time to move into the action phase.

3. ACT: Take meaningful action that drives results

At the core, corporations and startups have very different cultures. Large companies are typically process heavy and exhibit an overabundance of caution. To a startup, large companies can seemingly spend an enormous amount of time and resources on analyzing, while showing little to no signs of acting. On the other hand, startups are resource constrained, so they must invest those resources only in places that can lead to immediate traction as measured by revenue, customer growth, or the next round of funding to keep their nascent business afloat.

Therein lies the major challenge. In order for startups to justify spending time with a corporation, they will want to see skin in the game. Whether it be by becoming a paid customer, engaging in a paid proof of concept partnership, or some other commercial relationship, a startup will take the corporate partner who takes real action seriously and will be quick to shy away from those who want to spend endless hours in meetings without taking action. Corporations that make early bets on startups will gain the loyalty of the startup as their company and product mature. Startups will treat such corporate partners like family, for they not only took a risk, but they did so with skin in the game that did not guarantee a future return. The common ground in these situations is typically the “fail fast, fail cheap” mantra.

So, if you think you spot a startup that can give your corporation a competitive advantage, think through the three steps above and answer these key questions: Are you sure you’re starting from a broad understanding of the market? Are your information sources unbiased and credible? Are you willing to engage with a sense of urgency and take meaningful action? These are critical considerations as you attempt to drive profitable innovation inside your organization.

The future success of incumbent corporations across all industries rests on their ability to successfully monitor, assess, and engage with an increasingly chaotic startup and innovation ecosystem. We are excited to announce that Forrester and Venture Scanner have formed a strategic partnership to help you in every step of the process. To learn more, join us at our upcoming Podcast in November, or reach out to Carl Doty (cdoty@forrester.com) and Nader Ghaffari (nader@venturescanner.com).

Interest in AI Startups Exploded in 2017

Artificial Intelligence (AI) technology startups seem to be in the news all the time. Is that hype, or are AI startups truly seeing major interest from investors? Using our research platform, we can conclude that interest in AI absolutely exploded in 2017.

We come to this conclusion from the following takeaways, each of which tracks a different metric for interest in AI startups:

• AI funding grew exponentially in 2017
• The number of AI deals is increasing
• Investor interest in AI is growing

We’ll illustrate these takeaways with a series of graphs to show the extensive growth in AI.

AI Funding Grew Exponentially in 2017

Let’s start off by looking at AI funding trends over the past 6 years. Here is the annual amount of AI startup funding, stacked by quarters.

AI funding has been on an upward trend over these past few years, with a rapid explosion in 2017. Total funding in 2017 was over 3 times the size of 2016 funding. The Compound Annual Growth Rate (CAGR) in funding grew by a whopping 85% in the timeframe of interest (2012-2017).

This funding growth is substantial news on its own, but are there other metrics showing a growing interest in AI? Let’s see what the total number of deals looks like.

AI Deal Numbers Are Up Over 5 Years

The following graph shows us the annual number of AI startup funding deals, stacked by quarters.

Over the past five years, this graph shows an increased interest in AI via the number of deals in that startup ecosystem. Whereas the rapid growth in funding occurred in 2017, the rapid growth in deals occurred in 2014. The six-year CAGR on the number of deals stands at 23%. 2017 is also the highest year on record, beating the previous high in 2015 by around 2%.

So, we’ve seen that total funding and the number of deals are expanding, how about investor interest?

Investor Interest in AI is Growing

To gauge how investors are feeling, let’s look at the total number of AI investors who participated in each financing round. For example, if 5 investors participated in funding one company, and 4 investors participated in funding another, the total investor interest metric would be 9.

This graph clearly shows increased investor interest over the past few years. The six-year CAGR is 31%, and the 2017 total is 21% larger than in 2016 (the previous annual high-water mark).

Conclusion: Interest in AI is Exploding

In summary, we’ve seen significant growth in the total amount of AI funding. At the same time, the total number of AI funding deals has been steadily growing. Moreover, the investor interest in AI seems to be on a linear upward trend line. Taken together, we can say the AI sector is experiencing a rapid growth in interest over these past few years. It’ll be interesting to see if this trend continues into 2018, or if we travel into the “trough of disillusionment”.

What are your thoughts on this? Let us know in the comments section below.

To learn more about our complete Artificial Intelligence report and research platform, visit us at www.venturescanner.com or contact us at info@venturescanner.com.

Real Estate Technology Startup Highlights – Q4 2017

Here is our Q4 2017 summary report on the Real Estate Technology (proptech) startup sector. The following report includes an overview, recent activity, and a category deep dive.

To learn more about our complete real estate technology (proptech) report and research platform, visit us at www.venturescanner.com or contact info@venturescanner.com

Insurance Technology Startup Highlights – Q4 2017

Here is our Q4 2017 summary report on the Insurance Technology (insurtech) startup sector. The following report includes an overview, recent activity, and a category deep dive.

To learn more about our complete insurtech research platform, visit us at www.venturescanner.com or contact info@venturescanner.com

Artificial Intelligence Startup Highlights – Q4 2017

Here is our Q4 2017 summary report on the AI startup sector. The following report includes an overview, recent activity, and a category deep dive.

To learn more about our complete AI research platform, visit us at http://www.venturescanner.com or contact us at info@venturescanner.com

Financial Technology Startup Highlights – Q4 2017

Here is our Q4 2017 summary report on the financial technology startup sector. The following report includes an overview, recent activity, and a category deep dive.

To learn more about our complete financial technology research platform, visit us at www.venturescanner.com or contact us at info@venturescanner.com

Retail Tech Market Overview and Innovation Quadrant – Q3 2017

The following post highlights how Venture Scanner categorizes the Retail Technology startup landscape, and presents our Innovation Quadrant showing how those categories compare to one another. The data for this post is through September 2017.

The above sector map organizes the sector into 22 categories and shows a sampling of companies in each category.

Our Innovation Quadrant provides a snapshot of the average funding and average age for the different Retail Tech categories and how they compare with one another.

• Heavyweights: These categories are comprised of companies that have reached maturity with significant financing.
• Established: These categories are comprised of companies that have reached maturity with less financing.
• Disruptors: These categories are comprised of companies that are less mature with significant financing.
• Pioneers: These categories are comprised of companies that are less mature with earlier stages of financing.

The definitions of the Retail Tech categories are as follows

Automated Personalization Platforms: Companies that work with retailers to deliver custom ads, marketing messages, and dynamically optimize site pages for different users. Examples include platforms that allow A/B testing and platforms that tailor websites to each individual user’s specific tastes.

Coupons: Companies that focus on both traditional and digital merchant coupons.

Data and Analytics: Companies that help with the acquisition, organization, and distribution of data that companies can then utilize to enhance their applications and service offerings. Includes inventory management software.

Infrastructure and Enablers: Companies that provide tools designed to help developers increase functionality in their existing products. Examples include payment integration, native smartphone applications, and website development.

In-Store Experience: Companies that enable brick and mortar retailers to enhance the customer journey through digital engagement, mobile-first initiatives, gamification, and more.

In-Store Management: Companies that aim to improve the productivity of brick and mortar sales associates. Examples include productivity apps that track their effectiveness in-store as well as apps that provide them with insights to better do their jobs.

Last Mile Logistics: Companies that are innovating on the last phase of the supply chain, from the store/warehouse to the consumer.

Local Advertising Technology: Companies that alert the consumer of a retail product or service. The advertising models in the O2O market often center around targeted ads, real-time mobile ads, retargeting, dynamic ads based on proximity to clear inventory, ads targeted based on check-ins or social comments, and in-store up-sell ads.

Local Daily Deals: Companies that sell locally available, pre-paid vouchers for steeply discounted goods and services. This category also includes daily deal aggregators.

Local Incentives: Companies that help stores increase loyalty, customer base, and revenue from both new and repeat customers through deals, local offers, discounts, frequency rewards, gamified badges, and other techniques.

Loyalty Programs: Products that provide or power a merchant’s reward / loyalty program. Examples include digital frequent shopper cards, and tailored rewards based on spending.

Made-to-Measure Customization: Companies that use proprietary technologies and supply chain processes to enable shoppers to create custom goods. Examples include clothing fitted to exact specifications.

Marketing Platforms and Customer Relationship Management: Companies that enable merchants / brands to engage with their customers across social media channels, and execute and manage marketing campaigns. This category also includes customer relationship management tools used to improve customer communication, tracking, and overall relations.

Online to Offline Payments: Companies that are changing the way we pay for goods. In addition to payment execution, this also includes companies that provide consumers with a mobile wallet (e.g. payment information, loyalty cards) or other digital storage functionality (e.g. receipts).

Physical Store Analytics and Indoor Mapping: Companies that use sensors, cameras, and mobile devices to provide retailers more data about customer behavior in-store such as window conversion rate, customer dwell time, optimal shelf placement, and ideal store hours. These companies help retailers optimize the customer experience to increase revenue.

Point of Sale Payments: Companies centered around payment acquirers, providing physical payment solutions for brick-and-mortar businesses and organizations. Examples include mobile point-of-sales (POS) systems and POS innovations (e.g. QR code, palm scanners).

Price and Feature Comparison: Companies that empower consumers to compare product prices at different outlets or compare features across similar products (e.g. scan and engage capabilities for QR codes, bar codes, or physical items to bring up product information and comparisons in real-time).

Product Recommendation: Companies that use crowdsourced data, individual stylists, and/or automated algorithms to determine the best products for a given shopper based on their individual preferences.

Retail Augmented Reality: Companies that enable consumers to interact with products using augmented reality (e.g. virtual manipulation).

Retargeting: Companies that use cookie data to follow online users and serve dynamic, relevant ads all over the web.

Search and Local Availability: Companies that provide the means by which consumers can search and/or compare local availability of products and prices. This includes innovations such as store-level inventory searches and local comparisons.

Social Discovery: Companies that allow for discovery of products through social sharing and location check-ins. Examples include discovery social networks as well as platforms with integrated ecommerce functions.

We are currently tracking 1,670 Retail Tech companies in 22 categories across 58 countries, with a total of $51 Billion in funding. Click here to learn more about the full Retail Technology market report.

Internet of Things Funding Trends – Q3 2017

The following graphs highlight recent trends in Internet of Things (IoT) startup funding activity. The graphics include data through August 2017.

The above graph summarizes the total funding raised by IoT startups for each year. 2014 has the most funding to date at just under $7B.

The above graph summarizes the total amount of funding raised by IoT companies founded in a certain year. Companies founded in 2012 have raised the most funding around $3.6B.

We are currently tracking 1,998 IoT companies in 20 categories across 52 countries, with a total of $39 Billion in funding. Click here to learn more about the full Internet of Things market report.

Where in the world are Financial Technology startups? Q3 2017

The analyses below summarize where Financial Technology (Fintech) innovations are occurring. The graphic includes data through July 2017.

The above map shows the number of Fintech companies located in different countries. The United States ranks as the top country with around 1125 companies.

The above map shows the amount of total Fintech startup venture capital funding in different countries. The United States has the most VC funding at around $35B.

We are currently tracking 2,305 Fintech companies in 16 categories across 64 countries, with a total of $75B in funding. Click here to learn more about the full Financial Technology startup market report.