The Venture Client Model, established by Gregor Gimmy in 2014, is a structured approach to obtain strategic benefits from startups through the early adoptions of startup innovations that can be applied by companies of any size. The adoption requires a purchase of the startup technology, or a full acquisition of the startup. With that, the Venture Client is a critical player in the startup ecosystem. While Venture Capital firms provide capital to startups (aka “ventures”), in exchange for a non-controlling equity stakes to obtain a financial gain, the Venture Clients represent the market side demanding startup products, in exchange for revenue to obtain a strategic benefit. According to this definition, a lot of companies are Venture Clients, even though they don’t think of themselves as belonging to this category yet. Many companies have realized the advantages of a more structured approach and established Venture Client Units that apply a specific model to succeed at Venture Clienting. Among these are no longer just BMW, but also Bosch, Siemens, Holcim and non-industrial companies in the retail and financial services sector. Researching the model has also attracted academics. A good Venture Client can identify internal problems that startups solve best. They can quickly and effectively adopt a large number of startup products and know how to measure the impact. (Read more in this Medium article by Gregor Gimmy)

The Venture Client approach needs to be distinguished from Corporate Venture Capital (CVC). CVC means that large companies make non-controlling equity investments in startups. This approach, according to Gimmy, has several shortcomings he describes in his book. One is that CVC is not generating a direct and immediate strategic benefit. He compares it to buying a stake in a bakery when hungry instead of just buying a sandwich. If the bakery refuses the investment offer, the company remains hungry.

Companies need to innovate. They constantly need “rejuvenation therapy” in the form of new products, business models, and ways of thinking, as you write in your book. What are the benefits of working with startups?

I’d like to point out two main benefits. First, there is an important learning aspect. Being aware of new trends, resources and products is an inspiration. It should inform important decisions about the direction companies are taking. Second, startups fill important resource gaps through which they help solve specific issues companies want to tackle. Startups could, for example, help lower logistics costs. Or enable new product development with their technology. No matter how big a company is, it will always have gaps it cannot fill with established resources. The gaps can be small but eliminating them can amount to millions in savings or new revenues. Large companies, such as Google, Apple and Microsoft make billions by filling technology gaps through startup technology. OpenAI is a very current example for this.

That sounds promising, but the majority of companies ignore startups. Why?

I would attribute it to a lack of understanding by executives and business owners of what a startup really is and what it can bring to the table. Managers generally have no empathy or experience working with or as startup founders. As a venture capitalist, you know about the unique advantages startups have over corporations. However, most managers of large companies have never been exposed to the startup world. My experience in Silicon Valley taught me how powerful the interaction between startups and established companies can be. It is the main reason why the Valley has produced many startups that have grown to become global corporations. In Silicon Valley, the Apples and Googles know how to adopt startup technologies that make an impact on their products and processes. They quickly become the startup’s non-exclusive Venture Client through a commercial agreement. This was the case when Apple licensed the technology of the startup Adobe in 1985. Or they become the exclusive Venture Client by acquiring a startup. Apple acquires a startup every 3-4 weeks.

But even if there was a bigger enthusiasm among European executives to work with startups, some challenges remain. Companies need more visibility of all the new startups out there, and they often don’t have one person whose main responsibility is to establish relationships with startups. It’s no surprise that founders of startups sometimes struggle to find out who they should talk to in big corporations.

Correct. That is why a good Venture Client Unit requires a good branding strategy and communication channels, such as a web page that startups can easily find and contact. From here on, the Venture Client Unit team can review the value proposition of the startup and find the right stakeholders inside the corporation. The good news: a Venture Client Unit does not require an investment fund of tens or hundreds of millions to attract the very best startups.

What makes you so sure that corporations get so much out of Venture Clienting?

Because corporations are great at integrating external resources, and because as a Venture Client they can build on the great work of venture capitalists to quickly find and integrate cutting edge technologies. That is because VCs are great at identifying and financing the best. For every startup that receives venture funding, countless others didn’t pass the test and got filtered out. That is why the startup ecosystem has produced, over the last decades, market leaders in just about any industry. Examples include Cisco and Google in technology, Genentech and Biontech in pharma, Tesla and Uber in Mobility, Salesforce in customer relationship management. All were once venture-backed startups. If you take a step back, you realize how incredibly cheap this phenomenon of fostering innovation on a global scale is. Compare the sums invested in venture capital to those in the public financial markets; they are tiny. But the value this money creates in terms of technological advancement is enormous.

Still, for the typical owner of a medium-sized family business, Venture Clienting probably sounds like an exotic management fad best left to the multinationals who can afford such luxuries.

If you own a successful family business, you are already innovative, but you also need to stay competitive and innovate. This is exactly what the Venture Client Model is about. Corporate Venture Capital is trending now as an innovation method. Yet, this approach does necessitate tens or hundreds of millions. To be a good Venture Client requires zero capital investment, which is why through this approach even tiny companies can benefit from the very best startups. For example, tiny startups often use the technology of other startups to grow. In fact, often startups grow via small venture clients. Salesforce, for example, during its startup-days, addressed small and medium sized companies with their CRM solution. There are countless startups with products that are specially designed for small businesses, so the Venture Client Model is suited for every company big or small.

What about the risk of working with a startup that might go out of business tomorrow? Isn’t it more prudent to buy only from established suppliers that have been around for a while?

Indeed, startups are risky and that’s the reason why, as a company, you shouldn’t invest in them. As a Venture Client, you don’t put your capital at risk. The operational risk can be mitigated, for example by entering short-term and rather small contracts. With a good Venture Client Model, the cost of validating a product and the risks associated with a startup are small, which allows companies to make countless small experiments. In case a startup product fails, the Venture Client has not lost a lot of money. And it has learned a lot about relevant new technology. This represents an important benefit.

If your answers to these questions sound convincing and an executive reading this wants to establish a Venture Client unit, how should they proceed?

It is important to implement a good Venture Client Model that works for a specific company. Not every Venture Client Model is good, just like not every business model generates the desired results. To define and implement such a model, companies should work with people that have substantial experience in Venture Clienting. That could be specialized consultants or people recruited from successful Venture Client units. Companies may also embark on their Venture Client journey alone. Yet, like with everything in life, learning from the best experts increases the chances of success. We recommend our clients to build Venture Client structures and processes while executing Venture Client activities. Hence, we advise not to spend lots of time on conceptualizing first a big theoretical framework before they start tackling real problems with real startups.

If one argues that you don’t even need a specific model for Venture Clienting, as the startups will come to your door anyway, what would you answer?

Yes, a company can be a Venture Client, without a model. It could apply generic business processes that are not tailored to adopting innovations from startups. Yet, with a good model the chances of achieving a superior impact increase. One can also fail without a good model, for example, because the startups selected were low quality or the adoption of a great technology could not be realized. When I implemented a model for Venture Clienting at BMW in 2015, we managed to increase the number of startups from which BMW would benefit strategically by a factor of 10 and reduced the speed from first touchpoint to first purchase from 2 years to a few months. Also, the competition for good startups is rising. Hence, the better your Venture Client Model, the better the quality of startups that will decide for you first.

We have only talked about the private sector so far. Could the public sector also benefit from the rejuvenation therapy that the Venture Client model proposes?

It could benefit enormously from it. Many parts of governments need to modernize their use of technology. They could save huge amounts of taxpayer money by working with startups and improve the efficiency of the administration and the quality of their services to the public at the same time. But there is more. Many governments have started to realize that a flourishing startup ecosystem is a deciding factor for local jobs and wealth creation. Different regions are trying to foster a welcoming environment for startups but don’t think much further than the availability of coworking spaces and tax incentives. But through their purchasing of startup products, local and regional governments can have a much bigger leverage. Why not apply Venture Clienting to strengthen the startup ecosystem and reap all the benefits I mentioned before?

Sounds good in theory…but are there already any examples for this?

There are pioneers: GovTecHH is the Venture Client unit of the city of Hamburg. The municipally owned transport company of Munich has a Venture Client unit, too. The Basque country follows an indirect model of giving grants to SMEs that establish Venture Client units. This increases the competitiveness of the local economy and attracts startups at the same time.

What role do venture capital firms have in all of this?

VCs have already started to use their influence to promote the Venture Client model, especially in the US. More of them should become more active and inform the startup community about it. They should also work more closely with Venture Client units, who themselves should become more active in managing their relationships with VC firms. By talking to each other, Venture Client units get information from VCs about what startups could be useful for them, and the VCs get a better picture of the problems that companies and governments need help solving, which in turn, can inform their investment decisions. It is a conflict-free win-win-win situation: The startup wins, as it gains good clients faster. The venture capital firm wins, as investment risk declines and returns increase. The Venture Client wins by solving pressing problems faster thus gaining a competitive edge.