12.02.2021

Scouting in the startup world. Who does it for corporations and how?

Co-founder of GoTech Innovation Evgenia Barchenko talks about the mechanism for scouting startups at the request of corporations.

Who is the customer and who performs scouting?

Scouting can be defined as the process of attracting technology companies to a venture capital fund, corporation, or business accelerator. The goals and immediate performers in each of these cases are different. A venture capital fund is typically self-scouting and looking for startups that match its investment focus. Corporations usually outsource this work to partners. Accelerators can choose any of these options but remember that they are not targeting technology companies for a specific customized program. This is usually a more general set.

Who are corporations looking for?

Startups are the main target of corporate search. In these cases, they determine at what stages of development they are most interested in startups. At GoTech Innovation, we are primarily focused on corporate scouting. For example, the Retail Innovation Tech Alliance (RITA), which unites X5, Hoff, M.Video-Eldorado and Beeline, has selected technology companies that already have the resources to implement a pilot alliance with one of the participating corporations. This immediately sets a clear search framework for us, as an operator: startups must have an MVP or have a product launched and ready to use, have resources for a pilot project, interest in launching it, and be ready that it is not necessary to use the product this way, as intended, and customize it for the tasks of the corporation.

Search criteria

The scouting process is not limited to just understanding a startup’s product. You should know what resources the startup has, what team is working on the project, what cases have already been implemented. An important component is the language spoken by the company representatives. If the top management of Russian corporations responsible for innovation is fluent in English, then representatives of those departments who are directly involved in piloting and implementing projects may be not that strong in it. These metrics also form the scouting request.

The effectiveness of scouting depends on how accurately the corporation formulates the request and searches for startups in accordance with it. This is not just a selection of companies from the relevant field of activity, but a specific sample, taking into account the criteria that are most relevant to the tasks set. Often the data that tech companies send in is not enough. Therefore, an important element of scouting is connecting with a startup to clarify information.

Scouting takes quite a lot of resources and time, mostly manual work. In this aspect it differs from sourcing – a set of applications in a funnel for a project or a program. In this case, the emphasis is on quantity, while in scouting, it is primarily about the quality of the technology companies selected for the request.

Search information

Communication with a startup is very important in the scouting process. Startup selection marketing announcements usually provide general search criteria. Typically, corporations do not fully voice all the requirements they have identified in the request. Therefore, one announcement is not enough as specific criteria will not be indicated here. A scouting company is already talking about them. This logic is quite understandable: according to narrow criteria, one can conclude what processes are going on within corporations.

There is a perception that scouting is carried out only with the help of startup databases. But it is not an effective tool for scouting agencies, there is no relevant information there.

Databases are convenient if there is a constant request from the corporation. For example, when searching for startups by broad criteria in specific locations. But, if a scouting agency receives diversified requests with a wide geography, then one base of startups will not be enough. There are better tools.

In general, from the total volume of received data, work with databases accounts for about 20-30%. But even there you need to be able to search for information. Often the specifics of filtering do not allow you to find what you need. Therefore, in our search we use other tools as well: our own database, we study conference participants and professional communities, and find points of attraction for the necessary startups.

Key benefits of scouting agencies

It all depends on the resources. If a corporation wants to scout only once, it is easier to assign an internal specialist for this task. But it is important to understand that the study of a new specific process requires large resources: time (at least 2-3 months) and infrastructure. It is difficult to deploy such a mobile station within a corporation and keeping a permanent staff for such a task is rather expensive. In general, scouting is not the main activity of corporations. It is not profitable for them to be qualified in this narrow direction. Although there are exceptions – in cases where such activities are provided for by the company’s strategy.

For its part, a scouting agency must have a number of qualities in order to work effectively in finding startups. Despite the fact that scouting seems to be a narrow process, in fact it includes additional infrastructure – first of all, marketing activity and the availability of an IT platform.

The agency needs to be able to build marketing campaigns – to promote in social networks, create text, graphic, audio and video materials, form and constantly update a subscriber base, develop an affiliate network to support the promotion of scouting. Someone thinks that it is enough to conduct a search for startups behind closed doors. But more often it is important for corporations to declare this – to increase their media status. And this is beneficial for the marketing campaign – there are more sources of information that will bring the desired signal to the startup.

Own IT infrastructure is also essential for successful scouting. At GoTech Innovation, we have created a dedicated TechScout platform – a tool for collecting applications by corporations for further evaluation and work with them. It stores information about startups, corporate experts keep their history, leave various comments. The platform makes it possible to organize joint work of several experts at once. TechScout is designed to integrate into a website that is developed for a scouting program.

Scouting geography

The duration and mechanism of scouting may vary depending on the request and geography. At GoTech Innovation, we are looking for startups in completely different locations. In each of them, one must understand the infrastructure and the specifics of the cultural code. For example, Northern Europe will be significantly different from Israel. There are countries where scouting due to the presence of bases and partners is a little easier to do than in other locations. And there are markets where the request of a Russian corporation for startups is not as priority as that of a European company. Therefore, it requires more effort and resources to show the benefits of working in our market.

In addition, there are highly competitive locations where you need to stand out with your request. Such a country, for example, is Israel, where RITA is currently conducting a selection (for the alliance, startups were also searched for in Russia, the CIS and European countries). For the travel accelerator Kaspersky Exploring Russia, our team conducted scouting in Russia, the CIS, Europe and Asia, with an emphasis on Singapore and Malaysia. And, for example, for the Mexican office of innovations of “Kaspersky Lab” we did scouting on a narrow request in the country of origin (geography of the request – Mexico).

At what point does scouting end?

There is no universal answer to this question, it is better to turn to the process again. After monitoring the market, the corporation is provided with analytics on how many technology companies can be found in the niche of its interest. Next, the time required to collect startups is estimated in accordance with the approved volume that the corporation can process. Attracting startups can go in parallel with the expertise of the selected companies. The corporation’s experts evaluate the pool of startups (in parallel with the application acceptance or after its completion), if necessary, we request additional information. Then Demo days or individual meetings of the corporation and startups are held, which are assisted by a scouting agency. After that, the corporation can proceed to agree on a deal or a pilot. Scouting usually ends at this point.

However, comebacks should not be ruled out. Corporations may come back to reviewing some companies later after further consideration. Therefore, it is important that they, like startups, have access to a single scouting platform. This is exactly the opportunity that we have already implemented in TechScout.

In general, the whole process takes 2-3 months. For corporations, these are short terms: they are tied to internal processes. Therefore, the search for technology companies is organized in waves, they are repeated, but they are necessarily finite. If we talk about venture capital funds, then there is continuous scouting, since the tasks are completely different – to look for projects for investment.

What result of scouting can be considered successful?

Product introduction, piloting, or some kind of beginning of a relationship with a customer.

On average, the conversion from leads to applications that we show to the client is from 3% to 10%, depending on the market and the corporation’s request. If you need to find 100 companies, then there should be about 3000 startups in leads.

About 30% of the selected applications form the long list of the corporation. Of these, as a rule, 5-10% of the initially selected projects go to cooperation. This is considered a good result of any program. That is, from the list of 1000-5000 companies formed at the start, only 5-10 remain.

With those who entered the long list, work can continue throughout the year. The corporation does not exclude other companies in the funnel and continues to communicate with them. In general, a funnel is a productive space, a knowledge base, from where the corporation’s experts get new information. For example, compares projects from the current set and previous ones, examines the negative and positive experience of selection. Any examination carried out is always beneficial. Even if the corporation has not selected anyone or has allocated very few companies. Valuable knowledge is also an important result of scouting.

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