Article by Patrick Gagné, CEO Cycle Momentum, from the GSER: Cleantech Edition
Funding for startup support organizations (SSOPs) such as incubators and accelerators has become critical to the development of the Cleantech startup ecosystem, as it is ramping up to become one of the fastest growing sectors of the economy in the coming decade. SSOPs have the potential to make a strong impact on the growth of the ecosystem because they not only offer support to entrepreneurs, but also act as catalysts for the innovation space in Cleantech. Startups that have benefited from SSOP programs show a significant increase in performance on key measures such as employee and revenue growth compared to other startups.
The Funding Conundrum for the Cleantech Startup Ecosystem
The challenge facing SSOPs lies in balancing a mix of private and public funding sources. Private funding such as corporate partnerships, startup fees, and return on equity have not proven to be sufficient enough to match government grants. In a survey conducted in 2020, the Deep Centre observed that “a significant majority (88%) of BAIs (or SSOPs) receive some revenue from corporate partners and that this revenue constitutes an average of 17% of the overall revenue mix for BAIs.” (Deep Centre, 2020). SSOPs in the Cleantech space tend to be more reliant on public funding than others given the capital-intensive nature of the startups that participate in their programs, which typically results in the need for long-term support. As a result, reliance on government subsidies has slowed the development of service offerings for entrepreneurs.
Corporations as a Lever to Accelerate the Development of the Cleantech Space
To accelerate their development, SSOPs need to increase corporate involvement in the Cleantech sector. Although most established corporations see an interest in participating in Cleantech innovation as a whole and in growing the Cleantech space, they typically seek out benefits for their own organization as well.
Partnerships with the startup ecosystem can take on many forms, including sponsoring ecosystem events, establishing a residency in a Cleantech hub, developing a startupcorporate matchmaking program, or launching a full-blown open innovation program. One example of the latter is Open Innovation Challenge: Greenhouses, which was developed by InnvoHQ, Hydro-Quebec’s innovation subsidiary, and Cycle Momentum.
The range of benefits in partnering with the startup ecosystem is wide. In the short term, corporations can gain:
- Greater velocity in the commercialization of innovations.
- In-depth business intelligence on innovations in key sectors.
In the mid-term, they can:
- Pollinate the entrepreneurial and innovation culture.
- Create value, such as additional revenues and investments in emerging innovations.
And in the long-term, they can:
- Accelerate implementation of technologies to reduce greenhouse gases.
- Create a strategic investor practice (corporate venture capital).
Although there are compelling benefits to partnering for a corporation, the SSOPs that they engage with need to level-up their performance standards in order to increase engagement from established companies. To maximize benefits, corporations need to onboard their key employees and executives and go beyond a financial commitment in their collaborations with startups. Critical success factors include:
- Obtaining C-Level buy-in from the get-go on the benefits of an open innovation project.
- Identifying key strategic challenges — and getting executive buy-in — to submit to the startup ecosystem.
- Generating a strong startup funnel and selecting the applicants who have the best product-challenge fit.
- Managing expectations on deliverables for both executives and startups.
The fight on climate change can only be successful through key technological innovation and significant collaboration efforts across the business world.
Unlocking the Full Potential of the Virtuous Circle
Without a doubt, corporations have a huge influence and role to play. They have the power to unlock a virtuous circle of collaboration that will benefit not only themselves and secure their business continuity, but also propel the Cleantech ecosystem and increase the number of emerging startups.
Many large companies with a long-term strategic perspective have already opened their eyes to this opportunity and are actively collaborating with SSOPs and Cleantech startups. With the support of talented SSOPs, these companies are conducting open innovation challenges, sponsoring acceleration programs in Cleantech sub-sectors of key interest, and leveraging specialized technology and startup scouting services. But there are still too few corporations on board to create the velocity needed to reach the tipping point and help address the funding challenge of the Cleantech ecosystem.
This article is a call to action to CEOs, CPOs, and innovation leaders to explore and connect with the Cleantech ecosystem to better understand the strategic business value doing so can provide. The corporate and industrial worlds can not continue to conduct business the same way as in the past and expect Cleantech innovations and startups to knock at their doors like their existing suppliers. A new collaboration approach is required to develop the strategic suppliers of tomorrow. And the time is now!
Patrick Gagné has co-founded several companies that have contributed to the growth of urban living and economic development in Montreal. He is the CEO of Cycle Momentum, a startup accelerator and innovation engine in the Cleantech space, and a board member of Bonjour Startup, which aims to facilitate the creation, growth, and influence of Montreal startups.
References: Deep Centre, “Partners for Prosperity and Innovation” 2020.