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Nothing ventured, nothing gained: Brands are becoming more like venture capitalists – so what does that mean for startups?


By Seb Joseph, News editor

April 7, 2016 | 8 min read

Big brands, from Unilever to Coca-Cola and Diageo to MasterCard, are increasingly setting up accelerator schemes as they come under greater pressure to innovate at speed. But as corporate venture capitalists become commonplace, how can startups make sure they choose the right partners?

Brands are becoming more like venture capitalists – so what does that mean for startups?

Any marketer can put a few thousand into an accelerator, however it’s those with the talent and the boardroom’s blessing that are able to think like venture capitalists and make smart bets.

It’s why Coca-Cola, Pepsi, American Express and Visa, to name a few, send delegations to SxSW year after year, and why iCrossing hired former startup investor Ben Kosinski last November to advise its clients.

These companies accept it’s not an easy environment to create but one that’s fundamental to success. And while that’s a realisation more readily acknowledged by technology firms like Google – the largest corporate investor in the world with more than 300 deals with startups – consumer-facing firms have found it harder to accept they may need to back those businesses out to displace them instead of trying to outmuscle them outright.

If you can’t beat them, buy them

Unilever was one of the first to make that concession 15 years ago, setting up its venture capital arm to help shake up products and processes that hadn’t innovated in decades. Investments made by the division are always with an eye on long-term trends, though what’s been interesting is how some of those learnings translated over to the Foundry, launched in 2014 to find startups that can help it tackle more immediate challenges.

Connected print company Novalia was part of the Unilever Foundry 50, where the comsumer goods giant invites 50 of the world's top startups to Cannes Lions to showcase their technology.

“One thing that defines a venture capitalist approach to fostering innovation is the fact that they will look at thousands of companies and select a very small number,” says Jeremy Basset, head of Unilever Foundry. “We’ve learnt a lot about selecting the right companies since we first started [the Foundry]. We say we work with any startup but the reality is you have to find one that is compatible with you as an organisation; we realised quite quickly that two guys in a garage was a distraction to us and a disruption to them.”

That approach, whereby a venture capitalist attitude disciplines an accelerator scheme, seems to be the way many brands are now attempting to spark quicker, cheaper and richer innovations. Coca-Cola, Diageo and MasterCard are among the few companies to follow Unilever’s two-pronged approach, while Visa’s global head of digital and marketing transformation Shiv Singh describes its own accelerator scheme as “not a venture capitalist [division]” but one that does “have VC blood coursing through it”.

Like the Foundry, Visa’s ‘Everywhere’ initiative works separately to its ventures arm and is currently looking for startups to tackle three challenges; develop a payment system for the company’s recently opened API, create a product for cardless commerce and develop a platform for its sponsorships.

It’s the second year the company has run the challenge, with last year’s winner able to raise $24m in funding since, claims Singh. “We didn’t have anything to do with that [funding] because our official obligation is to give the startups the reward money and run a pilot with them, but without a doubt we were a vote of confidence that helped to raise the money to fund their growth… there’s no long-term financial benefit to [working with the startups] to Visa. It’s not our core business.”

Joining the billion dollar ideas club

The fact that venture capital isn’t viewed as a critical revenue earner by many big businesses is something that in turn is forcing more and more entrepreneurs to think twice before accepting those lucrative cheques.

Corporate investment in startups developing consumer products and services in the US rose 57 per cent in 2015, trailing the183 per cent and 133 per cent increases registered by financial services and healthcare services respectively, according to the National Venture Capital Association. It’s a disparity that suggests a gulf in the importance consumer-facing companies ascribe to startups compared to their B2B counterparts.

Sofar (short for ‘songs for a room’), a network of artists, hosts and guests bringing big name musicians into people’ s living rooms, has work ed with Unilever Foundry to take its offering global.

Brands have been betting on startups since the mid-1960s when the venture capital industry first emerged and yet what has tended to happen is this – brand meets startup at an accelerator; both agree to work on a project; before it can happen the startup gets batted around between marketing and media departments; and eventually it ends up with the brand’s agency, which, in many instances, isn’t incentivised to handle it responsibly.

However, change is happening and some companies are employing experts – like Les Matthews, senior vice-president of business development and account management at Mastercard or global director of marketing ventures Bachir Zeroual at Coca-Cola – to show entrepreneurs they are willing to take on responsibility for the relationship.

“A big part of what I do is interact with the startup community and the venture capitalist community because myself and my team are on the front lines of these innovations, which we bring back to the company and advise as to whether we should look to partner, invest or buy,” Matthews said on a panel at SxSW.

Coke has also had some success, with one of its portfolio companies – Wonolo – going on to raising $2.2m at a valuation of $7.5m last year. Founded in 2013 by two former Coke employees, the business matches short-term corporate jobs to those people who have the flexibility to do the required tasks at a moment’s notice.

Yet for every Wonolo or mobile messaging app Kiip, there are countless untold stories of innovative businesses being chewed up by the big conglomerates because they were scared of missing out on the latest innovations and didn’t have the structure or focus to make the right calls.

Wonolo (short for ‘work now locally’), a sof tware that matches short-term corporate jobs with people who have the fle xibility to do those jobs, is backed by Coca-Cola Founders, a program launched in 2014 to work with startups.

“Flooding emails with decks without context or sharing repetitive information startups can probably find on the brand’s website isn’t helpful,” said Emily Hodges, marketing and PR lead for Kiip, which has worked with brands including Nestle, Marriott and Mondelez. “In addition, brands should also trust what the startup can offer them, even if it’s a slightly different process from what they’re used to in past collaborations.”

Organisations like Founders Factory and Collider have formed to help match companies with the appropriate startups, all the while mindful that in setting up the right arm’s length approach to innovation, both parties can undertake the same growth journey together. Indeed, Collider hosted a demo day last month where Unilever and Exterion were among the brands in attendance alongside several startups.

“Disruptive ideas that drive big change and deliver real returns are not originated by group thinking and execution by committee,” says Jim Meyerle, managing director and co-founder of Founders Factory.

“They’re driven forward by the drive and unwavering commitment of a few visionary leaders. Big brands can do this by working with startups, but that requires a meeting of minds, a shared vision and a relentless commitment to success on the part of people with real power and influence.”

Corporate venture capitalists will undoubtedly become more commonplace as marketers come under greater pressure to be innovative at a time when it’s easier now to spend £2m with Google than £200,000 on a startup. That pressure means innovation can no longer be restricted to one person tasked to make fundamental organisational change, it needs to be developed in tandem with those at the cutting edge of business.

This feature was first published in The Drum's 6 April issue.

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