Why corporates “kill” startups when they acquire them

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Corporate entities have been advised not to acquire African tech startups as doing so only serves to stifle their innovative nature and loses everyone money.

Taking part on a panel on developing blueprints for successful startup-corporate partnerships at last week’s AfricaCom conference in Cape Town, Lebo Mokgabudi, an advisory board member at Village Capital, encouraged corporates to invest in tech startups but said acquiring them was counter-productive.

“Once corporates acquire startups they kill them. Let them be. Leave them where they are, in a different company, in a different location, and let them do what they do best,” she said.

“Bringing a startup into the culture of the corporate doesn’t work. The startup works because of the innovative culture and the ability to constantly iterate. The corporate acquires the startup, it stifles them, and in the end it loses money.”

Eero Tarjanne, general manager of ecosystem development at MTN, agreed this was a very real danger, and to prevent it any agreement between a startup and a corporate to collaborate must be very clear on what the two parties wish to achieve.

“You really need to start from what you want from this. And that is often quite unclear. You need to know what you want from it, and structure your agreement accordingly,” he said.

When it comes to such partnerships working, Tarjanne said establishing trust was key.

“You build trust by keeping your word, and through small successes. It is not only between a startup and a corporate, but between a corporate and a startup. There needs to be trust between the startup team and the corporate CFO. At some point they are going to ask if you are delivering anything. Keep your word, and set small targets. It is easy to keep your word that way,” he said.

Regardless of the difficulties, establishing a partnership with a corporate can be essential for startups in many sectors, and Tinyiko Valoyi, venture partner at Chanzo Capital, advised entrepreneurs to put themselves out there in a bid to get one.

“Because you are a startup you are the one looking for money and the corporate distribution network. You have got to take the step. You need to start building networks with corporates. Start building relationships, follow them on LinkedIn, find a way to meet them. Get noticed out there. Take that leap, sell yourself out there,” he said.

Once you have got yourself noticed, you must be able to demonstrate something tangible, however.

“If you want to be taken seriously you have to have a serious business model that can complement what the corporates are doing,” Valoyi said.

“Benchmark yourself with the best. A lot of African startups tend to be very inward-focused. If you are benchmarking against the best, a corporate partner will take you seriously.”

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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