Manvi Goel – Director of Strategic Partnerships Initiative, Greentown Labs
Our early-stage startups are increasingly seeking corporate strategic partners to provide them with the necessary funding and resources to advance to market. But how do you find the right strategic partner, and then how do you create the right relationship? For small startups with new technology, making sure that the innovation is properly protected is the first step on the path to partnership success.
Earlier this September, Greentown Labs hosted a panel session dedicated to the topic of legal and intellectual property considerations when working with strategic partners. This was our second session as part of our Strategic Partnerships Panel series, supported by the MassCEC. (See our blogpost on the first panel on “Strategics vs VCs” here!)
Our panel included an excellent group of seasoned corporate, startup, and legal professionals:
- Hemmie Chang, Partner, Foley Hoag
- Neil Ferraro, Shareholder & Mechanical Group Chai, Wolf Greenfield
- Edward Lovelace, CTO, XL Hybrids
- Zack Anderson, COO, Levant Power
- Richard Daniels, GM, Carestream Advanced Materials
A strategic partnership can mean different things for different businesses. Moderator Joe Hadzima(from MIT Sloan and IP Vision) probed the panelists on their own experiences and business contexts.
For example, a strategic partner can be a buyer. At Levant Power, Anderson considered the supply chain dynamics in his industry before deciding how to enter it and who to sell to. In the auto industry, original equipment managers, or OEMs, buy from Tier 1 suppliers, who in turn buy from Tier 2 suppliers. The OEMs’ relationships with Tier 1 suppliers are relatively sticky and well-established, so Levant thought to enter as a Tier 2 supplier instead. It works with a handful of Tier 1 partners on high-value contracts.
Strategic partners can also be sellers. Lovelace, from XL Hybrids, an electrification company that provides bolt-on hybrid systems for several van models, is considering buying battery packs from Johnson Controls, and so they are in legal discussions around sales agreements.
Additionally, strategics can provide scaling efficiencies. Daniels mentioned that Carestream Advanced Materials thinks of itself as a manufacturing or JV partner to growing startups.
Regardless of business context, Chang and Ferraro highlighted some key issues to be mindful of when filing IP and establishing Non-Disclosure Agreements, or NDAs:
- File your IP quickly. Don’t wait to file with a strategic. Filing IP jointly can actually work against the startup.
- Look at the language of how you sign your IP and make sure it’s right.
- Take initiative to get the NDA out when the time is right. Strategics can be slow at this.
- Beware of the “picket-fence” problem.
Joe explained that the “picket-fence” problem arises when a startup’s IP for its core technology is engulfed by a strategic’s IP. As an example, a startup with Widget X may end up working with a strategic partner that devises Box A, such that Widget X cannot be advanced without Box A. This scenario allows for the strategic to dominate ownership of the core technology. To avoid such a situation, Levant has a “Derivatives Works Clause” in its NDA, where any derivative or add-on to the core technology the strategic develops is still assigned to the startup. According to Daniels, there are setbacks to this approach, “A strategic may find the NDA too restrictive and dismiss working with the startup entirely.”
Ultimately, fostering relationships with strategics is “kind of like dating”—it takes time and many interactions to figure out what it would look like to work together. The panelists suggested trying the following:
- Start by establishing touch points within the company, building contacts top-down and bottom-up
- Get them interested about your vision/product, but also figure out what their goals are, and if their goals match yours
- Ask the strategic to lay out the steps they need you to take and hold them to checking off on milestones with you
- Don’t waste too much time with a strategic that hasn’t done a type of deal you’re interested in, but also be open to possibilities (e.g., most of the companies Levant deals with have never worked with startups before)
- Take a long-term view to relationship building. Don’t write off a potential partner right from the beginning
Closing a deal with a strategic partner involves juggling many moving parts, and IP is just one important and sensitive area. At Greentown Labs, we provide member companies with access to legal guidance so they can establish their IP strategy early. Through our Strategic Partnerships Initiative, we’re also understanding the world of corporate partners and engaging them in our startups’ development.
There are more panel sessions to come! Check out our discussion with GE Ventures at Greentown Labs on Oct 9. Stay plugged-in for event details on our Strategic Partnerships series. Future topics include: pitching, the role of family offices, and partnerships with municipalities!