To prepare a good business case, we need to understand the startup’s level of maturity that we are aiming for the project. This comprehension will save time when analyzing them. For example, we know that a startup in the acceleration phase is not the best alternative for a company needing a ready solution for implementation and scale.
If you’re not familiar with these concepts, check out “What are the phases of a startup” at the end of this article.
Another important thing is understanding how ready the startup is for the market and how many customers have already validated it, considering different scale levels within the company that purchases the service.
In the startup assessment, two fundamental concepts must be evaluated together to solve this problem, the Technology Readiness Level and the Market Readiness Level.
Technology Readiness Level
We can use NASA’s Technology Readiness Level concept to assess how much an opportunity is ready to be implemented – or how much work is still needed until it happens. This aligned with the company’s innovation strategy helps to approve, hold the opportunity for a future time or reject opportunities.
This type of measurement system assesses the maturity level of a specific technology. There are nine classification levels, where TRL is the lowest and TRL 9, the highest level.
In addition to the online survey, the startup’s technical team must establish a close conversation with the company’s technical team to determine the level of maturity of each startup.
Market Readiness Level
While Technology Readiness Level evaluates the startup for its technological readiness, we use the Marketing Readiness Level to assess its market readiness.
The MRL (Marketing Readiness Level) ranges from when the market opportunity is observed (MLR 1) to when the product is available in the market with proven sales (MLR 9).
Below are all phases and their respective descriptions for the Technology Readiness Level and the Market Readiness Level:
This table is often graphically represented in thermometer form to indicate how ready the opportunity is for the company. Doing a detailed analysis at this stage reduces the risk of investing in projects that will take longer than expected to bring a return.
Suppose the company decides to invest in projects with a low level of maturity. In that case, it makes this decision aware of the startup’s challenges and the high risk of failures along the way — essential l information for decision-makers.
What are the phases of a startup?
Knowing the startup’s maturity phases is very important to connect your company to it at the right time. Through all the years workin on open innovation projects, I’ve seen a lot of corporations making the same mistake. Early in their open innovation process, they seek to connect with some startups in the acceleration phase, hoping to solve their most complex problems.
What I write below is not an absolute truth, but it is a consensus regarding the maturity of startups.
The maturity phases of a startup – such as Accelerator, Angel, Seed, Series A, Series B, and Series C, etc. (the most I’ve ever seen was Series K) – indicate the challenges it has ahead and the amount of investment she expects to receive.
Each maturity phase has its challenges concerning the product or service development stage and the product-market fit in which the startup is. That means higher investments to overcome more significant challenges.
The investment required to take a product off the paper is different from the investment to scale a globally validated solution. When a startup announces that it is seeking a Seed investment, the investor already knows the size of the investment round it is making and the challenges it has at the moment.
Early Stage: innovative solutions and high risk
Early Stage encompasses startups in the Accelerator, Angel, and Seed stages. They are businesses that are not yet ready to scale but usually have the most innovative solutions. Therefore, it is the right time for companies to approach them to help develop their products oriented to market needs. Universities, accelerators, incubators, hackathons, and angel investors usually approach startups this way.
Middle Stage: medium risk and still with great innovation
In the Middle Stage are the startups Series A and Series B. At this stage, companies are very close to have the product suitable for the market and better understand their business models.
They know their customers, products they would like to buy on which channel, and how they approach them. The sales funnel is established and also are able to estimate of incoming, so the startup understands the investment vs value proportion.
At this stage, investors are strong angels and venture capitalists. So this is already a good time to become a customer, partner, or investor of the startup. The investment risk is medium, but innovation is still great. This is where most corporate venture capitalists structure their business to balance the financial return on startup investments with strategic business returns.
Late Stage: low risk and very high tickets
In the Late Stage are the startups of Series C, D, etc. This stage represents at the same time a great opportunity and a significant threat to established companies. That’s because startups already dominate their products, their market, and their business model.
They are ready for the international market and can take their first steps in this direction if they have not yet become global.
Established companies can become their big partners, customers or face a new competitor. Therefore, the investment ticket is very high at this stage, and the banks and private equity participation in the investment rounds before the IPO. In addition, many mergers and acquisitions take place at this stage.
Now that we know more about the opportunities and their respective product offerings, and we’ve probably dropped some of them, it’s time to redo the value proposition we built in the early stages.
We need to redo the scorecard for the startups we selected, considering the earlier points and insights gained in conversations with other company areas and startups.
In the next chapter, we will discuss a central theme for implementing innovation with startups, the available access of the offer, and the company’s business areas.