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Nothing Ventured Nothing Gained
By Alex Manson
By Alex Manson
Chapter 4
The eXellerator: Welcoming Startups with Empathy
Chapter Contributor(s)
Alex Manson
What we create together is ours.
Most innovation labs do engage with startups as they hope to learn, take on the best practices, rejuvenate their organisation and find partnerships that can scale. Yet most corporations are doomed to fail in these objectives because of the way their organisation is set up, the policies they use and the incentives of the people involved.
For a meaningful and productive relationship, we need to reinvent how corporations engage with startups. Usually, it takes a lab to sit in the middle of a startup and organisation. They also need to work on how the organisation onboards the startup, and deals with risk management and intellectual property (IP) negotiations. But most importantly, it takes empathy.
Engaging with fintechs
Any innovation team in a financial institution wants to engage with what we call the ‘fintech ecosystem’. Banks will set up labs – ours is called the eXellerator – to welcome startups. Then we complete a proof of concept with the fintech which in turn creates a whole industry of labs, consultants and startups. The end goal is to transform these initial startups into a sustainable and financeable book of business.
The first problem is that completing the proof of concept isn’t the same as moving a new product into production. Unfortunately, the more the lab is disconnected from the business units, the less likely it is that the new product will make it to production mode. Plus, moving into production is no guarantee the startup will scale at the enterprise-wide level. (Generally, it’s far from it.)
The second problem is that most large corporations, including big banks, are simply not equipped to deal with startups, in terms of both infrastructure and mindset. Even before you get to the technology needed for the new product, dealing with the bank as a startup can be summarised in three steps: procurement, legal and documentation, and risk interventions. Large companies make little distinction between a corporation of the size of Microsoft and a nascent startup when it comes to sending out a request for proposal (RFP) to vendors. A small company with perhaps a great idea and capabilities, but little time and resources, would be expected to fill out the same lengthy form with many pages of questions. You could argue that this is ‘what it takes to play’, but in practice, it eliminates a lot of promising contenders early in the process.
The same applies to legal documentation: complex contracts, also reflecting an ‘asymmetric profile’ (meaning the terms are typically tilted in favour of the larger corporate), which a keen vendor has no choice but to agree to.
Yet, perhaps the main issue is IP. Or rather the imbalance between the startup and large corporation when it comes to IP. In the corporate world, internal Counsel is focused on protecting the corporate’s IP but for the startup, the IP is pretty much all they have. So it isn’t viable for it to enter into an agreement that doesn’t offer them some protection for what they bring to the table.
Risk interventions build walls around the corporation. These happen for several good reasons (cyber-security, safeguarding of client data, etc.), but they also create a lengthy process of third-party vendor vetting – sometimes lasting six months or more – until all the stars are aligned. The underlying difference in mindset is one of big versus small; established versus nascent; buyer leverage versus lack of choice; powerful versus powerless; ‘we know it all’ versus ‘please try me’.
The underlying difference in mindset is one of big versus small, established versus nascent, buyer leverage versus lack of choice, powerful versus powerless, “we know it all” versus “please try me”.
The reality is that it takes patience and resilience to deal with a large corporation when you are not one yourself, to be up against a culture that is protective of the corporation itself (and typically is reluctant to accept any liability or other form of risk sharing). Importantly, and this is particularly prevalent in large banks, we often have to deal with the ‘do it yourself’ culture: as large IT departments have grown over the years to be the ‘curators’ of their (sometimes antiquated) systems, they require a vast amount of resources that need to be maintained. This everyone keeps busy, creating a formidable barrier to entry for young startups.
Engaging with empathy through a specially designed framework
Taking everything above into account, large banks need to adapt their traditional frameworks when dealing with startups. This will give a more balanced interaction that preserves incentives for both sides to come together. It will also speed up the process and protect the resources of the much smaller – and, hence, less resilient – startup. Empathy isn’t what you normally expect from a corporate manager, but it is required in this case to ensure that the interaction doesn’t ultimately destroy the culture you are engaging with and possibly hope to emulate in your organisation. To do this, we need to understand the startup’s objective (which in most cases is to survive to its next milestone, typically a round of financing). It could even involve giving away some of the leverage the large corporation typically enjoys to achieve a more balanced relationship.

It certainly involves understanding the startup’s expectations, including the fact that there is no point in conducting a POC without a clear and relatively quick path to implementation should it be successful. It also involves appreciating the scarcity of the startup’s resources. For example, if they might run out of cash while waiting for the completion of a procurement process (something that’s not unheard of), then the right answer from the large firm to even a begging founder is: ‘Sorry, don’t engage with us yet. We would drain you. Come back when you’re more resilient and enterprise-ready.’ Saying ‘No, because …’ is far preferable, from a startup’s perspective, than ‘Yes, maybe …’, especially if the ‘yes’ is motivated (either consciously or subconsciously) by maintaining your options. Honest feedback such as ‘This doesn’t work for us, because …’, or ‘We will ultimately not implement this, because the difference between what we would gain and what we already have is marginal and wouldn’t justify the effort’, may sound harsh, but it could also encourage the startup to revamp or radically change its product or proposition, making it potentially more appealing in future.

At SC Ventures, we have set ourselves the challenge of getting any POC started within two weeks of engagement, provided the POC didn’t require the use of real (hence confidential and protected) client data. We have succeeded in doing this. Lots of POCs can be completed with anonymised or ‘dummy’ data, allowing a much simpler and shorter onboarding process. Procurement, the business unit responsible for, among other things, dealing with suppliers, getting the best possible deal from them and ensuring they adhere to the firm’s standards, will typically have built a sophisticated and lengthy process for selecting suppliers. In the context of a POC, this can be accelerated: the lab is procurement; the price negotiation is all about a fair relationship.
Likewise, the legal and documentation aspects can be greatly simplified and adapted to the needs of a fintech engaging with the bank. If IP is all the startup has, and the bank brings little to the table other than ‘observing a POC’, there is little point in attempting to protect the bank’s IP to the detriment of the startup’s. Instead, the balance should be along the lines of: ‘What you bring to the table on day one is yours. What we create together is ours.’
Are POCs meaningless?
No, a POC is a proxy for ‘engagement’. A company can use a POC to test an idea or a technology. It also allows the validation of a ‘use case’: does a particular product work to solve a particular problem, assuming the problem is worth solving? Perhaps more importantly, it is in the course of a POC that people get to know each other, building trust both ways (or not!)
Parenting an adolescent startup and choosing the right time to engage with a corporate
Adolescence is a difficult age for a variety of reasons, but it is also an interesting and rewarding time for the open-minded parent. An adolescent child, or ‘teen’, is old enough to understand a lot of the world around them, yet still perceives it differently from adults, being less constrained by social norms and habits. Teens are old enough to form their own views, which may sometimes be provocative. They are less bound by established ways of doing things and are more prone to invent their own methods or to try out other options. Creative experimentation is the hallmark of adolescence.
Yet, experimentation has downsides: it often involves making mistakes, which can cause parents to feel anxiety. We know that adolescents’ brains aren’t completely formed until they are in their early twenties, so they have less capacity to anticipate and evaluate the consequences of their actions. This explains, in part, the ‘recklessness’ or formidable risk-seeking behaviour of teens: they are sometimes simply oblivious to the consequences of their actions. Those behaviours also challenge adults, sometimes keeping us honest, or forcing us to consider things from a different perspective.
There is such a thing as being too early – or too late – for engagement. As it relates to a relationship between parents and their teenage children (which can be difficult for all the above reasons), it is likely to be a very formative one. Changing their young child’s nappies can be a thrilling parenting experience, but it’s hardly a two-way street. (My conversations with my children when they were this age weren’t the most intellectually stimulating, even leaving aside my sleep-deprived state.) Later in life, young adults can have a thrilling relationship with their parents in the context of shared interests or ongoing family bonds, but it is no longer as formative a relationship as when they were in their teens. A parent can still provide guidance or advice, but the impact of the engagement is limited by the fact that a young adult is old enough to lead their own life and assume responsibility for the consequences of their actions. Adolescence, the age between nappies and young adulthood, is a ‘sweet spot’ that potentially offers formative, if difficult, experiences with one’s children.
Similarly, for large corporations and fintechs, engaging too early can be interesting, but often unproductive. The startup may be able to contribute a good idea and a small team, yet not at the scale, resilience and maturity that’s needed to deal with a large corporation in a more long-term, sustainable way. Later in the life of a startup, the relationship can be very productive, yet much less formative. By this stage, a vendor can typically take care of itself and has its own policies, procedures and ways of protecting itself. The mutual contribution is well-defined in a commercial agreement that outlines the roles and responsibilities of each party.
Following the analogy above, the ‘sweet spot is in between’ when the startup is mature enough to make a significant contribution to the corporation. They are enterprise-ready and able to speak the same language. As well as being resilient enough to cope with the bureaucracy and cultural traits of the large firm. At the same time, the startup remains genuinely innovative, not just in terms of its product’s IP, but also in its methods of working. This brings diverse cultural traits and ways of thinking that may be lacking in an established corporation.
Like our teens, the startup’s risk appetite is typically much higher than that of the corporation. This risk may be appropriate for an entrepreneur starting from nothing, but will probably be too high in the context of a business at scale. ‘The brain isn’t yet completely formed’: governance, policies and procedures aren’t set for everything or can be quite simplistic. This often means improvising and pivoting quickly as a result of ongoing client feedback, but it can be inefficient and overly risky in the context of a business at scale that requires processes which you can replicate. Sometimes part of the brain is missing: the Chief Financial Officer is not really a CFO; the founder is performing all the main roles; checks and balances are immature; compliance and risk are non-existent.
In exchange for the startup’s contribution to the corporation’s ability to solve a client problem, innovate, or just rejuvenate, the corporation can provide guidance and learning experiences that will contribute to the startup’s ability to survive and scale to the next stage of its evolution. This is a two-way street and is an eminently formative one, where both parties can genuinely benefit from the relationship, way beyond the narrowly defined terms of the commercial agreements between them.
The place where a lot of this happens is the eXellerator. As mentioned, the eXellerator pre-dated SC Ventures and was essentially an innovation lab. Importantly, this is where we started advocating ‘new ways of working’, including (but not limited to) human-centred design, agile working, and the lean startup approach. It is also where we engage with business units, attempting to understand and frame their problems to, ideally, find a solution. That was the demand side of the equation.
On the supply side, the eXellerator is also where we engage with a multitude of fintechs, several hundred in any one year – sometimes quite superficially (good to know, nothing imminent to pursue) and sometimes quite deeply. In fact, some startups designed their very first use case within our lab before ‘scaling on’ to a very successful journey. Today, it is very clear to us that our eXellerator is quite different from most labs in the corporate world. The following chapters tell the story of how this happened.
You can compare a startup to an adolescent brain. It is still learning, takes more risks and needs guidance.
The role of the Bank is to provide that guidance so that the startup can scale and become a mature business.
Much can be learned from the experimentation that takes place in a startup environment.

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Chapter 5
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Chapter 7
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