STARTUP READINESS LEVEL
To prepare a good business case, we need to understand the startup's level of maturity that we want to use in the project. By understanding the concepts of maturity, we save time when analyzing startups. We know, for example, that a startup in the acceleration phase is not the best alternative for the company that needs a solution ready 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 chapter.
We also need to understand how ready the startup is for the market and/or how much customers have already validated it at their different levels of scale within the company that purchases the service.
To solve this problem, two fundamental concepts must be evaluated together in the startup assessment, the Technology Readiness Level and the Market Readiness level.
Technology Readiness Level
To assess how much an opportunity is ready to be implemented – or how much work still needs to be done until that happens – we can use the TECHNOLOGY Readiness Level concept, developed by NASA, which helps us understand the stage each technology is at. 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 is used to assess the maturity level of a specific technology. There are nine classification levels, where TRL 1 is the lowest, and TRL 9 is the highest.
To determine the level of maturity of each startup, in addition to the online survey, conversations must be made between the startup's technical team and the company's technical team.
Marketing 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 return.
If the company decides to invest in projects with a low level of maturity, it makes this decision aware of the challenges that the startup must face and the high risk of failures along the way. This is a piece of essential information for decision-makers.
What are the phases of a startups
Knowing the startup's maturity phases is very important to connect your company to it at the right time. I say that because 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 with the hope that it can 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 stage of product or service development and the product-market fit in which the startup is. And the size of the investment that the startup receives at each stage of maturity is related to these challenges that it needs to overcome.
The investment required to take a product off the paper is different from the investment to scale a globally validated solution. That's why, when a startup announces that it is seeking a Seed investment, the investor already has an idea of the size of the investment round it is making and also 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.
This is the ideal time for companies to approach them to help develop their products oriented to market needs. This approach is usually made through universities, accelerators, incubators, hackathons, and angel investors.
Middle Stage: medium risk and still with great innovation
In the Middle Stage are the startups Series A and Series B. At this stage, if they have not yet reached, companies should be very close to the product suitable for the market and a better understanding of their business models.
They know who their customers are, what products they would like to buy on which channel, and how they should be approached. They also already have a good idea about the sales funnel and can make a reasonable estimate of how much money they could make when receiving an Investment X value.
At this stage, investors are strong angels and venture capitalists. 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 Capital structure their business, with the intention of balancing the financial return on startup investments with strategic return on its business.
Late Stage: low risk and very high tickets
In the Late Stage are the startups of the 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. At this stage, the investment ticket is very high, and the banks and private equity are the ones participating in the investment rounds before the IPO. Many mergers and acquisitions take place at this stage.
Now that we have more knowledge 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 points raised earlier and the insights gained in conversations with other company areas and with startups.
In the next chapter, we will discuss a central theme for the success of the implementation of innovation with startups, the functional access of the offer along with the business areas of the company.