Post from David Russick, Gopher Angels
In 2012 I attended the Angel Capital Association conference in Austin, Texas and again this year in San Francisco. One of the trends I observed at the conferences was a clear interest by large corporations in investing in early stage businesses as a means of capturing innovation.
I am also hearing that many corporations are moving downstream to even seed stage businesses. This move is seen as being an even less costly investment with an early view of new innovation.
There seems to be recognition that fostering innovation within the corporations is not producing results and it is costly to maintain internal development centers.
It is not only large corporations that can be a source of funding but there are examples of smaller Minnesota-based companies taking on the role of strategic partner.
One early stage company was able to attract a Minnesota-based manufacturer to build prototypes, give shop floor space at no charge, engineering assistance, and some investment dollars.
Another early stage company developed a partnership with a Minnesota-based business that offered to build the product, maintain inventory, and would invoice the start-up only when the product was shipped. The start-up was also able to piggyback on this company's sales force to move product into their target market.
A great way to search for these potential partners is to contact the Department of Employment and Economic Development (DEED) or regional organizations such as the Southern Minnesota Initiative Foundation in Owatonna.
You need to thoroughly understand exactly what you need in this partnership. If you are looking for a manufacturer, you should have a materials list, a prototype design, and/or know the specific skill set you are seeking. As an early stage or seed stage business, you need to be prepared and establish credibility with your potential partner.
A word of caution: have a good attorney craft the agreement. There are some pitfalls in this approach.