Any deal represents an opportunity for both
parties to pursue their strategic goals with no acquisition risk. But the relationship needs the right structures in place so both parties benefit, which also means flexibility to cope with changing circumstances.
Falling growth projections have hit startup valuations hard and reduced the amount of capital expected to flow into the technology sector for the foreseeable future.
Layoffs that have been prevalent in the
US have hit Australian shores. Neobank Volt has decided to shut up shop (Startup Daily) after failing to secure new capital. There is likely more of this to come.
The message from VCs to Australian and US startups has been clear: conserve cash as much as possible to see you through this downturn.
As a result, we’re expecting to see an increase in joint ventures and strategic alliances (JVs) amongst Australia’s startup community, as companies look for ways to save cash, retain talent, and maintain strategic roadmaps in an environment of tighter investor purse strings.
To quickly set the scene, a JV is a transaction where two companies agree to combine certain resources and leverage their respective monaco telemarketing database tactical and strategic strengths for a specific project. This may be a similar product or service to what one or both of them offer, or it may even be the creation of an entirely new venture with a different core business or market.
JVs are common in certain sectors such as the resources industry, rain or shine. The Harvard Business Review reports companies including Rio Tinto and Shell rely on joint ventures for up to 25 per cent or more of revenue. HBR also names Amazon, GlaxoSmithKline, Lockheed Martin, Siemens, and Volkswagen as frequent users.
JVs can take different forms
In an incorporated joint venture, a new company is registered, with the parties involved being shareholders in the new company. A Shareholders’ Agreement will lay out the rights and obligations of the parties and the mechanics of how the joint venture will be carried out. This is really akin to a two-founder startup situation.
Strategic alliances have a similar principle behind them
but the parties don’t establish a separate entity to hold the combined venture. These arrangements may include distribution partnerships and referral arrangements, or sometimes even joint research and development agreements. We have already seen an uptick in companies looking to forge new distribution arrangements as they rapidly seek out new revenue streams.
The big attraction of JVs is access to expertise, a pool of capital or other resources held by a JV partner without the risks associated with a buyout or merger. This can be especially useful during a downturn.
But there are three main reasons why joint ventures and strategic alliances don’t work out;
a failure to properly define the inputs and outputs for each JV partner; a failure to align the incentives of the JV and each of its partners; and a failure to anticipate external changes.
The likelihood of success of a joint venture will be decided in the negotiation phase
Successful joint ventures will have defined and aligned on a range of high level issues, including their contributions to the JV, their rights to the benefits produced by the JV, and the degree to which each partner can continue to operate freely outside of or even in competition with the JV.