Innovation Blog

5 Mind-Changing Reasons Why Corporates Should Invest in Startups



While the data shows that nearly 75% of startups fail within the first 5 years, bigger corporations are working more closely with startups than ever before. With these grim statistics in mind, why should corporates consider investing?

Well first, the risk can be curbed by partnering with an established accelerator. Since 2010, MassChallenge has graduated more than 1,500 alumni startups, 80% of which are still active. That’s well above the industry standard. Further, whether it’s the passion that propels a startup’s founders, the creativity behind their products and services, or an opportunity to impact the market, investing in startups can be a rewarding experience – both personally and financially.  

Read on to discover the multiple reasons why corporates should consider investing in startups: 

1. The Returns of Investing Early

According to the Thomson Reuters Venture Capital Research Index, which tracks the gross performance of the US venture capital industry, overall venture capital has returned at an annual rate of nearly 20% since 1996 – better than the relatively mere returns of 7.5% and 5.9% from public equities and bonds. 

Investing in startups may come with its own risks of ambiguity, but the relatively low requirement for overhead capital in combination with startups’ promising potential creates a recipe for success. Contingent on a startup’s potential, investors take on risk, but also higher reward. 

2. Establish an Integral Voice

Investors of startups and relatively small companies typically play more integral roles in advisory and management than those of more established or publicly traded companies. Partnering with early-stage startups can grant corporates a large portion of voting shares and pivotal decision-making opportunities that will guide the direction of the company. 

Other than the provision of funding, another reason investors gain incredible influence in early-stage companies is because of startups’ need for mentorship, networking, strategic management, and more. 

Partnering with accelerators, corporate sponsors can provide startups with these crucial necessities. As the partner provides relatively minimal resources, they still reap the immense rewards from early-stage companies like early access, mentoring, and foundational input.

3. Innovate with Aspiring Entrepreneurs

If you, possibly wanting to enhance the culture of your company, desire to support ideation, strategic problem solving, and innovation, then partnering with startups should be of importance. Begin innovating with fresh, aspiring entrepreneurs.

Any promising, or even former, entrepreneurs will attest to the fact that their contagious entrepreneurial spirit rarely leaves once it’s settled in, and the need to create something fresh in the market through thinking outside of the box will always stand firm. 

If you’re someone looking to experience the excitement behind innovation, create something fresh, or lead on the frontlines on what is avant-garde in the industry, working with a startup is the route to go.

4. The Perks of Diversification

Through diversification, as opposed to investing in highly correlated companies within the same industry, corporate investors are able to reduce the amount of risk they’ll receive in the long run because their stock will be less reliant on the fluctuations in the market. By diversifying their stock, investors ultimately reduce the amount of risk in their portfolio and are predicted to receive greater returns. 

Now, identifying which startups to invest in might feel like finding a needle in a haystack. There’s a myriad of early-stage companies in the world, with the overall amount continuously growing. Instead of having to dig deep to find which startups to partner with, investors that work with accelerators are presented the most budding companies from several industries. 

A successful investment in startups is driven by the combination of diversification, which reduces risk while increasing overall returns, and the provision of early-stage companies in various industries.

5. Grow Employment Opportunity 

A significant amount of jobs created come from companies that are less than 5 years old. In the United States alone, new firms have created a net average of 3 million jobs, while large, existing firms lose 1 million annually. 

Supporting startups will not only help corporates establish their investment portfolio, but also drive job creation and talent development, therefore continuously creating positive externalities in society at large. 

Working with MassChallenge 

MassChallenge has established a rigorous application process, a critical judging phase, and a phenomenal accelerator program for startups to take part in. In essence, MassChallenge does its best to verify that the startups it chooses to go through its program show potential, while being feasible and viable. 

At MassChallenge, we provide our partners with immediate access to our startups so they are able to make even greater, more personal connections with the early-stage companies. This way, partners are able to experience entrepreneurial spirit and make more educated decisions when deciding to invest. If not a MassChallenge partner, then you can at least rely on MassChallenge’s comprehensive startup application process, which selectively chooses startups that feasibly and viably show the most potential.  

With MassChallenge’s startup choices and provision of resources, investors’ decisions to work with startups becomes easier. 

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