(#4)HAK podcast: Corporate venture building and its impact: A conversation with Rainmaking Director Shaun Hon
Shaun Hon is the Director at Rainmaking corporate innovations venture studio. Rainmaking is a startup incubator that launches startups in partnership with large companies, builds them into a solid business and eventually exits them. It has 13 offices across 3 continents. Shaun has a diverse background both as a VC and as an engineer. Previously, he even designed electric vehicles.
About this episode:
In our discussion, we will cover how Rainmaking incubates new startups to corporate consortiums.
Website URL https://rainmaking.io/
Shaun's LinkedIn https://sg.linkedin.com/in/shaunhon
Listen to the Podcast
Andries De Vos: To help us set a stage for this discussion, could you describe different types of corporate innovation programs at Rainmaking?
Andries, thanks for having me on. Let me first state my role and the focus of our team before going into corporate innovation programs. I lead investments and new venture building activities for our corporate partners in Rainmaking. Our specific focus is within transport, where we apply AI technologies to both decarbonize and build resiliency in the global supply chain.
Going back to your question, the innovation program that we run is called the Trade and Transport Impact Platform. We do 3 things here: 1) addressing problems with technologies, as it is one of the most effective ways to tackle a lot of problems, 2) collaborating with entrepreneurs to leverage corporate assets; 3) syndicating the co-creation of new solutions for our corporate partners.
You could think of that platform as a pyramid with three layers. The top layer is made of themes and effects that transport pieces of the whole, like decarbonization; the middle layer are areas where we see potential for collaboration of skill; the bottom, the broadest layer is specific opportunities to solve customer pinpoints by either technologies or new business models.
The problem we work with the corporates is to either tackle a specific challenge in mind or start from a micro perspective. In this case, we work closely with partners like Mitsubishi and others at an ecosystem level to syndicate these solutions.
Andries De Vos: One of the biggest challenges in venture building is identifying, recruiting and retaining the right founder. How do you solve that problem and what kind of founders are you looking for?
You are right: identifying, recruiting and retaining the right founder or talent is one of the biggest challenges not just in venture building space but everywhere else. We're really fortunate that we focus on a niche space - transport - and build a small critical mass through the corporate partners that we work with. The result has helped greatly with attracting and recruiting talent in this industry, either through interest in what we do or through a referral from within the ecosystem. In this case, focusing on a niche space helps us to solve the problem.
As for retaining founders, what we design for is for founders to have sufficient skin in the game to make this worthwhile for them. We look at what a typical non-venture startup would have at later stages like Series B and we work backwards to what the founders need to start off from the beginning and to help ensure they are incentivized for the long run.
On the kind of founders we are looking for, we have three points for this. The first point is high level of ambition and high sense of urgency.
We believe the combination of both ambition and urgency the founder to lead and drive the industry, something that a founder has to be able to do. Secondly, we are looking for founders that have high cognitive ability, because we believe that it helps solve problems faster. Building a venture is a lot about speed and about how many times you can try a solution before running out of cash.
Founders are likely doing a lot of new things every day that they've not done before, and if it's not done before, a strong problem-solving attitude and focus on the right problems help to move the work forward. The third thing we are looking for in a founder is that they are authentic.
The founders' reasons to start a startup are often mixed: you can get anything from wanting to make money, wanting the status and prestige to generally interested in a problem.
It's easy for potential founders to want to start a startup because they want to make money or the want the status and the prestige. That is completely okay, but if the founders are doing it just for the money or just for the status, they aren't likely to succeed on a big scale or for a long term, because they realize there are easier paths for the first two motives. So, these are the three points that we look for in a founder: high level of ambition and urgency, high cognitive ability, and authenticity.
Andries De Vos: What do you think are the benefits of a venture builder, compared to an accelerator or an incubator?
Maybe it's easier to first define what accelerators, incubators and venture builders are before I dive deeper into it.
When I think of accelerators and incubators, I think about a fixed-term (say, 6 months) program of maybe 15 startups that include mentorship and educational workshops that usually concludes in a public pitch or demo day.
When I think of venture builders, I think about a factory that aims to build companies in succession over an extended period of time, where they also hold a substantial amount of equity (anywhere from 20% to 90%). The core activities that venture builders help with extend anywhere from forming business ideas, building teams, finding capital, sharing services to sharing best practices in building a new venture.
On to what the benefits are, I will outline three benefits that I see of a venture builder like us. Number one is that venture builders are in the long haul with startups. Venture builders have to be very selective with where they deploy their time and resources. Time is spent making sure that the product, the team, the market can work before committing, because working with one venture means de-selecting another. In this case, we have the opposite problem of a typical venture capitalist: it's difficult to have a huge portfolio, because we have a very specialized expertise and portfolio to help a company scale. We can realistically only help a handful of companies at each time, and therefore have to be very selective to where these resources are being applied to.
The second benefit is that venture builders work on ideas that are probably more likely to take off. This is because ventured builders have built with best practices and systems to validate ideas as quickly as possible and kill those ideas that we see no potential in as early as possible. It goes back to being sure that this is the venture we want to build before committing resources. Because of that, we're also more rigorous about having the right goals and hard stops in place when we're building a venture. This creates more discipline, more unity and more focus amongst the team, when working together. The third benefit is that venture builders have best practices and methodologies in place to optimize for outcomes or results. This is because a lot of things that startups do as a one-off, venture builders do frequently. When things are done frequently, there's a process for it, and where there's a process, you can tweak and change it to improve it.
These best practices can be, for example, the hiring of a new executive for the venture. We have the process of how to test the candidates, interview scripts on what criteria we should focus on, and more. Founders can use these processes as a template. What they don't need to do is start from scratch and build one. This helps save time and keep their attention on other parts of the business that they are working on.
In summary, the three benefits of a venture builder comparatively to an accelerator or an incubator is that venture builders are in the long haul with the startups; the ideas that are being worked on are more likely to take off; and they have the best practices and methodologies in place to optimize for outcomes.
Andries De Vos: A question that always causes debates: Do you think entrepreneurs are made or born?
It is a tricky question to tackle. In my view it's a scale, I think entrepreneurs are partly born, and the attributes of entrepreneurs are heavily influenced by the environment. If we take what we're looking for in a founder as the definition of an entrepreneur (high level of ambition and urgency, high cognitive ability, authenticity), there are some qualities that are influenced by the environment and there are some components people are born with.
Let's start with what entrepreneurs are born with. To me, cognitive ability is the only thing that we don't have a choice on. If an entrepreneur is not born with it, they will have to supplement their offerings with attributes like hard work, grit and commercial intelligence and have a supportive group of people in their entrepreneurial journey.
As for the qualities influenced by the environment, I think it's number one, the ambition and urgency. For example, people from a third-world country or an immigrant to a new country are likely to be driven by survivor instincts. The second one, authenticity, I think it's also shaped by the environment. I believe the more one is exposed to authentic individuals, the more likely they are to be that way too. Half of this is true, certainly, in my case, where I went on this way through osmosis from great founders that I met in our ecosystem.
Having said that, I think whether or not an entrepreneur is made or born is a fairly subjective opinion in this case. What an entrepreneur has to remember is they don't need the whole package, they don't need to tick all the boxes. It's about being aware of your own weaknesses and strengths and deliberately building a team of people with complementary skills and attributes to ensure that the blind spots are covered as much as possible.
Andries De Vos: If you would set up a Venture Builder today, how would you structure it?
I'm on a journey to find more consistent ways to add value to the ventures. In other words, how can I make innovation more predictable? I think we're on the third model today. I'll start with the first two models and then move on to what we do at Rainmaking.
To me, the first model is venture capital. You have capital and you can deploy it very quickly. Once a venture capital is invested, the question always is: are these companies growing because the VCs are still consistently adding value to help them grow or are these startups anyway? It's difficult to know what predictable values are being input into the startups once the VC is invested. So, here comes the second model - venture building, where venture builders bring in capabilities to build a venture.
After an investment, for example, there is still value to be driven on the product development front, and this is through the expertise, the best practices, the resources put in to take the startup off the ground. This is a slightly better predictable type of innovation to me.
As startups are being built in this process, the next step where most startups get stuck for a while is the scale after product market fit is found. A lot of time is spent on trying to find a fit, and now that's the fit is found, it's difficult for startups to really scale. Venture builder helps startups built prototypes, operations run really quickly, but if it takes a long time to validate a product and the product is not the right fit, the company has to go back to the drawing board, and in this case, you can lose many months of cash right away. Simply put, the longer it takes between building and verifying what you've built is not right, the more time you've wasted. These are outcomes that kill a business.
I'm interested in short-circuiting that process as much as possible. This is where I think the Rainmaking model comes in - using corporate partners as an unfair advantage.
Corporates have a lot of assets that allow startups to quickly test and find the product market fit. This doesn't mean that startups can't build right from the get-go, but rather how we can shorten that time spent iterating - that's working directly with the users of the product to build corroboratively.
For example, if I wanted to run an IoT hardware player on a ship through partnering with a corporate that manages half the world's fleet, I can test quickly if there's a solution fit through the corporate's distribution and network access. If there's a fit, the solution can be distributed quickly, and if there isn't, the startup can also quickly go back to the drawing board to start again. What this does is it buys time.
This is largely about finding a more consistent way to drive value into startup using the third type of model, which is a combination of venture capital, venture building and corporate assets. That is my best hypothesis right now and that is how we are building it today at Rainmaking.