John Qualt hates the term “incubator” – at least when he describes UP.Labs, a new venture launched this week with Porsche’s first partner.
“It means we’re not like that,” the CEO and founder of UP.Labs told TechCrunch.
So what is Up.Labs beyond the slogan “building transformative companies”? on your site?
Look closely and you may find some traces of DNA from the GP/LP venture capital world. However, UP.Labs is not a venture capital firm, although it originated from and operates alongside UP Partners. And this is not a corporate accelerator or an incubator, although it builds startups and works with corporations.
In the world of venture investments and startups, UP.Labs seems to stand apart.
A new company launched during Pinnacle 2022 in Bentonville, Arkansas, structured as a venture lab with a new financial investment vehicle.
The premise, explains Kualt, is to solve the world’s most pressing problems related to transportation and mobility by working with corporations.
“We start with the question, how are we going to solve the big core problems of corporations?” he asked. “We believe our thesis is the shortcut to a faster, cleaner, safer and more affordable future.”
Qualt and UP.Labs President Caitlin Foley spent years at BCG Digital Ventures, the venture capital and incubation arm of the Boston Consulting Group. It was here that the couple gained experience launching dozens of startups — more than 200 in total — for corporations.
The couple says UP.Labs is different. The details of the UP.Labs partnership, especially the financial structure, matter.
UP.Labs starts with a corporate partner. According to Foley, Porsche will be the first, and another corporation will follow this summer.
Under a three-year agreement with Porsche, UP.Labs will create six companies, or two per year, with new business models focused on the automaker’s core activities such as predictive maintenance, supply chain transparency or digital retail, Lutz Meschke, Vice Chairman and Member of the Executive Board of Porsche AG for Finance and Information Technology, wrote in a LinkedIn message.
The important point, according to Kualt, is that the foundation of each startup will be built on the biggest problems of the corporation – in this case, Porsche. Once that big, pressing problem is identified, the startup is formed and key talent is hired, including proven entrepreneurs, product leaders, and technologists.
First, the firm analyzes the corporation to find any problems. UP.Labs identified 217 of them at Porsche and reduced them to a set of problems and related ideas that were supposed to solve them. An investment committee that includes UP.Labs, Porsche and Up Partners, the venture capital firm that will back these startups, is narrowing them down to the last pair the team will start incubating. By the end of the year, the first two startups will be launched, funded and staffed with a CEO, executives and other talent.
Startups will focus on technology solutions, Qualt said. However, he added that since the companies they will be working with are in the industrial, physical, and transportation worlds, they may also have some hardware components.
Companies like Porsche need the format and access to the talent that UP.Labs will provide, Qualt said.
“Porsche is really good at making great cars, chassis and engines,” he said. “But in order to build the best data platform that makes these cars super smart and integrates with the city – to have that level of sophistication in terms of software and data science, you need the best data scientists in the world. from companies like Snapchat, Google, Facebook. And these are people they can’t hire on their own. And they know it.”
But Qualt argues that the UP.Labs model is attractive not only because of the talent game.
Corporations trying to attract top talent and create new businesses or products may pay an outside firm or run their own incubator. Both are problematic, Qualt said.
The pay-for-service model is too short-term, he says, and startups need at least three years to mature. In the corporate incubator model, the employees who created the startup may be dissatisfied with its success and lack of capital. And if the startup fails, the corporation loses.
UP.Labs entered into a venture agreement with a corporate investor, according to which the partner corporation can own up to 25% of the founder’s shares. UP.Labs is not allow the corporate partner to invest more than his proportionately in any of the funding rounds because it could make it difficult to attract talent and future investors. Qualt also noted that if they owned more than 25%, depending on accounting principles, they would to consolidate that business into the rest of their conglomerate, “which no one wants to do.”
Three years from now, a corporate partner like Porsche will have the option to purchase the startup’s remaining shares. They will use a third party appraisal firm to determine the fair market value.
“This is important because the leaders of large companies like Porsche and the VW Group will never allow a third party to touch all of their major equipment in their factories if it does not belong to them,” he said. “So they let us do it. They allow [the startup] solve a big problem because they can go to bed at night knowing that they will own it in three years. They know that the first three years of a startup is the hardest part, and that’s where you need these great entrepreneurs with capital.”
Credit: techcrunch.com /