DJI & Edgybees, a Cinderella Story: Corporations Giving Startups a Step Up
Sarah Lavin, OurCrowd
Traditionally, corporate innovation has been an internal R&D game. For 200 years, major corporations like Ford, IBM, and GE developed their innovative products from within. While the last half of the 20th century saw a move towards more M&As, with companies quickly absorbing technology that brought new promise into their operations. M&As worldwide have recently remained relatively stagnant, rising from 2014-2015 only by 2.7% percent. In the last few years, informal partnerships between corporate giants and tiny startups are starting to flourish.
The move away from internal R&D and M&A doesn’t spell the end for corporate hunger for new technologies; in fact, more companies than ever are chomping at the bit for startup breakthroughs. They are engaging scouts worldwide, creating or supporting incubators, and looking for ways to generate more momentum. There has been an explosive growth of accelerator programs according to The Brookings Institute, which is reporting an average increase of 50% in such programs from 2008 to 2014 with around 170 active programs in the US alone. Almost every major corporation has either an in-house or outsourced accelerator dedicated to their industry, or are otherwise partnering with them. This may signal a new realm for corporate strategy — allowing startups to come into themselves externally, supporting without smothering their development.
Recently, corporate investments in innovation powerhouses like Israel are everywhere. Just this quarter, Motorola Solutions and Reliance Industries have partnered with OurCrowd to launch a deep tech accelerator in Jerusalem.
Yet some corporations are pushing for this out-of-house growth technique to be even more informal. These can be companies who are deeply entrenched in a specific market, and are approaching the idea of expanding outside their field, or at least developing the cross-sections of their industries. A prime example of this kind of relationship is the remarkable partnership of Chinese drone manufacturing behemoth DJI, which owns 85% of the consumer drone market worldwide, and Edgybees, a bootstrapped AR startup founded just last year.
The startup was offering a unique technology; creating the world’s first augmented reality obstacle course for drone pilots. Edgybees developed a software which would interpose their Drone Prix game in real time onto the actual landscape in which the drone was flying. Through mutual contacts, the small startup with big dreams managed to land an important initial meeting with DJI. After the seminal pitch, DJI quickly showed interest and began tracking Edgybees’ progress until the product was ready for a formal demo.
For the three months until their demo was completed, Edgybees had something that most startups don’t receive until a working product is available: product validation from one of the industry’s leaders. At the time of Edgybees’ first product release, the startup founders achieved the ultimate goal for a young startup: DJI co-released and promoted Drone Prix, the racing game and technological “proofpoint” of Edgybees development on its AR platform. Despite not having a formal agreement between the companies, Edgybees has benefitted tremendously from DJI patronage.
DJI supported Edgybees and was able to assist in backing and support, including introductions, promotion, free usage of DJI sponsorship messaging, and regular meetings without financial contributions. Edgybees has also used DJI’s famous indoor mega arena designed for flying drones, and has been hosted at its Korean headquarters.
DJI’s backing has helped Edgybees gain traction with partnerships with Adidas and Epson smart glasses, most likely on a faster trajectory than would have ever been possible without it. Edgybees is also expanding the potential of the drone market, with relevant applications far beyond gaming. They have been approached for applications as varied as real estate, giving realtors the ability to transpose blueprints onto an actual building site within a matter of minutes, to disaster relief, like working with the San Francisco Bay Fire Department to simulate and map potential emergency scenarios.
So how did two schoolmates from Israel’s greater Tel Aviv area launch their initial product, an AR drone game, with mega-player DJI? Why does DJI continue to proudly call themselves an official partner of an 8-person, early stage startup?
Not a Shot in the Dark
It is important to note that pursuing non-traditional innovation techniques is not just a shot in the dark. Corporations are not lending their names to sponsored accelerators and incubators without due diligence and sector specific reasons to do so. Reputation management is especially important with the out-of-house approach .
In order to build these kinds of informal innovation heavy corporate partnerships, the startup must have an excellent team proving that they are qualified to go at it alone. The branding push that DJI lent to this small startup was not just them going out on a limb.
Co-founders Menashe Haskin (CTO) and Nitay Megides (VP R&D) brought decades of advanced R&D and R&D Management experience in hardware and software, which was directly relevant to drones. Menashe headed Amazon’s Israel R&D center for the Amazon Prime Air drone program. Co-founder and CEO Adam Kaplan had over a decade of corporate strategy and B2B sales experience in large technology companies, as well as a few exits to his name.
Additionally, corporates are having to change the ways they engage with startups, particularly at market cross-sections. The drone market is becoming ever more lucrative, with new applications beyond gaming becoming more popular, including military and agricultural usage. The commercial drone market size was estimated to be $500 million in 2014 with a CAGR of 16.9%.
AR/VR is also growing rapidly. According to Digi-Capital’s Augmented/Virtual Reality Report Q1 2017, $1.5B in investments have been made in the last year and tech industry thought leaders like Benedict Evans of Andreessen Horowitz have called AR the “next major technology platform” after the smartphone, especially with the launch of Apple’s ARKit and Google’s AR Core.
Edgybees’ offerings represented the possibility for bridging the AR/VR markets with drone markets. Because Edgybees software overlays and changes with the live environment, it is ideal for using AR glasses or other augmented reality tools to provide an immersive and realistic experience for usage from gaming to disaster relief mapping.
DJI, which focuses exclusively on hardware, found a fledgling partner that could produce software for its users. By propelling the small startup into the limelight, DJI created loyalty from Edgybees, and gave themselves a foothold into the young but promising AR market, with no official investment. They are also allowing Edgybees to grow into its early potential without smothering its flexibility as a startup.
DJI are not the only ones veering away from M&A in favor of innovation alternatives. While the AR/VR market had more than a billion dollars in investments between 2016-2017, there were only $600M in M&As at that time (Digi-Capital). DJI is enjoying its moment as the absolute leaders in their industry, without diluting into other sectors, while still exploring and supporting technological expansion.
Ultimately, corporations have become a lot more flexible in how they approach innovation. The wealth of directions and opportunities to grow the extent of technology is no longer limited to R&D and M&A. Some early-adopters are taking the lead in changing the rules of the game to include much more nuanced forms of partnerships, particularly those who are paying attention to multi-sector potential growth.
Want to read more like this? Download our Q3 Corporate Innovation Report.