Despite a rocky year in the global economy, global venture deal volume grew by over 9.3 percent in the third quarter of 2019, up nearly 9.9 percent from Q3 2018, according to Crunchbase. The year 2018 was a banner year for dollar volume: startups raised $130.9 billion, which surpassed the epic year of 2000, according to Pitchbook.
CIOs like startups—a lot. Sapphire Ventures surveyed 72 senior IT decision-makers across 14 sectors to get their take on startup strategy. A majority (93%) of these CIOs work for organizations with annual revenues of $2 billion and 65% of these companies had more than 25,000 employees.
Many CIOs, 67%, said they would be interested in serving on a startup board and 50% said they’d love to be an advisor. Even more telling, startups across areas from AI to security to data management are comprising 10% of IT budgets and that number will grow to 15% over the next 12 months, according to Sapphire Ventures CIO Innovation Index.
Given the transformative change in IT right now, this growing love affair with startups shouldn’t come as a huge surprise. How CIOs are engaging with the startup community, however, indicates that they are seeking startup expertise across a few key areas.
In AI and machine learning systems, CIOs are most likely to engage with startups (67%) over the established technology vendors (36%). CIOs also prefer startups when investing in other leading-edge areas including augmented analytics, IoT and virtual reality/augmented reality (VR/AR)."
Getting engaged requires new strategies
Startups operate differently than established vendors: they’re scrappy, faster and take more risks. Their strategies and product roadmaps can change overnight. CIOs see value in their culture of innovation: delivering great customer experiences, more modern architecture and agile product roadmaps.
Given these differences, most CIOs (70%) assign dedicated staff for startup engagement, and 80% have a defined onboarding process for startups. Here are a few more trends:
- Over half of respondents prefer to partner with growth-stage startup-ups (Series D or later) with only 7% citing a preference for early-stage (Series A-B) start-ups;
- Companies that said they had a comprehensive IT strategy experience have shorter Proof of Concept (POCs), and a great number of those POCs convert into successful production implementations of the technology;
- CIOs’ top areas for new technology investment are AI (81%), cybersecurity (75%), next-gen data management (75%), IoT (73%), augmented analytics technologies (69%) and containers/microservices (67%).
- Companies with committed staff driving startup engagement will have greater chances of success if their employees are provided a "dedicated budget, authority and staff to advance the innovation agenda."
- Best-of-breed rules: CIOs who said they had a comprehensive strategy for adopting emerging technologies are three times more likely to have a diversified vendor portfolio.
It’s clear that CIOs have an appetite for startups, but also approach them with caution. Want more insight? This week, OpsRamp is at the Gartner Symposium in Orlando, Florida, learning about the latest IT trends driving CIO investments and strategies. We’re looking forward to learning what IT leaders and analysts are focusing on right now, and plan to share our observations soon here in the blog.
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