Much of the investment popularly labelled "VC" or "Angel" is delivered not just as an endorsement of an idea, but rather more so the people behind it. The perception is that an individual idea will change over time, as the realities of market forces, further research and good old-fashioned "doability" collide with the vision that was held on day 1.
Now compare this with a model that I've been looking at in recent times, the corporate sponsorship of innovation. OK, what does that mean? Essentially it is trying to get a large blue chip organisation to pay a retainer with an innovation team or organisation that guarantees them first dibs on anything that may come out of the pipeline (and preferential rates). The model sort of encourages investment in the organisation rather than any individual ideas, which tallies as well I guess. The challenge is getting the funding organisation to believe in the idea-generation organisation. Where this has historically worked well has been the pharma/drug-discovery sector, where the big players will put independent researchers on a contract that prevents them selling anything of interest to rivals, whilst encouraging the development of promising drugs that have commercial application.
So, coming to the crux of this post, is it better to present fully-fledged ideas that have already been built up, with the opportunity to generate rapid returns (assuming they get "bought")? Or is a longer-term approach of investment in people a better decision?
It seems to me that it is possibly a combination of the two that works. Building up credibility through a series of discreet deliveries (that are successful!) opens up the door to a larger conversation about retainers, etc. I hope to try and put this to the test at some point, so I'll keep you posted about the reactions I get.
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2 comments:
Present proven and vine-ripened ideas vs. Investment in new vines hoping they would bear fruit. Is that the question?
Any mature company with an established revenue stream finds it difficult to innovate - the management is too focused on maintaining that revenue stream, particularly in publicly traded companies.
Google is trying to break the mold, they are doing both. Buying up fast moving companies while investing a huge amount in encouraging its huge pool of talented people to innovate. It's still tricky, Google's revenue stream is still Adwords and it is difficult to break out of that paradigm. But then again, if you have such a large and high margin revenue stream, many things become possible.
It's late and my obsession with Google continues to the point where I am no longer making sense.
A balanced and mature business will look to preserve its current revenue streams whilst looking to open new opportunities. Sadly, "shareholder value" and short-termism tends to knock that idea a touch.
Google is fascinating, mostly for the number of traditional business "rules" that it breaks or attempts to break, so I can forgive your obsession. :) However, they are still looking to balance their growth, and they also have the wonderful incentive of their huge rivalry with Microsoft to keep them on their toes.
I would argue that sensible investors in any business (from start-up right through to major international blue chip) should ask questions about where the future development revenues are. Unfortunately, whilst major corporations invest in each other and hold the view that they cannot outperform the efficiency of the stock market, they don't really bother. Some industries, where things turn around rapidly (like the pharmaceuticals sector), are more sensitive to this. Maybe the current crises in the financial sector will encourage them to realise that the same volatility can apply to them.
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