4 ms·

That's something strange from my point of view. I mean, imagine some big company opening a BigCompanyName-Seed division, where they do something like Y combin

by antirez 16y ago

That's something strange from my point of view. I mean, imagine some big company opening a BigCompanyName-Seed division, where they do something like Y combinator is doing, but instead of giving a small amount of money for 6% they get 50% of the company for a bigger investment (at least in perspective, so if future investments are needed, there is no dilution up to a given sum). But in the process of course the company doing this stuff should be smart enough to don't force any strict rule like technology to use, type of authentication, domain name, and so forth. Must be a startup with its own life. Just they can select things that are interesting in general, or are interesting for the general goals of the big company. I'm not sure why this model could not work.

DanielBMarkham 16y ago
Welcome to the study of how groups of people interact. We'll probably have it all figured out in a few hundred years or so :) Couple good books come to mind. The best of which is probably The Innovator's Dilemma, for how new ideas get killed by companies. There are a lot of reasons what seems obvious won't actually work -- even though many companies still keep kicking that can down the road. This whole area is like a siren's song both in the corporate world and in government. Everybody is building "centers of excellence" and "knowledge incubators", and whatever else buzzwordy thing they can come up with to spend money. But the record of such efforts is appalling. Just for one example, take a look at Microsoft -- tens of billions in cash, tens of thousands of brilliant people, and they're lucky to get a release of windows out in time. Too many reasons to go into in this short of a space, and of course there are a lot of true believers that would argue with my conclusion. Suffice it to say that smart companies have figured out it's easier just to write a check.
stanleydrew 16y ago
"...but instead of giving a small amount of money for 6% they get 50% of the company for a bigger investment..." I think one reason is that most seed investments don't need to be that large, and large investments can actually be detrimental to the progress of a startup.
- antirez 16y ago
  It's a good point, what I mean is, the big company gets 50% not to provide more money now, but to play the role of the few first next rounds if the company will be worth it, but ensuring the founders less dilution.
  - stanleydrew 16y ago
    Interesting idea. I wonder how the guarantee of future funding without dilution would affect the founders' mindset though.
fizx 16y ago
Yahoo!! tried this with Brickhouse. They opened a pseudo-startup innovation lab in SF. I don't know all the details, but iirc, it was 30-100 people for 1-2 years. This failed utterly. Why? Once a company is beyond a certain size, employees maximize their expected value by spending time seeking internal resources. Budget, headcount, etc. If the lab is still part of the parent company, these games are still played. You also have companies like Hulu, that exist at the pleasure of their "investors." This might work a little better, but Hulu can't act fully in self-interest. Perhaps the best thing I can think of is a spinoff with initial funding, control of its own board, and an irrevocable IP grant. This would potentially be a huge head start. But then what happens if a competitor acquires your spinoff (for the IP grant) right away? I guess all this seems more fraught with risk than the simple buy a random startup model.
- antirez 16y ago
  Yes I think the startup branch should be a separated company, with a clear separation of management and so forth. Just the mother company has some specific rights that can use after a given amount of time a given startup was created and under specific terms. So that in the end it's really a lab without the weight of the big company, but the big company can avoid paying a lot of money, especially if the final aim is often to hire.
  - asanwal 16y ago
    From an entrepreneur's perspective, being in bed with one corporation to this extent significantly reduces your options and flexibility. Sounds more like you'd be an employee in a skunk-works than a real entrepreneur in this type of setup.
tptacek 16y ago
Because it's almost strictly better for them to acquire an outside company than it is for them to innovate internally, and it's easy to see why: many startups will vie to succeed with substantially similar ideas, and an acquirer can choose among them to optimize their outcome. In some cases, the acquirer can win simply by waiting for a company to prove itself in the marketplace. They pay a small premium to instantly become the market leader relative to the risk-adjusted cost they'd have to pay to ensure an internal effort resulted in the same market position. In other cases, the acquirer knows it's going to dominate the market once it enters with an acquisition. It wants to know whether a product is going to succeed, and what features customers are going to value most highly. So it can sit back, watch the market shake out, and then buy the best also-ran at a major discount to the valuation of the market leader. These are decision factors that aren't open to companies that innovate internally. That doesn't make internal innovation bad; it just argues in some cases for M&A instead.
asanwal 16y ago
In theory, this is an interesting idea. I'm not sure an entrepreneur who has (or believes they have) a truly big, scalable idea would want to give up 50% of his/her company for a first round of funding, no matter how large.
mattlong 16y ago
I believe what you are describing is more or less what Microsoft is trying to do with their New England R&D Center (NERD center as they like to call it) located in Cambridge, MA. They recruit big time out of MIT, host tech conferences (2009 jQuery conference among others), and let their "startup teams" work on pretty much whatever they want (I think). Would be interesting if anyone has any more insider info about it to share.
smeatish 16y ago
Intel has a VC arm: http://www.intel.com/about/companyinfo/capital/index.htm http://www.intel.com/about/companyinfo/capital/index.htm

by antirez 16y ago

DanielBMarkham 16y ago

Welcome to the study of how groups of people interact. We'll probably have it all figured out in a few hundred years or so :) Couple good books come to mind. The best of which is probably The Innovator's Dilemma, for how new ideas get killed by companies. There are a lot of reasons what seems obvious won't actually work -- even though many companies still keep kicking that can down the road. This whole area is like a siren's song both in the corporate world and in government. Everybody is building "centers of excellence" and "knowledge incubators", and whatever else buzzwordy thing they can come up with to spend money. But the record of such efforts is appalling. Just for one example, take a look at Microsoft -- tens of billions in cash, tens of thousands of brilliant people, and they're lucky to get a release of windows out in time. Too many reasons to go into in this short of a space, and of course there are a lot of true believers that would argue with my conclusion. Suffice it to say that smart companies have figured out it's easier just to write a check.

stanleydrew 16y ago

"...but instead of giving a small amount of money for 6% they get 50% of the company for a bigger investment..." I think one reason is that most seed investments don't need to be that large, and large investments can actually be detrimental to the progress of a startup.

antirez 16y ago
It's a good point, what I mean is, the big company gets 50% not to provide more money now, but to play the role of the few first next rounds if the company will be worth it, but ensuring the founders less dilution.
- stanleydrew 16y ago
  Interesting idea. I wonder how the guarantee of future funding without dilution would affect the founders' mindset though.

fizx 16y ago

Yahoo!! tried this with Brickhouse. They opened a pseudo-startup innovation lab in SF. I don't know all the details, but iirc, it was 30-100 people for 1-2 years. This failed utterly. Why? Once a company is beyond a certain size, employees maximize their expected value by spending time seeking internal resources. Budget, headcount, etc. If the lab is still part of the parent company, these games are still played. You also have companies like Hulu, that exist at the pleasure of their "investors." This might work a little better, but Hulu can't act fully in self-interest. Perhaps the best thing I can think of is a spinoff with initial funding, control of its own board, and an irrevocable IP grant. This would potentially be a huge head start. But then what happens if a competitor acquires your spinoff (for the IP grant) right away? I guess all this seems more fraught with risk than the simple buy a random startup model.

antirez 16y ago
Yes I think the startup branch should be a separated company, with a clear separation of management and so forth. Just the mother company has some specific rights that can use after a given amount of time a given startup was created and under specific terms. So that in the end it's really a lab without the weight of the big company, but the big company can avoid paying a lot of money, especially if the final aim is often to hire.
- asanwal 16y ago
  From an entrepreneur's perspective, being in bed with one corporation to this extent significantly reduces your options and flexibility. Sounds more like you'd be an employee in a skunk-works than a real entrepreneur in this type of setup.

tptacek 16y ago

Because it's almost strictly better for them to acquire an outside company than it is for them to innovate internally, and it's easy to see why: many startups will vie to succeed with substantially similar ideas, and an acquirer can choose among them to optimize their outcome. In some cases, the acquirer can win simply by waiting for a company to prove itself in the marketplace. They pay a small premium to instantly become the market leader relative to the risk-adjusted cost they'd have to pay to ensure an internal effort resulted in the same market position. In other cases, the acquirer knows it's going to dominate the market once it enters with an acquisition. It wants to know whether a product is going to succeed, and what features customers are going to value most highly. So it can sit back, watch the market shake out, and then buy the best also-ran at a major discount to the valuation of the market leader. These are decision factors that aren't open to companies that innovate internally. That doesn't make internal innovation bad; it just argues in some cases for M&A instead.

asanwal 16y ago

In theory, this is an interesting idea. I'm not sure an entrepreneur who has (or believes they have) a truly big, scalable idea would want to give up 50% of his/her company for a first round of funding, no matter how large.

mattlong 16y ago

I believe what you are describing is more or less what Microsoft is trying to do with their New England R&D Center (NERD center as they like to call it) located in Cambridge, MA. They recruit big time out of MIT, host tech conferences (2009 jQuery conference among others), and let their "startup teams" work on pretty much whatever they want (I think). Would be interesting if anyone has any more insider info about it to share.

smeatish 16y ago

Intel has a VC arm: http://www.intel.com/about/companyinfo/capital/index.htm http://www.intel.com/about/companyinfo/capital/index.htm