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GoogleX projects can 'graduate' and become their own companies that issue their own stock. Employees of Google that work on GoogleX projects that graduate no l
by fossuser 6y ago
GoogleX projects can 'graduate' and become their own companies that issue their own stock.
Employees of Google that work on GoogleX projects that graduate no longer technically work for Google, but for the new company and they no longer receive Google shares, but new company shares (in this case Waymo, Loon is another example [0]).
This forces the company and employee incentives to be aligned since the value of the employee equity is tied to the success of the specific GoogleX project and not Google itself.
When a company graduates if a lot of employees don't want to stay on the project and choose to stay at Google, that itself might be a bad sign (though it could also just be employee risk preference).
I think companies graduate when they're less pure R&D and closer to marketability. If they can't survive on their own at that point it may be because there isn't a market, the timing isn't right, or any other reason that can cause a startup to fail.
This system prevents Google from pouring money into something that's never tested in an environment where it can actually fail. It puts moonshot projects in an environment where they're truly tested and don't just become places where money is spent without any ability to measure success.
It's my understanding that graduated companies have their own hiring methods and can make their own independent decisions in general. They would also need to raise their own money.
[0]: https://loon.com/ https://loon.com/
- TacoToni 6y agoInteresting! I had no idea.
- ktta 6y agoYou can get more info about this by reading up on GoogleX, but more importantly the articles that came out when Alphabet was formed. Those graduated companies would need a parent company, and that company was Alphabet. It was done to separate these graduated companies from Google's name (and accounting depts).
- jeanvalmarc 6y agoIt seems like a slightly bizarre system: have any of the "graduated" companies actually been successful by conventional (i.e. profitable) metrics?
- fossuser 6y agoI don’t know, but even if that’s the case it would seem like it’s working as intended? It’s better to know if something will not succeed and you can’t easily tell without testing in the market. The incentive alignment with equity seems like the most critical piece and it has the bonus of rewarding employees for taking on the extra risk. This lets you spin out big ideas without spending all of your money - a little like running internal VC (one big success could make up for all of the other failures). I think at this level capital is not really the main constraint. It's attracting talent and creating a culture/environment where success is possible, even then that's just a necessary but insufficient prerequisite for success among all of the other non-capital reasons a startup might not succeed.
- agar 6y agoI don't think it was a GoogleX project, but Chronicle was spun out from Google as an independent company. It grew well, and seemed ready to succeed on its own. Google then re-acquired it. Speculation, but perhaps Google was concerned about it getting acquired by a competitor as it used a lot of core Google search technology. Or, perhaps Google knew that the acquisition cost would spiral upwards if they waited much longer. Or, perhaps it just proved out the hypothesis that the product was viable, so better to bring it back in-house. But I would call it successful by conventional metrics: it found product-market fit, had good customer traction, and was acquired at a decent (though not crazy) valuation.
- dsl 6y agoChronicle had two businesses under one roof. One is VirusTotal, which is super important to the security community but I don't think generates enough revenue to live on its own. The other is a strange "Splunk Lite" offering that as far as I could tell the main selling point was it was way cheaper because Google gave them free/discounted storage. The search was terrible. It didn't highlight important things or hide the mundane. When I saw a demo it didn't even support IPv6 yet. But I guess every moonshot factory has to have its Challenger disaster to learn a few lessons.
- thenightcrawler 6y ago
- vl 6y agoAlphabet holding structure first and foremost is there to increase stock price. It’s specifically structured to separate and downsize risks. One of the investor’s concern is uncontrollable pouring of money into moonshots. Making them separate companies creates some transparency and illusion of accountability.
- TuringNYC 6y ago>> Making them separate companies creates some transparency and illusion of accountability. I would not be so dismissive of it -- there are good reasons to have separate companies. You can offload some risk by getting co-venture (as in Waymo's case.) More importantly, you can have other critical partners be co-invested with skin in the game. In the case of Waymo, if I were trying to raise funding, I might get money from P&C Insurance companies -- it could help align great future partnerships that make 1+1=3.