InnoCentive Raises $6.5 Million for Innovation Network: “Ready for Prime Time,” says CEO in Our Q&A

5/7/08Follow @wroush

There’s endless debate about how to encourage more innovation inside technology companies. But in Waltham, MA, there’s a startup that says, in effect, don’t bother: innovation can be outsourced to a global community of freelancers.

InnoCentive was set up by Eli Lilly in 2001 as an experimental way to farm out some of the giant drugmaker’s biggest product development challenges by posting them on the Web and inviting people around the world to submit competing solutions, with a substantial monetary prize as the reward for the winner. Two years ago, Lilly spun out the company as an independent venture, and it has since diversified beyond the life sciences to a range of disciplines, such as computer science and cleantech. And today, the organization announced that it’s raised a new pile of venture money—$6.5 million altogether, which it will use to upgrade its platform and expand its network of “solvers,” people who submit solutions in hopes of winning awards that range from $10,000 to $1 million.

It works like this: Companies (called “seekers”) work with InnoCentive to craft a well-defined challenge and pick a dollar amount for the award. InnoCentive then alerts its network of solvers, and those who choose to engage in a particular challenge are given access to online project rooms containing proprietary details about the seeker’s project. At the end of the challenge period, the seeker evaluates the solutions and chooses one as the winner; InnoCentive then helps transfer the rights to the solution from the solver to the seeker’s organization.

It isn’t “crowdsourcing” in the typical Web 2.0 sense of throwing open a problem and soliciting thoughts and contributions from thousands of random Internet surfers. It would be more accurate to describe InnoCentive’s platform as a mechanism for soliciting RFPs (requests for proposals) from a much broader cross-section of experts than any company could reach through the traditional business consulting process. Companies like Procter & Gamble use Innocentive’s system to find new product ideas faster than they might on their own, and the model has even inspired imitators such as Ohio-based Planet Eureka, which launched last month.

The problems posted at InnoCentive range from grand challenges (one seeker is offering $1 million for a biomarker that can track the progress of amyotrophic lateral sclerosis, or Lou Gehrig’s Disease) to utterly practical, small-scale problems (the Rockefeller Foundation offered $20,000 for a design for a solar-powered wireless router for use in developing countries). To date, solvers have collected over $3 million in awards, according to InnoCentive.

The lead funder in the funding round, InnoCentive’s second, was Spencer Trask Ventures, a New York-based investment network that includes scores of high-net-worth individuals. Lilly also contributed to the round. On Monday I had a phone conversation with InnoCentive CEO Dwayne Spradlin about how the organization plans to use the funds—and about the effectiveness of the prize-based innovation model in general.

Xconomy: It would be great if you could talk a bit about InnoCentive’s current direction, how that has changed over the past few years, and how you plan to use the new cash infusion.

Dwayne Spradlin: The company has been around for about seven years. We were founded under Eli Lilly and spun out as a standalone company a few years ago by Spencer Trask. As you point out, the company is a fair bit different today from a few years ago. The last several years were really about proving the concept—that is, that open innovation could drive remarkable outcomes for organizations that are innovation-hungry and that need better, faster, cheaper product development and time to market.

Now it’s ready for prime time. In the past six months, we’ve added challenge categories including business and entrepreneurship, engineering and design, physical sciences, and mathematics and computer sciences. We’ve increased the number of tools we offer—we used to focus on deep research-type tools but now we also offer “ideation” tools that help large numbers of people brainstorm very quickly, and electronic RFPs so that clients can find business partners very quickly, and help managing intellectual property rights. So we’ve gone beyond the proof-of-concept stage to the stage of getting InnoCentive into the hands of as many organizations as possible. We and the investors in InnoCentive believe this is the time to expand.

The $6.5 million is earmarked for expansion in three areas: First, our sales and marketing footprint, really getting feet into the street to evangelize the product. Second, expanding our solver community, which is 140,000 strong, but we have about 5 billion … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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