Saving Stranded Technologies: Talking with Spinout Expert David Tennenhouse at New Venture Partners
The “two guys in a garage” story of how technology companies get started is a powerful one in Silicon Valley. And it does happen: there really was a garage at Hewlett-Packard in the 1930s, Apple in the 1970s, and Google in the 1990s. The Mountain View, CA-based Y Combinator startup incubator, where most companies consist of two or three co-founders, is essentially one big garage. But startups can also come from other places—including large technology companies, where there’s often a surfeit of creative researchers and product developers, but a shortage of vision among company leadership about how to bring their promising ideas to market. (Or, to put it more charitably, a disconnect between the researchers’ ideas and the companies’ existing markets.)
That’s where New Venture Partners comes in. At this one-of-a-kind firm, which has offices in San Mateo, CA, Murray Hill, NJ, Ipswich, England, and Bussum, The Netherlands, the specialty of the house is finding promising technologies that aren’t going anywhere inside their native corporate R&D labs and spinning them out into successful companies. With more than $700 million under management, including a $300 million fund that closed in 2006, NVP has unearthed buried jewels at more than 50 technology, cleantech, and healthcare organizations, including big names like Boeing, British Telecom, Intel, Lucent, and Philips. Many of the spinouts it has helped to birth have gone on to lucrative exits, including Flarion Technologies (acquired by Qualcomm), Celiant (acquired by Andrew Corporation), SyChip (acquired by Murata), and Vallent (acquired by IBM).
NVP is a spinout itself. It was originally formed in 1997 as the New Ventures Group at Lucent Technologies, the telecom giant that had inherited most of Bell Labs from AT&T. Many technology corporations were experimenting at the time with corporate venture groups as a way to manage disruptive innovation—in fact, Xconomy CEO and editor-in-chief Bob Buderi wrote a feature article about the New Ventures Group and its implications for Lucent and the wider industry for the November 2000 issue of Technology Review. But the group’s tenure inside Lucent turned out to be short-lived. In 2001, with the telecom industry flailing and Lucent in financial disarray, a “special situations” fund called Coller Capital bought most of Lucent’s equity stake in the group’s portfolio, and spun out the core team as New Venture Partners.
NVP went on to raise its own funds and to absorb the corporate venture groups at British Telecom in 2003 and Philips in 2004. In 2007, the firm reeled in one of its biggest catches: David Tennenhouse. A computer scientist who trained at the University of Toronto and the University of Cambridge, Tennenhouse has a ridiculously broad resume that spans the worlds of academia, defense, corporate research, and e-commerce. Most recently, he’s served as chief scientist and director of the Information Technology office at the Defense Advanced Research Projects Agency; vice president and director of research at Intel Corporation; and vice president of platform strategy at Amazon and CEO of its A9.com research subsidiary.
I got to know Tennenhouse in the early 2000s when he was at Intel. When I returned to the Bay Area this summer to open Xconomy San Francisco and learned that he was at NVP, I contacted him right away to arrange an interview. I wanted to know how the spinout business is going, and how NVP’s challenges differ from those encountered by the average venture capital firm.
Our conversation was in-depth and fascinating, so I’ve broken it up below into two parts. In Part 1 today, Tennenhouse talks about the firm’s basic mission, why large corporations so often fail to find a commercial home for their own promising technologies, and how NVP operates. In Part 2, coming later this week, Tennenhouse talks about specific spinout examples that illustrate his firm’s approach.
Xconomy: What is the mission of New Venture Partners?
David Tennenhouse: The mission is pretty straightforward. To me, it is a bit of a personal mission. It’s identifying “stranded” research and trying to spin that out into stand-alone ventures that can create value for the company that sponsored it, for the employees, and more importantly, at some level, for society as a whole. People always talk about putting research “on the shelf.” There is no shelf. Teams dissipate. Some number of years later, another team comes along and reinvents it.
There are a lot of different reasons why research gets stranded. Applied research is not curiosity-driven, so we usually have a goal of figuring out how to … Next Page »