Saving Stranded Technologies: Talking with Spinout Expert David Tennenhouse at New Venture Partners
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build something or provide a service. Often, you figure out how to do it, but not how to do it affordably. The research still has value, and the people will go on and do great things and benefit from the insights. But only a fraction of those projects transition into the parent company. Basically, the stuff was invented in the wrong place. We are trying to create more of a marketplace for information to flow out of the organization that invented it, but chooses not to invest in it, and move it into a startup where the venture community can invest in it.
X: Why do you think big companies so often fail to commercialize promising R&D projects in-house?
DT: Some fraction of things are technically successful, but you can’t find a business case. Other things are technically successful and do have a good business case, but still don’t transfer. Why not? I can give you a list of 10 different reasons, but most of them can be converted into “Not big enough soon enough” or “Won’t move the needle.” There is an energy barrier that might be overcome if it’s apparent that something is going to be really big really soon. But you have vice presidents running $10 billion businesses, and if they can’t see a way to make a project into a $1 billion business in four to five years, it’s not going to be delivered on their watch. In addition, for a lot of folks at the senior VP level, their expertise is actually in scaling. It’s a much better investment of their time and energy to figure out how to grow their existing business. So they look at these things that are only going to be $100 million businesses in four to five years, and they don’t want to get distracted.
Now, if you look at something that is at zero revenue today, but will be at $100 million in four to six years, that is a great venture investment. We in the venture community also want to know that it’s got the capacity to go from $100 million to $1 billion. But for us, that is a good time frame. So there is a window in time where having a project be in the venture community is the right place to be.
X: If so few of these R&D projects find homes within the sponsoring companies, it makes you wonder why big companies continue to do applied research.
DT: At Intel, I was always careful to differentiate between road map-driven research and non-road map. A lot of corporate R&D is feeding the road map, and there is no problem there, if it’s well managed and efficient. It’s directly feeding the road map, and in certain cases creating options along the road map. Then there is the work that’s trying to create whole new businesses, and that part is very difficult, because the reality is that there is almost nothing that goes from zero to a couple billion dollars overnight. Even Google didn’t do that. So you are not going to get over this “not big enough soon enough” phenomenon unless you have some very long-term guidance.
That guidance can come from a few sources. Founder-based companies are different. One of the things that attracted me to Amazon was that in many ways Jeff Bezos is still running the shop. If Jeff likes it and believes in it, that will sustain it for a very long time. Microsoft will stick with things like the Xbox and Windows NT to make them successful. Some of these companies can still do a good job because the founder is an icon and will stick to his guns and has a feel for what it will take to grow something from that first couple million to $100 million. But once you get past the founder-led companies, that’s a bit of an exception.
X: Are there certain companies, or types of companies, that you keep an eye on because they’re more likely to have these stranded R&D projects that you could spin out?
DT: I don’t think we’re targeted in that way. Certain companies find that they can turn the ship. At Intel we called that “strategic forcing”—you’ve got your research agenda, now can you come up with a strategy that will fit the company? Arguably that happened with digital health at Intel. But it’s pretty unpredictable where that strategic forcing is going to happen. So we really don’t choose companies that way.
What you want to do is keep in touch with the technology teams that are working on interesting products that might someday be a spinoff. Often, it’s mentoring the teams on … Next Page »