Refined Innovation: A New Approach to Investing

4/22/10

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investment—an approach that carries less risk than ground-up funding.

Investors have the appetite to fund these types of deals, and strategic acquirers and investors have the need to take current technology and make it even more effective or efficient and tailored to consumer and business markets.

The bottom line is that there are plenty of game-changing ideas out there right now. If the best ones—the ones with the greatest potential—are picked up by the most insightful investors and nurtured even slightly, the results could be breathtaking.

Greater long-term value creation

This approach will spur a more results-oriented strategy for innovation investing. It will also deter the quick-hit mentality that’s plagued the market for many years. And it will—without fail—lead to greater long-term value creation. Ironically, this unlikely marriage of conservatism and innovation may be the basis for a new and more successful investment model that can carry us through the next decade and beyond.

But let’s be clear: Start-from-scratch new innovation won’t—and shouldn’t—shut down. But there’s a significant and extremely cost-effective opportunity to pick up some of the glittering breakthroughs of the past few years, polish them, and then make an even brighter splash in the marketplace to drive adoption and create long-term value.

One logical outcome here is that we’ll soon see a new generation of cutting-edge but underutilized technologies spun out of corporate portfolios. These innovations have been kept in cold storage, and they haven’t been properly cared for, deployed, leveraged, or exploited. But if they end up back in the right entrepreneurial hands, they can have a major impact and generate significant returns.

The art and science of fine-tuning

Refining innovation can be as daunting as creating new innovation. Yes, there’s less risk and less cost. But there’s also the challenge of delicate fine-tuning that makes a revolutionary idea better—not just different.

So there’s an art, and a science, to this new strategy. And technologists as well as investors must be aware of both the opportunities and the obstacles as they seek greater results and returns from already-developed innovation. The ability to combine the technology and ideas of tomorrow with the systems and products in use today will enhance the likelihood of widespread adoption in established markets while increasing the possibility of sustained returns.

Taft Kortus is a partner in the technology and life sciences group at Moss Adams, an accounting and consulting firm based in Seattle. Follow @

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