The world’s most creative business model strikes again
The Venture Creator business model has just received significant market validation. The arguable leaders in this space, Boston’s PureTech Ventures & Allied Minds recently raised approximately $200 Million each through their respective IPO’s on the London Stock Exchange. Both companies continue to grow their impressive portfolio of big bets through their value-creation formula of spotting opportunities traditional VC’s seem to miss.
See article in Boston Globe on PureTech, Allied Minds.
What do Venture Creators do different?
- THINK for themselves: Venture Creators form their own thesis for an original idea (problem & solution) that benefits mankind VS. following the herd towards a ‘hot’ investment space, characterized by a meaningless label like ‘big data’
- ACT for themselves: Venture Creators create their own companies based on a validated investment thesis and people they know can execute, vs. spreading bets on companies they don’t fully understand
- LEVERAGE: Venture Creators rely on extensive network of expert advisors, technology and commercial partners to find, vet and license appropriate technology assets as well as test business model viability before scaling any particular venture
- REMEMBER: Venture Creators biggest secret is perhaps uncanny organizational memory – the same group of people learn from each attempted venture’s success or lack-thereof, partner relationship, fund-raising strategy, etc. (both from a creator/operator AND investor view-point)
Who should care to learn from Venture Creator’s formula?
Traditional VC’s interested in early stage investments could pick up a few lessons from their Venture Creators close, yet so different cousins (some already have – see previous article below). But more importantly, Venture Creators can provide the right model for Corporate Innovation for large companies.
How? Here are three lessons that Venture Creators like PureTech and Allied Minds can teach large companies about Corporate Innovation.
- Don’t outsource thinking what the world needs, and what you can do about it! End the ridiculous separation of Corporate Venture Capital from the company’s strategic intent to innovate. CVC’s: Stop finding interesting shiny-little rocks out there and putting money in-them without anyone else in the company adding input or caring. Start by deciding what problem/solution your company should be bringing to the world. Then explore (see for yourself). Eventually, make decisions on build/partner/buy. Use CVC as a tool to secure the right startup partnerships, licenses to proprietary IP, and the needed level of equity investments in external entities that get you closer to the next big business – not feather in the cap for your treasury’s investment returns
- Separate ‘Church & State’, but keep them part of the same country! The Church here is the entrepreneurial function and the State the investment function. Venture Creators combine both the startup and the VC into the same business model (because it’s useful to learn (and remember) from both sides of the coin). In large corporations, there’s either no separation of Church & State, meaning, bosses have their own ideas (usually bad, I may add) and have the power to fund them themselves (wouldn’t be so bad if they’ve ever heard of the word ‘pivot’ vs. ‘I trust my gut’ on this one), or worst yet, employees have ideas but fight a ‘State’ financing arm that seems to be part of a different, hostile country, uninterested in new ideas and incapable of knowing how to de-risk through staged funding
- Focus the Corporate Innovation function on the translation between research and development. Venture Creators don’t care if they didn’t invent critical elements of their innovation (they rather license or acquire needed assets). Venture Creators also don’t care if another partner has better product development or commercial capabilities they can leverage to take their innovations to market. They realize their value comes in ‘proving’ a given opportunity can be fulfilled in the relative short term through a unique business model – that’s Innovation. Repeat – Innovation is proving an opportunity through a unique business model, and that falls between traditional corporate research and product development (which usually implies tech risk, but taking things to known markets). What some companies call Innovation is simply R&D (terrible name for Applied Research) and or incremental improvements to existing business models.
- Venture Creators are a unique form of Venture Capitalist, combining the entrepreneurial function with the investment function in the same entity – This model is beginning to pan out, at least for the leaders in the pack such as PureTech and Allied Minds
- Large companies have a lot to learn from Venture Creators, namely to have the courage to LEAD innovation, not leave it up to others
See my previous blog post on Venture Creators below from May 2014
The world’s most creative business model
Venture Capitalists are nowadays preaching to startups – come up with a creative business model – your product or technology is insufficient for you to win in the market place – it’s the supporting system, stupid!
But has anyone questioned the current ‘VC-gives-money-to-startup’ business model? Is there another way to create value? Turns out, there is! Move over Venture Capitalists (euphemistic term for bankers) – Here comes a new wave of more efficient value-creators, what I would call, Venture Creators!
A venture creation firm, aka company builder or startup foundry, is made up of a small team of entrepreneurs specialized in creating and flipping a venture (Into a self-sustaining C-corp or an early-exit buy-out by an existing corporation).
The Venture Creation trend was arguably started as far back as 1996 by Bill Gross and his now renowned incubator IdeaLab, proud parent of over 100 ventures, mostly masterminded by Bill himself. But today’s Venture Creators are not your grandfathers’s – they’ve innovated from IdeaLab’s founder-centric design in several aspects including:
- Industry Specialization
- Geographical Specialization
- Competence in asset licensing from Universities and government research labs
- Competence in generating original, breakthrough ideas (through network of though-leaders and EIR/angel partners)
- Corporate Spin-Out Specialization
- Competence in partnering with large corporations for early-stage vetting of ideas
Venture Creators that are industry specialists include BetaWorks, which specializes in Internet and media companies.
Geographical Specialists include Germany’s RocketInternet (which have also created more than 100 companies (mostly adapting successful US internet business models in other countries) and Brazil/Columbia’s SuperNova Labs (led by good friends including Luis Novo and Nayib Abdala).
Asset licensing specialists include Boston’s Allied Minds, let by friend Chris Silva. Allied Minds is a specialist in licensing promising assets from government labs – They have built an impressive portfolio of high-tech and life-tech ventures in a variety of arenas, only explicitly avoiding therapeutics.
Original Idea Generators
Venture Creators that like to start with a ‘blank-sheet-of-paper’ and generate original, breakthrough ideas include Boston’s PureTech, led by friend Daphne Zohar. PureTech has amassed an impressive team of though-leaders, patient Angel investors and connections to corporations, arguably making them the ‘HBR case-study’ for the venture creation model.
Corporate Spin-Out Specialists
Corporate spin-out specialists include New Venture Partners – NVP (itself a spinout of Lucent) specializes in turning corporate inventions that don’t fit nicely into the current growth strategy into independent ventures – profiting from the often forgotten side of open innovation. It’s puzzling that companies don’t just encourage more intrapreneurial spin-outs and fund those themselves with their mounting cash-pile, but that’s another matter.
Co-Creators with Corporations
Venture Creators that co-create with corporations include San Diego’s Avalon Ventures, co-led by friend Jay Lichter – Avalon has figured out a high-competitive venture model to test new therapeutic targets by partnering with large-pharma for the early stage vetting of new ideas, greatly reducing the risk of funding something with no exit strategy.
Many Venture Creators, including the examples I’ve outlined above, actually operate hybrid business models. Some ‘adopt’ outside startups into their platforms (including IdeaLab), others use a combination of evergreen funding with time-defined, limited-partner funding. What seems to hold these various types of Venture Creators together is their intent to control a given idea’s innovation potential through the key formative stages and their insouciance to ‘execution’ activities vs. the much preferred ‘search’ activities – Venture Creators are first and foremost entrepreneurs, not passive investors.
Venture Creators believe that entrepreneurship is a repeatable process and that there are incredible inefficiencies in current VC-startup creation, namely the waste of venture specific resources, infrastructure, connections and leadership that is best spread across a carefully selected portfolio UNTIL a scalable business model has been discovered and a dedicated juggernaut makes all the sense.
Venture Creators do not necessarily displace the current startup formation paradigm – they can help a given society fight startup ‘non-consumption’, especially to form ventures that brilliant scientists just aren’t willing to form alone (as their calling remains in research lab), or ventures too risky to dedicate a full-time team too early in the process (As an entrepreneur, why not partner with a venture creator instead of recruiting a team from scratch that is unlikely to have the funding connections or strategic know-how) – No wonder IdeaLab has added this value-proposition.
Finally, it seems the incumbent startup funding capitalists are trying to move closer to the genesis of the startup process themselves. This includes ‘regular’ VC’s, accelerator VC’s and corporate VC’s, all clamoring for an earlier seat at the table – they make want to take a page from who’s ‘been there, done that’ – the Venture Creators – and learn to produce value directly, not just spread bets in arbitrage windows that are ephemeral at best.