“Trying to innovate within a big company sucks,” TechStars director David Tisch said once, expressing a sentiment held widely throughout the tech startup world (cf. Google and Dodgeball, Yahoo and Delicious). But at the same time, large, stable companies must innovate, or they’ll fall behind.
In a new white paper, Howard Yu, professor at the IMD Business School, Switzerland, and Ben Lin, a partner at early-stage venture fund Great Oaks Venture Capital, argue for a twist on the tech accelerator that marries established companies with entrepreneurs and third party investors:
Here is how it works. New businesses are incubated in a semi-open platform between many startups, several established companies and a third-party investor.
The third-party investor can sometimes be a consortium of angel investors and/or venture capital firms. Its primary role is to provide startups with initial funding, external contacts and advice.
To accelerate the growth of startups, established companies make available limited, but important, non-financial resources, such as access to their customer database, brand name or proprietary technologies.
Depending on the particular arrangement, an established company can exercise a “call option” to buy back a startup at a deep discount at a future date.
This reminds us of Prehype, a mercenary incubator that plucks teams out of a big corporate entity and works with them for 100 days toward an accelerated product launch. If the start-up gets traction, Prehype sells it back to the parent company.
Mr. Yu and Mr. Lin’s idea has some advantages, however–namely the ongoing support of a big brand with established resources. (At a minimum, entrepreneurs can use the fax machines.)
The pair took some inspiration from the existing practice within big companies of “borrowing” team members from other departments, an efficient but sub-optimal practice. “In contrast, in the semi-open platform, startups are free to use the seeding money to recruit team members and contract out services with capable vendors,” the authors write. “Rather than working through layers of corporate constraints, the focus is to locate the best talent and the most suitable suppliers whenever possible.”
So when does Great Oaks plan to implement this nifty idea, Betabeat asked Mr. Lin. “We might end up implementing this idea, but if we do, it will be at least another year or two,” he said. “At this time, Howard and I are concentrating on developing this topic into a full research project. I think it’s an idea that is worth exploring further, but there’s a lot more work needs to be done on the intellectual side before this can be implemented.”
The idea isn’t ready for prime time yet, in other words. For one thing, it lacks a snazzy name. “Semi-open platform” and “new business incubation from the outside” just don’t quite sing to us. “Embedded startups,” maybe?