Innovation Capitalists

March 24th, 2007

The Forethought section of March’s Harvard Business Review has a piece titled Meet the Innovation Capitalists.

“Innovation capitalists are firms… that seek out and evaluate ideas and technologies from the inventor community and other external sources. They develop and refine those ideas to the point where their market potential is validated, and they pitch them to large client firms. An innovation capitalist reduces a client company’s acquisition costs and early-stage risks.”

This is another piece in the specialization company thesis that sees companys/investment firms specialize along business stage / process pathways and leverage a technology through their network, one business stage at a time, until it scales and comes to market.

Innovation Capitalists “add value not through capital investing, as venture capitalists do, but through a unique combination of market expertise, networking skills, and early-stage innovation management acumen.”

Generally firms looking to acquire newly developed technology had two options, each introducing a forced tradeoff; however, Innovation Capitalists help fill the middle of the spectrum offering a solution free from the two tradeoffs.

One traditional option has been to seek out and acquire technology that’s still far from market-ready. In this situation costs are reduced but risks are elevated. The second traditional option has been to buy innovation that’s ready for market. This situation brings low risks but high costs.

Innovation Capitalists fill the middle of the spectrum - using their particular industry expertise to seek out and identify emerging technologies, develop and refine the ideas to validate market potential and mitigate risks, and then push them forward to different organizations that can advance them further or bring them to market.

Viewing 6 Comments

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    DC's observations are apt, in my firm's experience to-date as a pioneering IC. The logic of collaboration between a large firm and a small firm is compelling: Small firms offer access to prospective innovation; and large firms offer established manufacturing, distribution, and marketing capacities. Nevertheless, asymmetric collaborations are very difficult due to sharp differences in strategic intent and pacing. It does take time to cultivate the requisite level of mutual trust.
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    • v
    DC's observations are apt, in my firm's experience to-date as a pioneering IC. The logic of collaboration between a large firm and a small firm is compelling: Small firms offer access to prospective innovation; and large firms offer established manufacturing, distribution, and marketing capacities. Nevertheless, asymmetric collaborations are very difficult due to sharp differences in strategic intent and pacing. It does take time to cultivate the requisite level of mutual trust.
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    I love the concept! One-to-one it may have a chance, one-to-many is problematic.

    For the model to be financially viable the IC firm must be able to market their concepts to multiple companies to create a demand market for their supply. This allows for market driven pricing and counters the all eggs in one basket dilemma. Unfortunately, that is a challenge. For the IC to partner with an interested company they must have a substantial amount of visibility into strategic agenda and branding areas that most companies aren't willing to part with without a tight non-compete, non-disclosure. The IP issues are pervasive with an open market approach.

    If I'm Microsoft Games (XBOX 360-people) why should I give you insight into my strategic development goals and then have you go out and develop a product that you can sell to Sony (Playstation 3-people) or Nintendo (wii-people)? What if that product is a huge success and I Microsoft with deeeeep pockets pursue legal actions against the IC firm?

    A consortium approach to an open IC market may work - over tiiiimmeeee - only if there is a market generated price and not collusion.
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    • v
    I love the concept! One-to-one it may have a chance, one-to-many is problematic. For the model to be financially viable the IC firm must be able to market their concepts to multiple companies to create a demand market for their supply. This allows for market driven pricing and counters the all eggs in one basket dilemma. Unfortunately, that is a challenge. For the IC to partner with an interested company they must have a substantial amount of visibility into strategic agenda and branding areas that most companies aren't willing to part with without a tight non-compete, non-disclosure. The IP issues are pervasive with an open market approach. If I'm Microsoft Games (XBOX 360-people) why should I give you insight into my strategic development goals and then have you go out and develop a product that you can sell to Sony (Playstation 3-people) or Nintendo (wii-people)? What if that product is a huge success and I Microsoft with deeeeep pockets pursue legal actions against the IC firm? A consortium approach to an open IC market may work - over tiiiimmeeee - only if there is a market generated price and not collusion.
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    Quite rightly stated...Innovative capitalist it seems will be a major impetus towards value creation in future...These people have aptly put that Innovation is the product of Creativity and Execution, and with the help of the Innovation Capitalist, the execution part will be more streamlined in the industry.

    P.S.: Am following ur posts for quite sometime...seems slick & profound.

    Best.
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    Quite rightly stated...Innovative capitalist it seems will be a major impetus towards value creation in future...<a href="http://www.fastcompany.com/resources/leadership/v...rel="nofollow">These people have aptly put that Innovation is the product of Creativity and Execution, and with the help of the Innovation Capitalist, the execution part will be more streamlined in the industry. P.S.: Am following ur posts for quite sometime...seems slick & profound. Best.
 
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