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Roadmap 04/11 (click here to expand/collapse)

Below is the Roadmap for select April 2011 website articles.    Please note  the website contains many more articles covering these same topics. For example, pre-game is integral to our program for attracting better R&D investment opportunities.

Provide Predictable Funding for Unpredictable R&D+
(Introduction to Franchise Capital Mgmt.)

Make funding more predictable (From Unpredictable R&D to Predictable Investor Returns)

  Attract and Retain Long-Term Investors

– Make a Market (You Have to See It to Believe It)

  Reinvest Interim Windfalls+

Make R&D success more frequent * (Execution is the Key to Success)

  Get Smarter at Tracking R&D Advancements+ and Transitions+ (Exits)
  Attract Better R&D-centric Investments
  Increase R&D Productivity (Execution is the Key to Success)

* Although it's still unpredictable

As funding agent+ we match investors and investments (owners of intellectual property+). Our role as funding agent (as middleman) is to keep investors happy, thereby ensuring steady funding for investments. We do this by packaging unpredictable R&D investments into an offering that is more attractive for investors (the perpetual fund). We do this by direct mediation into our unpredictable R&D investments (via franchise operations+), to ensure above-market productivity. Above-market R&D productivity is the only reliable means to ensure predictable funding.

Mother Nature Left the Building

Summary: 

Success hinges on being smarter at knowing when to hold ‘em and when to fold ‘em. This is a core competency envisioned for our funding agent.

Problem Statement

Sometimes even the most attractive science platform will later be found to have insurmountable obstacles to commercial success.
You can’t cut your way to success. Our success is measured in increasing productivity on top of a growing base of investments (here). Cut the base and you don’t succeed. Cut one half the investments and you need to double the productivity of the rest just to stay even. We need to be better at selecting investments so they don’t get cut, and we need to be better at sticking with investments experiencing temporary setbacks or challenges.

If you did your homework when selecting a science platform then there should be no way to tell later (looking in from the outside) whether or not it continues to have blockbuster+ potential. We pick science platforms based on their potential for multiple blockbuster products. Just because a particular commercial target is no longer viable (e.g., due to competition) should in no way torpedo a science platform. We pick science platforms for their robustness and flexibility. We buy a promising, intangible intellectual property and we do not exit simply because a particular tangible target has failed. The only important question is whether or not the intangible intellectual property still has blockbuster potential (in any commercial direction).

There are many factors contributing to success. We only exit an investment when the science platform shows intrinsic barriers to blockbuster success. Segregating intrinsic barriers from all the other contributing factors can often be quite difficult. A key researcher suffering the pangs of a new trophy bride can manifest itself as an intrinsic barrier in the science. Only in combination with having swapped out management, researchers, advisers and maybe even parts of the science platform (e.g., external licenses), can we consider the possibility that the barriers are intrinsic to the science platform itself.

We need to be much smarter in exiting from investments. Smarter than our funding alternates. We acknowledge the importance of exiting well (here), which is a first step toward being smarter. We need to act on that acknowledgment. Look upon our exit strategy as similiar to a generous return policy as used by premier retail stores. It costs a bit more for the moment, but owners of promising intellectual property are more willing to join our funding agent+, and we reap long-term rewards from these momentary costs.

Solution

We set up incentives so researchers most intimate with the science are the first to announce when it no longer has blockbuster potential. They will be the first to recognize when the basic science has intrinsic limitations not seen when we first started. They will be the first to feel the sense of frustration when all attempts at progress seem to be thwarted by new and unexpected obstacles in the science. Exiting is a tough call, even for researchers on the ground. The best we can do is to remove as many financial, emotional and social barriers as possible so researchers have a chance to recognize the end when it becomes inevitable.1

We put our own man on the ground – the independent evaluator+. This individual is under-the-hood and in the laboratory. This individual is respected by the researchers in the investment unit, and as such is intimate with the underlying research. This individual is the ‘father confessor’ of the researchers, helping them to acknowledge when the science no longer has blockbuster potential. In this role, the independent evaluator helps researchers to understand there is redemption in confessing the limitations of the science. Be the first to acknowledge Mother Nature has Left the Building and you potentially can resurrect the science platform in a new, independent spin off (here).

We will take much longer in ‘vetting’ new science platforms than is typically the case. Our shakeout period (pre-game+) runs for 12-18 months, and allows researchers time and resources to document their fundamental beliefs on how the science platform will be exploited to achieve multiple blockbuster products. These beliefs must be testable and durable. Some of these beliefs, to be sure, will change over time. But we want documentation of the assumptions for the Science Platform that will serve as a touchstone for future evaluations.2 At the end of shakeout we have a science platform, a team and a business plan, all of which have been vigorously vetted for long term sustainability.

Risk Framework shows the major categories for the management of risk

Exhibit 1. The Risk Management Framework. This is a comprehensive framework for the management of risk in industrial R&D. We focus deliberate risk management activities at the Key Risk Moments (e.g., pre-game, commercialization, interim assessments in mid-game, and end-game). We analyze the individual components of risk (e.g., technical, legal). We recognize that most risk is not quantifiable in creative endeavors: risk too is unpredictable. Finally, we recognize risk can only be assessed within the context of the interplay between research and investment objectives. Research that is low risk intrinsically, may be high risk when viewed as an investment objective.
We separately track factors contributing to the success or failure of an investment (Exhibit 1). Contingency plans for each factor are developed and tailored for the investment. Great researchers often turn out to be poor managers. We have a plan for that contingency. The research team (working in a separate legal entity) gets caught up in litigation. We move them to another legal entity, leaving behind an empty shell. For every risk factor we have a robust contingency response. Except for one. We invest based on the science platform. There are no contingency plans should the science later be found untenable for commercial pursuits. This is a case of Mother Nature Leaving the Building.

Most importantly, how we exit an investment must leave open the possibility for future data collection to allow us to know whether or not the decision to exit was correct. We don’t summarily shut down investments and cut off further information needed to evaluate the decision (falsification bias+). Instead, we allow investments to transition+ to a life outside our franchise: to seek outside funding. And we track their success as an independent firm. We need data to constantly improve our exit decisions, and this is built into the execution of investment exits.

Summary

The hallmark of unpredictable R&D+ is tacking & turning, running studies just to be able to ask the right questions, the value of implicit knowledge+, unexpected findings, etc. Effectiveness in this environment, in a creative endeavor, comes from within the individual, so we set it up so researchers are their own worst critics. We’re talking about their children, and we set it up so they can come to realize that no amount of rehab or coaching is going to make their cherished offspring into a superstar.3 Researchers must be the first to acknowledge MNLB.


Editor's Picks for April, 2011

  • 1. Many believe researchers will never be able to admit when Mother Nature has Left the Building (MNLB+). This belief is prevalent because past organizational norms and practices reinforced this belief (tunneling+, weasel words+). An academic approach to research was deliberately nurtured in the form of research campuses, professional titles, segregation of duties (physical locations, mental constructs), and highly restrictive boundaries in the pursuit of the science itself. There was always enough ambiguity around paths not taken to leave room to argue for more time and money. In short, no industrial R&D facility has ever set up the financial and emotional incentives to allow researchers to be the first to announce MNLB.
  • 2. This is similar to the common practice of documenting commercial assumptions, but with the twist that it is focused on the Science Platform as it contributes to commercial goals.
  • 3. We have our man on the ground to help the researcher along in this realization.
Further Reading
Reba Tull
Offline
Joined: 03/30/2011
There's an easier way

Despite the cutesy MNLB+ appellation, what makes you think for a moment you'll be better at making exit decisions than those who do it for a living? Despite your claim to the contrary, we know the obvious winners and the obvious losers, leaving only the vast unwashed middle crowd. Is this middle crowd promising enough to really make a difference? Wouldn't a more prudent approach be to just keep the obvious winners and get rid of the rest? The chances of getting it wrong are higher with the more ambiguous middle crowd.

Over time we see and evaluate hundreds of investments in our venture fund. You start to see a pattern, and you go with your instincts based on past patterns. I've found my instincts haven't let me down too often.