Venture Management and Investible Units

Venture Management in a World Class R&D Organization takes the best of the Venture Capital industry and reworks it for discontinuous discovery+. Our Venture funds are required continuously, but our blockbuster+ payback is neither certain nor predictable in time. Our funding and management expertise in no way change the fundamental nature of a discontinuous pursuit. We invest only in opportunities with blockbuster potential, but we will only forecast / expect sub-blockbuster+ returns.

As Venture Capitalists (VC) we place funds into Investible Unit+ with the expectation of a return that is many times the investment. Typically we invest only after a period of due diligence; an investigation into the likelihood of success for the endeavor. This investigation concentrates on the management, the science, the market, any intellectual property and the research team. It typically occurs over a period of months, and is essentially a report card for the endeavor at a fixed point in time. The key motivation for the VC is the money – can this investment yield its expected high rates of return within a limited timeframe, typically 3-5 years. There is little or no interest in commercialization+ of the products from the investment.

Venture Management in a World Class R&D Organization has two considerations: 1) the blockbuster potential of the Investible Unit, and 2) research in an area that can feed products into the rest of the corporation. As a corporation investing into an area of research, I prefer products where we have expertise in commercialization. Commercialization is often a huge stumbling block for products coming out of research (see Here). Also, I prefer products that fit within my existing commercial structure. It’s less costly than having to retool sales and marketing toward a new untested market. But we understand that products often end up far afield from where they are originally envisioned during research. The first consideration takes precedence in our investment decisions: blockbuster potential.

Venture Management in a World Class R&D Organization does not  view investments as means toward a return that is many times the investment. Done well, this will happen. But it is not the driving goal. Instead we view investments as a means of motivating individuals within research endeavors. We leverage the power of ownership as an intrinsic motivator for individuals. What wouldn’t you do to protect and maintain your personal residence? It’s your home. As investors we instead look at investments as a mortgage loan with a large balloon payment at the end. We’ll fund your research, but only as long as we feel your sense of pride in ownership. You have access to our funds to pursue research, but we’re in this only to the extent we see you’re fully committed to eventually owning this house, and you’ll be able to make that final balloon payment.

This view of investing has significant consequences. Home ownership can be a 30-year investment. Funding can come from any of many sources. Houses appreciate or depreciate in the marketplace. All these factors influence the mortgagee’s sense of ownership. We, as investors, want that sense of ownership to be always on the ascendancy. We want to see the mortgagee reaching into their own pocket to make needed improvements or additions. We want the mortgagee to really feel the emotional pain of having to refinance the house in order to make payments. As investors we do not want to own more than 70% of the house: we don’t want the risk, and we don’t want you to think you can walk away from the investment.

Funding as a Mortgage or Line of Credit

Venture Management in a World Class R&D Organization is daily. Each time management in a research endeavor spends some of our funds we want them to sense they are giving up a little bit more of their ownership: that they’re adding additional time to when they will eventually pay off the mortgage. It’s not a fixed timeline – it’s a fixed commitment.

Our mortgage is strange in yet another sense: we readily swap out the property manager, the tenants or even the buildings. If the property, the core science, is deemed to have blockbuster potential, then we seek the mixture of management, occupants and buildings on that property to realize that potential. As the mortgage company, I demand extortionary privileges for my money. Indeed, it is quite common that the management of a research effort changes hands from a science-strong manager to a business-strong manager as the effort matures. Don’t cry for the science-strong manager: they make out quite well and typically are not shown to the exit from the property.

We'll readily give investigatory grants to owners of promising properties to assess their commercial potential, with the understanding the owner will undergo a rigorous (year-long) orientation session on our way of managing investments. We know that most property owners do not innately know how to turn properties into blockbuster products. Their property is unique and so will be their approach to the marketplace. But we have made these investments repeatedly , and we will test their thinking against our past experience. Does the property manager know how to get the best out of his or her property, building and tenants?

Let's hope we're no longer foolish enough to think we can bundle these mortgages to manage our risks. Each mortgage must be judged on its own merit. And, if markets change, or we later discover the property is situated next to a Superfund site, we expect our property manager to be the first to know and to secure us a quick exit from the investment. The moment you take your eyes of the particulars of any one investment, you risk losing across them all.

Home Page May 2010