I met a very successful enterprise software entrepreneur/investor Bruce Cleveland in a very random way. Bruce was a part of the founding teams at Siebel and Oracle. It is really amazing how/where/when you meet such interesting people. As I was going through Bruce’s blog I found many intriguing posts. This one stood out because it defines an alternate investment structure particularly suitable for enterprise software companies. This could be a new structure that brave VCs who are looking for innovation in the VC model could experiment with.
Bruce defines this Spin In structure as a new startup where a large software company seeds the venture with the management team, IP, distribution and sometimes cash. This is done in partnership with other financial investors.
I could see how this would be very useful in some situations if all the incentives are aligned properly. It would also make a lot of sense to try it in a partnership situation too. For companies with a platform strategy it could make sense to seed the potential platform applications start-up partners funded using this approach. Think iFund and fbFund kind of situations in the enterprise software world.
Bruce’s blog post also reminded me of an author/entrepreneur I recently met – Jon Fisher. He advocates building companies (most relevant for enterprise software) with the end goal (a large software company as the exit) in mind. Bruce’s approach provides a good structure to what he calls strategic entrepreneurism.
Hope to see how this structure would play out in the real life. This could take at least 8-10 years before we see some start-ups exiting using this approach.
I don’t think this is a new concept. Cisco did a similar spin-in venture called Andiamo Systems that Cisco funded back in 2000 and later acquired in 2004.
Agree Sarabjeet: This is such a simple structure – it existed in so many different variants in so many different scenario already. What is new is the way more and more VCs have started looking at it along with their “strategic partners”.