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.