The Innovation Gap
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
If you work in a large company with significant capital available for new products, this gap does not exist for you. Your innovation work gets funded on the merits (or by political influence ... but that's another newsletter topic!). But if you work in or run a small company with constrained financial resources and which is not on a proven success track, you're facing an innovation gap. Your firm can be characterized as "emerging" or "nearly dead", depending upon the day of the week.
There are really two problems today, one affecting seed-stage enterprises and having directly to do with money and the other affecting all VC-funded enterprises and having indirectly to do with money. The first problem is the shortage of capital to fund innovation experienced by companies that are trying to take fundamental inventions at the level of academic research or an entrepreneur's initial idea into at least the initial stage of commercial development, i.e. proof of business concept. These young companies don't necessarily need $5 million and a full-blown management team of grayheads to make the leap from early technology development to preliminary market proof of concept. But VCs have little interest in such startups because their business models don't work much below $5 million; some don't work below $10 million.
On the other hand, if a new enterprise decides to conform to the VC model and somehow builds a full team, demonstrates a qualifying future and puts $5-15 million in the bank, it will likely face the second problem: what Gurel calls the rigid startup syndrome. Now, startups are not supposed to be rigid and bureaucratic; they claim the advantage of nimbleness. But the investing VC will dictate rigidity by forcing a laser-like focus on the nascent organization because that's the proven key to a relatively quick success and exit. If the laser's target turns out to be wrong, well so be it; the organization just disappears and contributes to the VC's statistical 80-percent portfolio failure rate. A far better outcome -- at least in some cases -- would be to encourage the venture to adapt, shift direction or reassess in order to optimize its own survival. The result: the invention eventually gets commercialized, makes some money (albeit not enough to satisfy VC appetites), and contributes to society.
If you're expecting an iron-clad solution to either of these dilemmas, you will be disappointed. I don't have one. Angel investors and debt are two obvious possibilities, but angel groups seem to be morphing into VCs, and debt is pretty onerous for a startup. And, by the way, by no means do all startups deserve to survive! But I do know that there are numerous smart, capable people around who could address this issue and thereby contribute greatly to a nation's productivity and better the lives of its citizens.
