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6 Responses to “Bill Gross/Idealab”

1. 1 Deepak Shenoy Apr 16th, 2007 at 12:11 pm

   The point of idealab is:
   1) Get Ideas internally (they don’t accept external ideas)
   2) Develop them into separate companies with their own employees running the show etc.

   I would love to be on the same cloud as they are, and get paid for generating ideas - heck, I want to be in on a performance review in that place.

   Seriously speaking, what’s the difference between that model and, say, entrepreneurs pitching to angels? One - you restrict the idea generation to only employees - which is kinda astounding - and two, you keep money at hand (I suppose) to fund potential future ideas which is kinda wasted resource.

   I don’t get this model at all. This is like an incubation center, but without the benefits of external input.

2. 2 Sanjukt K. Saha Apr 16th, 2007 at 2:14 pm

   Deepak, they do not restrict idea generation to only employees. In fact, ideas are ‘external’ prior to ther getting taken up. As you correctly pointed out, they are more of an incubator. The financial structuring of deals is quite different to an angel or a fund. I do not think they keep money on hand, though they like to play around with staggered ‘IPO’ cycles to generate free cash to invest (incubate) more companies.

   What is your feeling about incubation? Why don’t you like it?

3. 3 Deepak Shenoy Apr 16th, 2007 at 4:04 pm

   Oh no, nothing against incubation - I love the incubation concept, but in this case it’s not really incubation. Ideas, they say, MUST be internally generated. Here’s the funda: (http://www.idealab.com/about_idealab/corporate_5.html)

   “Idealab is not accepting outside business proposals for review. We primarily found and build businesses from ideas that are generated internally.”

   So if they’re an incubator, but without the benefit of having people approach them with ideas, it’s all the negatives without all the positives then? Essentially they fund ideas, but the generation of those ideas are left to their employees. Meaning, if you have an idea, you can’t approach them, but if you want a job and THEN pitch your idea (after climbing the internal ladders, I guess) you might get funded/incubated/separated/whatever. That’s entrepreneurship in reverse gear, no? (Note: You can’t send them an idea. You have to be employed with them or their companies to be able to get them interested)

   Maybe their approach works - and it seems to have - but their model is probably based on a) lots of money upfront and b) lot of hype. Not really replicable as a model if that is so. Come to think about it it has been, in India - GTVL does it on an very large scale, incubating companies and then selling them off.

   Also, how do they financially structure deals? I couldn’t find much of that info on their website.

4. 4 Sanjukt K. Saha Apr 16th, 2007 at 5:16 pm

   Deepak, have you seen any serious corporate incubation in India? In other countries of course you have corporate venturing, but lip service to any incubation.

   For entrepreneurs do you think it makes sense to go for an incubator rather than an Angel. At least one startup I am associated with went for incubation at IIT Kanpur and it is doing quite well. At the very least, the entrepreneur was able to retain ‘most’ of his equity.

   Coming back to Bill Gross, he is a very interesting man, don’t you think?

5. 5 Deepak Shenoy Apr 16th, 2007 at 6:20 pm

   Sanjukt, for one there’s NirmaLabs which i’ve heard a lot about but no success stories. (Heck, I’m hard pressed for big success stories in the VC space in India, leave alone incubation, but that’s another topic).

   Incubation is rife in the education industry but honestly no one I know has made it big (yet). IIMs, IITs, RECs, ISB etc. have incubation - and perhaps it *is* lip service as you say.

   Angels may not take much more of your equity than an incubator - now I don’t know if this is true, but i’ve heard the new organised angel funds are ok with 10-15% in a round.

   I’m setting to start up but honestly I’m finding incubation help (without having to dilute stake) through friends and network. I’m in the difficult situation of having enough money to fund it for a year, but with not enough to pay for the rent ka deposit (Starting at home and all is ok on paper, but once you have a family you want to keep it all separate. Or at least I do.) I guess I haven’t even thought of an incubator because there arent’t that many to go around? Or I’m plain lazy.

6. 6 Bill Gross Oct 12th, 2007 at 7:38 am

   Idealab is a little different than most people think. We’re actually an operating company, and not a venture firm or investment firm. We have our own internal development team - marketing, engineering, design, business development, etc. In particular, I am leading a lot of research on low cost solar energy, and other projects. When we find success in one of our prototyping efforts, and we find market acceptance, then we spin that out into a separate company, so that we can recruit additional employees with significant equity stakes, etc. It’s definitely an unusual model, and it’s very hard to execute well, but it works very well for us. Now that we have been in business for nearly 12 years, we have learned a lot of the pitfalls, and hopefully we can have a higher success rate on each new venture. That’s of course what we try to do! If you’re ever in Southern CA and you can visit, I think you would get a much better sense of how we work.

   Bill

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