How is the Innventure Model different than the typical Venture Portfolio Approach?
If you’re an inventor, does it make sense to spend five years of your life contributing some of your best ideas and capital, knowing you’re going to fail 80% of the time? While the venture capital portfolio model historically provides an excellent return for investors – typically with percentages in the low to mid-teens – it can be a losing proposition for entrepreneurs trying to introduce new technologies into the market. Why? The portfolio model works because money is fungible, so fund managers can “starve the losers and feed the winners”. Historically, if two or three out of a portfolio of ten companies are successful enough, the investor is still able to receive a positive return on investment.
At Innventure, we set out to create a very low throughput model, but with a design goal of winning on greater than 80% of our new Innventure Companies. The Innventure model is the antithesis of the portfolio approach because we strive to make every company we start become successful. In our view, the only way to achieve that result is to figure out a way to significantly reduce the risk of creating and building new companies. We’ve settled on six key approaches to mitigate the risk:
- Find unmet market needs by utilizing the extensive market intelligence provided by Multinational Corporations (MNCs). We know before we start that there is a compelling need in the marketplace.
- Source technologies from MNCs. The benefit is that the technologies we acquire typically have been funded to the tune of $20M on average and have a broad, well-developed patent portfolio strategy.
- Take each opportunity through an extensive diligence exercise utilizing our systematic and repeatable DownSelect® process that typically takes a minimum of 6-9 months to complete. This process evaluates the technology against the unmet market need, tests the solution in the market with prospective customers, and creates a business model that is designed for our new Innventure Company to make money. Very few opportunities survive the rigors of DownSelect®.
- Manage and build the companies using serial CXOs. These are entrepreneurs who have started and managed several early-stage startups and have taken them to commercial success. This will be the subject of another article coming soon.
- Ideally, leverage the MNC as a commercialization partner that can rapidly deploy this solution as either a customer and/or channel to the marketplace to fill the unmet need that the MNC had previously discovered.
- Capitalize the new Innventure Company through Innventure directed investment to get the new Innventure Company to commercial scale.
By the time a new company gets formed (after surviving the first three steps in our methodology) we believe we are “introducing teenagers to the world versus infants” as compared to the typical startup. We believe we have mitigated a substantial amount of risk before the new Innventure Company is even formed. This head start coupled with the other steps in the Innventure model are designed to yield a higher success rate when compared to the typical startup model.
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