The Lean Enterprise

Second, you can’t afford to weigh a startup’s valuation too heavily in your decisions. Nor should you, given the upside potential.

The upshot is twofold. First, as a strategic investor, you should be ready to offer generous terms. Ambitious founders may feel that they can look elsewhere, so you need to make the deal worth their while.

Why all the hate? The reasons are straightforward. In general, corporate investors don’t add value beyond the capital they provide. Angels, seed-stage funding organizations, and VCs, on the other hand, bring expertise and networks of potential mentors, services, and partners as well as the possibility of further funding.

One thing to know before forging ahead into an early-stage investment is that startup founders in general don’t trust corporate investors. Enterprises, unlike well-connected, highly experienced venture investors, are perceived to add little or no value beyond the money they offer.

As we saw in Strategy (Chapter 2), investment offers the lowest degree of control. As an investor, you’ll likely own well under 49 percent of the startup. You may be awarded a seat on the board of directors, but even in that case, your influence over the startup’s direction will be limited. And your potential upside will be correspondingly limited.

At this point, the third enterprise innovation strategy comes into play: Invest when you can’t acquire. Face it, the next Facebook is not going to let an enterprise buy it wholesale. But it may be happy to take your money, and the investment can bring significant advantages in terms of both return and partnership down the line. Meanwhile, a creativ

Your aim is not only to acquire the startup but to keep the founders productively engaged for years, possibly decades. It’s common for founders to view acquisition as the end game; they won’t be in charge anymore, and the best alternative is to leave and start fresh. It’s up to you to change this impression. After all, the acquisition is not the en

Having settled on a startup to acquire, approach the founders and make an offer. You’ll be negotiating with the founders and their investors, if any are involved. You may be tempted to try to negotiate the most favorable terms for your acquisition deals, but that’s not necessarily the best approach. An enterprise environment isn’t the most attracti

How can you identify a startup on the verge of achieving product/market fit? Innovation accounting gives you a rational way to evaluate this (see Innovation Accounting (Chapter 8)). Before modeling the startup’s business, though, a few subjective measures can be helpful. Ask the founders what they’ve learned and how they expect to scale. Try out th

You’re looking for a startup that suits your innovation thesis and is on the verge of achieving product/market fit, or has achieved it and doesn’t yet know it.