I got an email from a VC colleague regarding Charles River dipping their toe in the angel game. Interesting move to get themselves integrated earlier in the development cycle and expand their expertise through low risk investments (i.e. no pay out for any of these, but maybe they learn enough for a first round with a Google exiter). Right of first refusal is something we talk alot about here for our “strategic” partners but in reality the bank works with tech partners to learn more than produce. We usually end up building things internally after light joint ventures give us some exposure to an opportunity area.

A partnership or in the case of CRV a “loan” can give you access to the knowledge that enables you to jump on a fatty and hit it out of the park.

Yesterday Apple announced that Eric Schmidt, CEO of Google, was elected to their board of directors. The argument for lining up the immense resources and expertise of these two companies is bulletproof. Apple has reached a point where their device strategy needs to service sophistication to fully leverage the customer franchise they have built. Google and it’s expansive service offering has come to the political boundary of hardware to ensure top of desktop position for its products.

One of the often cited shortfalls of AOL circa 1998 was the lack of a well developed hardware or device strategy. AOLMail had become beyond ubiquitous and was even accepted as a business email suffix. An AOL Blackberry or Sidekick would have been a much better platform to build from than what they have today.

With Microsoft’s impending desktop deadbolt Vista and their Zunepod on the way (how come nobody talks about XBOX360?), the timing of this union is a good one.

The form is also good: it is not some non-specific MOU between companies or a hastily planned JV. With a board seat, they will have time to sort out a working model for current products and a venturing model for future development.

Innovation is a buzz word that has been gaining traction steadily on Corporate Earth for some time now. If you believe Google Trends the references in the news have increased by 50% or so in 3 years. The approaches to innovation are an interesting mashup of recent economic events and corporate hedge culture. When I was at a few startups the biggest thing we worried about was money. There are ideas ad nauseum, what we didn’t have was money. Just give us the cash man. Of course we did not know that we also lacked ability to run a business and grow it effectively, hence I work for a living still.

Of course VCs took a licking during the bubble and got some analytic religion as a result. The failures of that era gave us a clear distinction between quick ROI focused VCs and innovation focused VCs. Think the guys who backed text pager companies vs the ones who backed mobile phones as they began to emerge in the mainstream. The other product of the VC craze of the bubble was that corporates began to rely on this specialty area to develop innovative business that they could then grab and spin-in when appropriate. Well, that period ended with crash, and now the delta between good VCs and just money guys is becoming more and more apparent.

Two major trends emerged from this broken VC industry: First, the emergence of specialty consultant firms like Doblin, Ideo, Whatif?, as the discrete owners of innovation in business. Also, it forced corporations in non-R&D focused industries to look inwards to source ideas and innovations. Hence the transition from product development to innovation.
In the corporate innovation environment, there is no end to the business management expertise and in this new era of innovation as a necessary practice, CEOs are providing protected lab environments with dollars to boot. Venture funds (dollars and man hours) to develop and build out the next big thing are being analyzed with separate opportunity cost metrics.

This is a great, emergent business model, but it does have some distinct disadvantages to the real VC model. It will be quite interesting to see how the the VC vertical reacts to this emerging threats. If strategic theory holds, specialization should follow, which is what we are seeing from certain VCs who are ahead of the game.