What to do with Corporate Alumni? Fund Their Companies.

When people leave a company, they often do so because they are looking for a new challenge. Certainly not all, but at least some of them set out to found their own company. Others might prefer that option but lack the capital to do so. In those cases, I assume the former employer would often be better off simply financing those endeavors instead of just losing an employee.

Effectively, this would render the company a seed investor/accelerator type. While that’s no option for startups and small companies, it certainly is a great way to diversify for big-ish corporations. Not only do they not lose talent, they also gain the upside inherent to startup investments (convex payoff structure).  Sure, you’d need to put some mechanisms in place to not fund any sort of business and filter for talent. Yet, given the history with and knowledge about an employee, you should even have an advantage compared to regular VC’s.

While many companies set-up their own ‘incubators’ today, these are usually geared towards enabling new projects internally. Or, at best, they create spin-offs but (mostly) without making the employees actual owners. I find that to be inconsequential. For one, entrepreneurs are usually more motivated than mere employees, increasing the low likelihood of success in startups at least somewhat. Also, owners have skin-in-the-game which creates alignment between one’s own goals and the company’s.

I think that’s a clever approach.

On a related note, Google announced it would spin-off its self-driving car business into a new company. I didn’t find any specifics regarding the ownership structure, thus I assume it’s going to be owned by Alphabet Inc. Except for this the general approach is quite similar.

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