VC's failures teach us the Secret to Profitable Innovation Success

Before I begin - if you missed the recent webinars here are links to the videos How to Make Owning a Company FUN again:

Innovation Engineering CREATE System 3.0 overview:


Synthesis of Wisdom mining from the Kauffman Foundation  and Andy Rachleff formerly of Stanford Business School teaches us how to improve our odds of profitable innovation success. 

Kauffman reports that the success and wisdom of Venture Capital is grossly exaggerated.  To provide a more stable and reliable perspective their study covered 100 VC firms over 20 years.  This takes away the short term "flash" from the random successes that we obsess about... Google, Facebook, etc.

The results continue a trend reported earlier - Venture Capitalist's are very poor judges of innovation success potential.  Recall we've previously reported that research finds that only 15% of their selections are successful.  The Kauffman report documents truths that the Venture Capital industry doesn't want you to know...

- The average VC Fund fails to return investor capital after fees.

- Only 20% generated returns greater than the public stock market by 3% a year

- 62% were BELOW the public stock market

Basically - the vast majority of Venture Capitalists are no better at picking innovations to invest in than large corporations are.  In truth an investor has better odds gambling in Las Vegas!

Against this background of despair comes Andy Rachleff who reports on the strategy of the 3% of VC firms that generate 95% of Venture Capital industry returns.  Now to be fair - part of this return comes from the "rich getting richer."   These firms are often on the inside on later rounds of investment when the risk is low and return is high.

That all said - Andy reports that his research finds that successful firms have a different mindset on what they invest in.   First some quick definitions.

Market Risk: Is will the customer buy it, will they care, will they adopt it, will we be able to get awareness and distribution of the innovation.   A close in  "CORE" innovation for existing customers has low market risk.  An innovation that adapts our technology for new customers has high market risk.

Technology Risk: Is will we be able to make the innovation, will it work, can we manufacture it.  At the extremes - A Web App is usually very low technology risk.  A New "LEAP" drug is usually high technology risk.

Most Venture Capitalists (like most corporations) prefer to invest in innovations that have a low Technology Risk and High Market Risk.   Successful Venture Capital Firms do the opposite investing in High Technology Risk and Low Market Risk. 

What this means is unsuccessful VC's and Corporations look for "quick wins" or  "quick flips" as opposed to getting their hands dirty and creating, crafting an innovation that is genuinely Meaningfully Unique.   This research aligns with what has been found by Robert Cooper and the Innovation Engineering Institute R&D team.  We've found a 500%+ greater chance of profitable success when you have a real, tangible, genuine innovation as opposed to what we call "Mindless Marketing" gimmicks.

THE SECRET TO PROFITABLE INNOVATION SUCCESS:   Invest in Innovations that are Meaningfully Unique.  Innovations that matter.  Innovations that have real patents that offer real protection because they are truly "non obvious leaps."   Invest your time, energy and money on innovations that make a meaningful difference in the world!

Or said in the irreverent way of our Innovation Engineering Black Belts around the world (on University campuses and off).  "Do Cool Shit That Matters!"

If you are interested in attending an Innovation Engineering SAMPLER -- or to have a one day SAMPLER at your COMPANY contact Corie at 513 271-9911.

Doug Hall

p.s.  Research finds that Prevention of a Negative is often more successful in the marketplace than promise of a positive. (Political advertising professionals understand this.)  To that end we created a new headline for Innovation Engineering -- it makes people uncomfortable however it appears to work...


The New Innovation Operating System that Increases Your Speed to Market and Decreases Your Chances of Screwing Up!