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Comment by jeanvalmarc | Hacker News Reader

It seems like a slightly bizarre system: have any of the "graduated" companies actually been successful by conventional (i.e. profitable) metrics?

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I don’t know, but even if that’s the case it would seem like it’s working as intended?

It’s better to know if something will not succeed and you can’t easily tell without testing in the market.

The incentive alignment with equity seems like the most critical piece and it has the bonus of rewarding employees for taking on the extra risk.

This lets you spin out big ideas without spending all of your money - a little like running internal VC (one big success could make up for all of the other failures).

I think at this level capital is not really the main constraint. It's attracting talent and creating a culture/environment where success is possible, even then that's just a necessary but insufficient prerequisite for success among all of the other non-capital reasons a startup might not succeed.

I don't think it was a GoogleX project, but Chronicle was spun out from Google as an independent company. It grew well, and seemed ready to succeed on its own.

Google then re-acquired it.

Speculation, but perhaps Google was concerned about it getting acquired by a competitor as it used a lot of core Google search technology. Or, perhaps Google knew that the acquisition cost would spiral upwards if they waited much longer. Or, perhaps it just proved out the hypothesis that the product was viable, so better to bring it back in-house.

But I would call it successful by conventional metrics: it found product-market fit, had good customer traction, and was acquired at a decent (though not crazy) valuation.

Chronicle had two businesses under one roof.

One is VirusTotal, which is super important to the security community but I don't think generates enough revenue to live on its own.

The other is a strange "Splunk Lite" offering that as far as I could tell the main selling point was it was way cheaper because Google gave them free/discounted storage. The search was terrible. It didn't highlight important things or hide the mundane. When I saw a demo it didn't even support IPv6 yet.

But I guess every moonshot factory has to have its Challenger disaster to learn a few lessons.

Chronicle actually busted pretty bad! Have a friend who worked there and he described it as a nightmare, and not the productive kind. https://www.vice.com/en_us/article/9kej3e/chronicle-is-dead-...

This is the scenario I expect, Waymo gets "spun out" and does its R&D on someone else's nickel and Google doesn't have to report the losses, then if it takes off, Google re-acquires it in a sweetheart deal and reaps all the goodness.

From my experience working there, this is the sort of concept they would be attracted to. Google gets a benefit from either scenario.

From the counter party part of this deal, the "investors" either lose their money, or they get a fixed amount of 'upside' when Google re-acquires.

What you're desrcbing is fiduciaries violating their responsbilities to shareholders.

I am sure that at least 50.1% of voting shares explicitly approve any crazy scheme Alphabet comes up with.

That has been their get-out-of-jail-free card since, well forever.

50.1% doesn't magically absolve you of the responsibility to maximize shareholder value. They could vote to sell to Alphabet for $1 - it would result in a massive lawsuit.

Yes, people can and will sue for any reason. But in this case this is how the suit would likely go ...

plaintiff: "Your honor these share holders are suing the company for violating its fiduciary duty."

company; "Your honor, we know that some share holders may not always agree with the majority, but we made sure that over 50% of the share holders were on board with every decision we've made. We move to dismiss."

Judge: "You have documented that the majority agreed?"

company: "Yes your honor"

Judge: "And every shareholder has access to the bylaws of the company which state in clear and unequivocal terms that all decisions will be decided by a simple majority vote?"

company: "Yes your honor."

"case dismissed."

If this is merely a scheme for Google to sweep the losses under the carpet, what's in it for the investors who'll be left holding the bag? And mind you, in order for the losses to go away, the value of the company at the time it's spun out needs to exceed the billions of dollars already invested in it over the span of 12 years. (Including $120m paid out in bonuses to Anthony Levandowski alone.)

I wasn't trying to say it is "merely" a scheme. Its sort of like shorting some stock and at the same time buying a call option for twice that many shares above the price that you shorted it for.

The short part gives you some cash now and if the stock drops even further, you can cover the short and keep the profit. But if the stock goes up, just when there is a margin call you've got an "in the money" call option to cover it. So if it is shooting up you exercise the call, cover the short with half the shares, and profit when the other half keep shooting up.

Anyone can nominally do this on any stock, but there are tax advantages to the company that does it with one of their own subsidiaries.

Or maybe they know Waymo is there to burn through cash without doing anything useful (like any other “research” project at any place that has infinite stream of money from oil or, let’s say, ads) and expect it to be overtaken by competition and want to get out.

All research projects from Google (and similar companies with "infinite stream of money") aren't doing anything useful? Seems overly cynical.

They're at least responsible for a large chunk of ML research, which is directly to directly improve their products (Maps, Photos, YouTube, etc.).

A common practice is to perform market research by expressing interest in acquiring competitors and then having them provide technical information to show acquisition worthiness. It’s all supposedly under NDA but the reality is that the big tech companies can easily sue you into oblivion and your lawsuit isn’t going anywhere. If you even try, welcome to the blacklist. Also the lawyers fees on your side are enough to put you out of business.

They are fishing for understanding of the market and sometimes general approaches or parameters of possibility. You are providing free insight. It’s the same when you pitch a VC. You just give them more and more free insight. Hopefully they provide value in return.

sounds like a spin-out/spin-in model. you do these primarily to create special compensation packages.

the inclusion of a non-revocable license to core technology is a common part of such structures because it gives the people who take the risk some proof against management changes that otherwise sink such deals.

These guys did pretty well for themselves:

https://en.m.wikipedia.org/wiki/Pokémon_Go

Niantic was spun off from Google.

It was also acquired by Google, so it might not be the best example.

No, Niantic began as a "startup within Google". It wasn't an acquisition.

You're right, I was confusing the fact that the founder came in with an acquisition.

It's my understanding is that Google X is a marketing / PR platform for Google. Google X doesn't ever need to actually produce anything or create any real-world value because their value is in the PR they generate for Google - keeping them positioned through press as a technology company vs. the largest advertising company in the world. Many of the Google X projects are acquisitions/acquihires purchased to continue the narrative. It's why they never ship products and can't get anything out the door. If this works - it'll be one of the first after billions invested. They've done an excellent job I would say.

It was more like a playground for Sergey while he was still involved. I’m not sure if he voluntary chose to do it or not.

This is the main topic in The Innovators Dilemma, it's a pretty interesting book if you like this sort of graduation of companies

It makes sense from a focus point of view. Rather than Google/Alphabet pissing away their profits on ventures outside their core competence, spin them off and leave them for investors and managers that want to focus on self driving cars or whatever. It's hard enough to do one thing well.

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