Should venture firms create equity by incubating companies themselves rather than competing to buy it?

Gili Raanan · Mar 18, 2024

A founding team with no idea at all is preferable to one arriving with a terrific idea

A great idea is just a bonus, a mediocre one he can improve, and with no idea the Cyberstarts platform can help them pick a significant pain point from scratch — which they have done successfully multiple times

16:49 Blank slate teams with no fixed idea are preferable since the platform can supply the idea

Harry Stebbings · Apr 10, 2024 · hedged

The speaker worries that the best founders will not want to be a hired-gun CEO for an idea they were brought in on, a potential weakness of incubation

30:15 Best founders resist being a hired gun ceo for an incubated idea

Kevin Ryan · Apr 10, 2024

The incubation model demonstrably attracts high-quality CEOs, provided you recruit well and incentivize them correctly

Business Insider, MongoDB, Transcend and Gilt were all started this way with a CEO brought in afterward, and no CEO has ever resigned

30:25 Incubation model attracts high quality ceos when recruited and incentivized well

Kevin Ryan · Apr 10, 2024

Most incubators fail because they try to crank out too many companies and lack the money, expertise and credibility to execute

An incoming CEO who could start their own company will only join if they love the idea, believe real research was done, and believe the incubator will add value

31:08 Most incubators fail from overreach lacking capital expertise and credibility

Kevin Ryan · Apr 10, 2024

Deciding which incubation ideas to fund is a judgment call rather than a formula — the bar is being willing to devote five years of your life to it

Ideas are too different to compare systematically; they killed a fintech idea after two or three months for lack of conviction

32:22 Choosing which incubation ideas to fund is a judgment call not a formula

Kevin Ryan · Apr 10, 2024

Once they commit to starting a company they don't kill it themselves — the outside market decides at the next round, and roughly four out of five successfully raise with an outside lead

After ~$1-1.5M and a hired CEO, the nine-month fundraise is the real verdict on the company

32:49 Let the outside market not the incubator decide whether to kill a company

Kevin Ryan · Apr 10, 2024

Doing outside investments alongside incubations is an efficient use of capital even though incubation ownership is far higher

Industry learning creates an investing edge, incubations can only absorb ~$1.5M each, and no one can generate 30 good company ideas a year

34:47 Outside investing alongside incubation is an efficient complementary use of capital

Harry Stebbings · Apr 10, 2024 · speculative

A year of runway may not be long enough for an incubated company, since hiring (about three months) and ramping a team (about three months) could consume six months and leave little execution time

Three months to hire people plus three months to ramp them leaves only six months of real execution

35:15 One year runway may be insufficient for incubated companies given hiring and ramp time

Everett Randle · Nov 10, 2025 · hedged

Of Bond, Founders Fund and Kleiner Perkins, Founders Fund is the best bet for highest cash-on-cash returns because of its ability to incubate companies

In a market where buying equity is very hard, the way to produce differentiated returns is to produce equity by incubating; Founders Fund has incubated an unbelievable company every five to ten years, most recently Anduril

75:44 Incubation produces equity when buying it is too hard

Andrew Ng · Nov 17, 2025

AI Fund's core skill is company building rather than capital allocation, which is why it operates as a venture studio that originates ideas before finding founders

They screen ideas, talk to customers, review product and argue about pricing, so day-to-day work is operating, not investing; incubators start with founders who already have an idea, they go earlier

55:37 Studio model fits firms whose core skill is operating not allocating

Andrew Ng · Nov 17, 2025

Creating companies that would not otherwise exist generates more value in the world than competing to invest in already-hot companies

VCs who fight over competitive deals make money, but his team's biggest contribution is originating ideas and co-founding companies that wouldn't exist otherwise

57:06 Origination creates more value than winning competitive deals

Saam Motamedi · Jul 15, 2024

The incubations that did work shared three traits: amazing founders, very large markets, and close collaboration with the venture partner on recruiting and customer development.

Looking back at Palo Alto Networks, Workday and Abnormal Security, those are the common factors.

58:44 Successful incubations share amazing founders large markets and close collaboration