Alphabet is making a big shift in the way it takes its most ambitious and far-reaching ideas to market – and it’s been a while coming. Instead of scooping up successful “moonshot” projects and swallowing them whole, the company’s now spinning them out as their own independent outfits. And that’s a game-changer.
The crux of this new approach is a special fund that’s been set up just for spinning out X companies: Series X Capital.
Details on Series X Capital: This fund has got half a billion bucks in it, and it’s being run by Gideon Yu – the bloke who used to run YouTube and was Facebook’s CFO.
What makes the fund tick: The key here is that Alphabet’s only a minority investor when it comes to these spinouts. That means they’re not controlling the fund or the companies that come out of it – they’re just along for the ride. That’s what Astro Teller, the head of X, keeps saying is crucial to making these spinouts work.
A Fund That’s Focused: Unlike Alphabet’s other investment arms, this one’s only allowed to put money into companies that are direct spinouts from X. You won’t find Alphabet dipping into GV or CapitalG or Gradient Ventures for these sorts of investments.
A New Way to Think About Moonshots
This is a major departure from the way X used to do things. Back in the day, projects like Waymo and Wing were just absorbed into Alphabet as full-fledged subsidiaries. But Teller says that over the years, they’ve come to realize that this just isn’t the best way to go for every project.
He reckons that – especially for smaller, more niche projects that are fundamentally different from what Alphabet’s already got going – it’s better to let them stand on their own two feet and go it alone. Alphabet’s got loads of resources, sure – but not always all the right resources for any given project. And Teller says that for some projects, what they really need is to be able to spread their wings a bit and go fast.
The goal here is to create a relationship that’s more symbiotic than controlling – where X can still work with these spinouts, share ideas and get some benefits from having a close relationship – but without having to call the shots.
The Culture That Lets It Happen
But how does it all get to this point? Teller reckons it’s down to the culture at X – which is all about being honest about what’s going to fly and what’s not. They’re not afraid to say “no” to an idea that’s just not going to work. And that, he says, is what lets them be able to spin out and not just get stuck in the alphabet soup
What Makes A Moonshot?
For X, a really proper moonshot’s got to tick three boxes:
It’s got to be going after something that’s a real problem – not just some small annoyance.
It’s got to be something that actually has a real chance of solving that problem for good.
It’s got to be using some brand-new tech that’s got real promise – not just something that sounds good on paper.
The Ruthless Testing Phase
Once an idea meets those criteria, X’s process is designed to test for reasons to kill it.
“If you propose something and it sounds pretty wild, has those three components, and it’s a testable hypothesis, for a small amount of money we can learn if it’s a little bit crazier than we thought or a little bit less crazy than we thought,” Teller said.
The final word on failure is surprisingly positive: “If it’s a little bit crazier than we thought, cool, high five, let’s kill it and move on.” This is the process that generates the viable concepts ready for independent life via Series X Capital.