Silicon Valley Meets ‘American Idol’ With Prizes to Inspire Inventors

The New York Times - February 16, 2007
Matt Richtel

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FACING down stiff competition to win fame and big prize money? Forget singing for Simon Cowell and Paula Abdul. Try sequencing DNA for a panel of technology investors.

Yes, something like an “American Idol” for the technorati may be coming to Silicon Valley.

Venture capital firms are considering contests that offer competing engineers and entrepreneurs multimillion-dollar prize purses if they come up with innovative technologies in various industries.

The concept is getting an introduction on March 3 at a fund-raiser at Google. The event is intended to raise a chunk of $50 million to operate the X Prize Foundation, a nonprofit group that already has awarded $10 million to designers of a private spacecraft.

The foundation plans to use the money to develop prizes in fields like medicine, poverty reduction and fuel-efficient cars. But the foundation’s next stage of prize-giving will also include partnerships with venture capitalists who, the group argues, can use prizes to spur entrepreneurs to innovate and, in turn, to create an efficient research and development machine.

“Prizes can help create markets,” said Tom Vander Ark, president of the X Prize Foundation. “It’s an interesting twist on venture. Instead of betting on a company, they can bet on a sector.”

The X Prize foundation, whose board of trustees includes Larry Page, a co-founder of Google, and Elon Musk, a PayPal founder, has been asking venture capitalists to donate money for prizes and to consider more formal partnerships. Such partnerships, Mr. Vander Ark said, could involve giving money in exchange for an option to buy equity stake in the prizewinning companies.

Mr. Vander Ark declines to disclose what deals — if any — have been struck, but he says an announcement is imminent. Already, some big-name firms, including Kleiner Perkins Caufield & Byers, are endorsing the idea, at least in principal.

But the concept also has engendered some skepticism. Prizes may be of limited value to venture capitalists, who ultimately are less interested in groundbreaking science than they are in concrete and market-ready technologies, according to some technology investors and academics.

“There’s no market merit to any of this,” said Paul S. Kedrosky, executive director of the William J. von Liebig Center, which studies venture capital trends. He argues that the prizes might be good for generating press, or buttressing the egos of donors and winners, but not particularly valuable at leading to profit-capable companies.

“It’s a naďve assumption that good science is good business,” he said.

Prize-inspired entrepreneurialism, however, is a concept that goes back hundreds of years. And there have been a number of recent examples.

Al Gore, the former vice president, and Richard Branson, the British billionaire, announced last week a $25 million prize for development of technology to reduce greenhouse gases. In October, Netflix, the online movie rental store, began offering a $1 million dollar prize to spur development of a system that can better predict what films consumers might like based on their previous viewing habits.

For their part, venture capitalists have used prizes on a limited, albeit modestly growing, basis as a way to prompt engineers and scientists to articulate their ideas in marketable terms. Several venture firms, including Polaris Venture Partners, have sponsored an annual $100,000 business plan competition at the Massachusetts Institute of Technology.

In 1998, Akamai Technology, whose software is used to route Internet traffic efficiently, didn’t win the M.I.T. competition. (It finished in the top 10.) But it did get the attention of both Polaris and Battery Ventures, which invested in the company and later helped take it public.

More recently, Advanced Technology Ventures, Atlas Ventures and General Catalyst have financed a $100,000 prize in the Boston area to be awarded to the best business plan related to alternative energy. The idea is to spur innovation and give the venture firms a chance to see prospective technologies and business plans ahead of other venture investors, said Wes Raffel, a partner with Advanced Technology Partners.

“It gets a lot of people competing,” Mr. Raffel said. He added, though, that it doesn’t obligate the entrepreneurs to sign bigger investment deals. “They don’t have to take our money.”

Yet Mr. Raffel, echoing concerns of other venture capitalists, has some concerns about whether more ambitious and costlier prizes make sense. His wariness is that if prizes rise into the millions, venture capitalists are going to want some guarantee that they will have an option to invest in the winner. And if a lot of venture capitalists wind up donating prize money to the same pot, that could create conflicts over who has the right to sign up the winner.

But William Woodward, chief executive of Anthem Venture Partners, based in Santa Monica, Calif., counters that the value of donating to a prize could extend beyond the guarantee of an ownership stake. Mr. Woodward, who has been approached by the X Prize Foundation about participating in its new program but hasn’t yet made up his mind, said the concept could help spur development in industries that have been sluggish because of political reasons.

“Like stem cells, which is an area I’m passionate about,” Mr. Woodward said. In general, he said, prizes, “can keep the science moving forward.”

Mr. Vander Ark said his aspirations are not just about science, but viable businesses. For instance, the foundation already has plans to award a $25 million prize for a car that gets 100 miles a gallon, but the vehicle must be in production to get the award.

The awards, he said, have an opportunity to generate press attention and buzz, and in turn to motivate a greater number of engineers and entrepreneurs than individual venture capitalists or their firms might be able to do. For the superefficient automobile, the foundation even envisions a made-for-TV road race and finale.

Somewhat like “American Idol,” Mr. Vander Ark conceded, but with at least one major difference.

“Singing, who knows? We haven’t yet lined up any musical component.”