It's really like the big company is outsourcing their R&D. The alternative would be to run dozens of experiments internally. Since most companies don't have the people power to do that, it's cheaper to just wait until a startup appears that solves their problem, or wait until they're successful enough to validate a market.
I've seen the head of a business unit in my large organization not so subtly hint to a Director that Problem X is something that we need to solve in the next 18-24 months, but we don't have the budget properly allocated to do it ourselves.
Lo and behold the Director shortly leaves the company to found a startup aimed at solving Problem X. Eighteen months later we buy them, aquihiring back the director and some engineers who left with him to start the startup.
The head of the business unit knew he couldn't get the approval from the board to solve Problem X, so he basically outsourced the risk and in the end the director and his engineers ended up with a nice chunk of change and their old jobs back.
That's pretty much how a lot of medical R&D happens. A lot of startup don't even bother trying to go market and big companies are cutting down on R&D. One consequence of this is that the big players get more and more entrenched and a lot of regulation is customized to their needs.
In tech it's also pretty sad that small startups with a good product still don't feel that they can make it on their own but instead prefer to be bought up by a bigger player who then shuts down their product.
A good team that ships product is still extremely valuable, even if it had no product-market fit. If you can aquihire them and put them to work on new ideas, it's still much less risk vs. having to bootstrap a team from scratch.
So, VCs are essentially funding speculative R&D, and big companies are buying successful results? This view sounds consistent and reasonable. Thanks for putting it this way.
That's actually exactly what is happening in the market. R&D budgets at big companies are nothing in terms of market value when compared to small companies.
To put a little wrinkle in it, it's both big companies outsourcing R&D to pick from the winners, but also tax payers subsidizing the R&D through R&D tax credits.
