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.
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.
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.
They're at least responsible for a large chunk of ML research, which is directly to directly improve their products (Maps, Photos, YouTube, etc.).
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.
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.
That has been their get-out-of-jail-free card since, well forever.
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."
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.
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.
https://en.m.wikipedia.org/wiki/Pokémon_Go
Niantic was spun off from Google.
I would not be so dismissive of it -- there are good reasons to have separate companies. You can offload some risk by getting co-venture (as in Waymo's case.) More importantly, you can have other critical partners be co-invested with skin in the game. In the case of Waymo, if I were trying to raise funding, I might get money from P&C Insurance companies -- it could help align great future partnerships that make 1+1=3.
Employees of Google that work on GoogleX projects that graduate no longer technically work for Google, but for the new company and they no longer receive Google shares, but new company shares (in this case Waymo, Loon is another example [0]).
This forces the company and employee incentives to be aligned since the value of the employee equity is tied to the success of the specific GoogleX project and not Google itself.
When a company graduates if a lot of employees don't want to stay on the project and choose to stay at Google, that itself might be a bad sign (though it could also just be employee risk preference).
I think companies graduate when they're less pure R&D and closer to marketability. If they can't survive on their own at that point it may be because there isn't a market, the timing isn't right, or any other reason that can cause a startup to fail.
This system prevents Google from pouring money into something that's never tested in an environment where it can actually fail. It puts moonshot projects in an environment where they're truly tested and don't just become places where money is spent without any ability to measure success.
It's my understanding that graduated companies have their own hiring methods and can make their own independent decisions in general. They would also need to raise their own money.
[0]: https://loon.com/