The company has a promising technology, one that has the potential to significantly alter the competitive landscape of the industry. The big guys know this, and they smartly invest in the startup to make sure that if it actually works, they'll have a piece of the action. Call it a hedge, and on the face of it, what's not to like?
Well, there is something not to like: the owners! At Hulu, which just stepped away from a sale that would have enabled lots of people to monetize their investments and sweat equity, major shareholders like News Corp., Walt Disney Co., and Comcast nixed all sorts of exit options. Holding onto their stake, just in case – the hedge – makes sense, but the real risk when the boardroom is loaded with interested parties is that they'll vote the interests of their own business, and not the start-up's.
For business history buffs, take a look at General Magic, a company I recounted in my book Why Smart Executives Fail. As you might remember, it was once Apple Computer’s top-secret company designed to attack the PDA market. Just five years before the company’s 1995 IPO, General Magic had raised $90 million in venture capital from top consumer electronic and telecommunication companies. The Apple connection opened the door for other investors, which included Sony, Motorola and AT&T. Although the PDA market was crowded, General Magic had the best and the brightest, but in the end turmoil and conflicts of interest among board members/investors derailed the company and it folded in 2002.
Will this happen at Hulu? Hu knows? But News Corp. et al. may look back on their decision not to sell and rue the day.