It sounds like the beginning of a bad a joke, but a software developer, law firm and marketing agency got together and they recently formed an incubator aimed at the broader enterprise solutions market.
The Los Angeles-based investment group, called O Labs, is the result of discussions that lasted for more than a year among three national companies: software developer and product design company Originate; law firm Manatt, Phelps & Phillips; and talent and literary agency ICM Partners.
The strategy is simple: O Labs will invest in and take a majority stake in three to five companies annually that are developing some sort of enterprise solution unique enough to eventually attract the attention of a buyer.
"I think we have something really unique here," Originate CEO Rob Meadows told CRN. "It's an exciting opportunity."
O Labs already has one portfolio company in Versus Gaming Network, a system that helps gaming developers monetize their work.
Versus was co-founded by Brandii Grace, a developer who approached Originate during one of its hackathons, and O Labs CEO Matthew Pierce.
O Labs isn't saying how much it invested in the product, except to say it was "considerable" and dozens of people worked on it over the past six months. It's expected to come to market this month.
"For us [Versus] is a good example because if you know anything about that space, it's highly regulated. For us to enter that relationship at the ground floor and structure it with the regulations at the forefront rather than somebody coming to us and saying, 'We have this cool company,' to do it in the proper sequence, is better," said Manatt Partner T. Hale Boggs. "It creates a company with better prospects and de-risks that company for future investment."
The entity's investment committee is set to meet soon to discuss O Labs' next venture. Four ideas already have been presented, including a cloud-based HR and staffing platform, and a financial and regulatory compliance product aimed at commercial banks.
The joint venture is unique given the seemingly different industries the three founding entities swim in, but the concept makes perfect sense, Originate Partner and CFO Jeff Scheinrock told CRN. Scheinrock is also a member of the O Labs Investment Committee.
"We [at Originate] realized early on that we had the expertise for software development, design, product management and business strategy," Scheinrock said. "But what we lacked was the legal expertise … and a lot of our portfolio companies were spending a great deal of time and money finding an expert in legal. In addition, we felt we lacked the branding and marketing, and that was not our expertise."
O Labs portfolio companies can tap the expertise and talent of a 140-strong Originate team and the roughly 450-person team at Manatt, along with the resources of ICM.
Unlike other incubators or an accelerator program, O Labs does not set certain time limits on its portfolio companies to launch a product and does not have a preconceived amount of money or resources it intends to allocate to companies.
"O Labs is not for everybody. We get in early. By the time we're ready to go out and raise outside funding, it's not a concept," Scheinrock said. "The valuation of the companies coming out of O Labs is significant, if we do our jobs correctly."
PUBLISHED AUG. 1, 2014