AOL’s newest employee perk: VC funding for your startup

From dial up to start up
From dial up to start up
Image: AOL
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AOL, a tech name from the past, thinks it has the key to the future.

The Internet pioneer is giving employees and prospective hires a chance to launch their own startups within the confines of AOL. Candidates will create business plans and pitch them to AOL executives and the venture capitalists the company backs. The winners will be given funding and up to six months to develop their projects.

William Pence, AOL’s chief technology officer, says the best ideas to come out of the incubator will either be incorporated into the company’s existing business lines or, if they’re big and ambitious enough, stand alone as new ventures.

The idea was to use the rigor of the venture capital funding process to create an internal engine for innovation. ”We wanted to do something that’s a little different than creating a sandbox and letting people go play in it,” Pence says.

Pence didn’t disclose how much AOL will spend on the effort, which it’s calling “Area 51.” But once it’s up and running, he says, it could fund as many as 10 projects.

Planning for the future while delivering in the present is one of the trickiest problems companies face. Devote too much time and attention to innovation and you risk taking your eye off the ball; spend too little and you may soon find yourself obsolete.

Paradoxically, the more productive a company is in the present, the less focused it is on the future. Vijay Govindarajan, a professor at Dartmouth’s Tuck School of Business, calls this the “success trap.”

“The performance engine is too powerful,” he says. “The focus on preserving it is too intense.”

This hasn’t been a problem lately at AOL, which barely survived its disastrous merger with Time Warner in 2000 and was acquired in 2015 by Verizon for $4.4 billion. But the company now has a viable business in ad technology and owns a clutch of media sites like Huffington Post and TechCrunch. And it still has a legacy email service with 2 million subscribers.

Few companies are great at managing both the present and future, Govindarajan said. Google famously created Google X to work on “moon shot” projects, while other have walled off research labs. While that can work for truly new technologies, like the quantum computing initiatives at IBM, Pence said, too often those teams labor in isolation and can fall behind current industry trends.

For AOL, the Area 51 project has multiple goals. Along with developing new technologies and businesses, Area 51 is designed to be a recruitment tool. The company wants to attract bright young engineers from top universities, and it’s competing with more glamorous companies, like Google, which is a recruiting juggernaut across its many businesses.

“Our problem is getting that first look,” Pence says. “We see this as a way to change the narrative.”