In the business world the quest for unicorns is well underway. Coined in 2013, the term describes start-ups valued at more than $1 billion based on the potential of their nascent technology and intellectual property rather than on market performance. Early stage investment or participation in unicorns offers large investors the opportunity to secure a stake in potentially game-changing innovation. It also offers other large businesses the opportunity to cut through the inertia and organisational sclerosis that often comes with scale and corporate structures. Competition for access to truly innovative development has intensified, and with that competition traditional distinctions between investment, acquisition and joint venture have become blurred.

UK-based virtual reality start-up Improbable has secured second-round funding in excess of £400 million. A significant part of that investment came from Japan's Softbank. Significantly, and consistently with the key findings of Bond Dickinson LLP's May 2017 report Close Encounters: The power of collaborative innovation, Softbank's investment in Improbable has secured a minority stake in the fledgling business rather than outright acquisition. Improbable certainly qualifies as a unicorn. Its SpatialOS technology, which enables the creation of massive simulations or virtual worlds is still in beta mode and has not been publicly launched. The company has never revealed its financial position.

So what is in it for the parties?

Taking a minority stake in the business gives Softbank direct access to the (hopefully) rapidly appreciating value of its technology and intellectual property. Crucially, it also brings the right to appoint Softbank's Deep Nishar to Improbable's board of directors. Taken together, those elements demonstrate that Softbank was not looking for a passive investment. Rather, its objective is to seek applications through its broader commercial networks for SpatialOS, taking it far beyond the world of gaming for which it was created. Commenting on the deal, and on Improbable's harnessing of distributed computation, Deep Nishar said: “Improbable’s technology will help us explore disease, improve cities, understand economies and solve complex problems on a previously unimaginable scale".

Taking a minority stake also serves a further key objective – retaining the expertise and commitment of the founders. It marks a significant departure from the IPO culture that characterised the 1990s, and also from more recent phases during which grow-and-sell emerged as a common exit strategy for entrepreneurs. Arguably, intensifying competition between large investors and other businesses for access to innovation is now driving investment at a stage when loss of key personnel and expertise would create an unacceptable risk of being left with underdeveloped technology and massively overvalued intellectual property. Taking a minority stake in a business that remains private and unlisted offers a far greater degree of control over the timing and direction of any subsequent share sales, and leaves a high degree of operational control in the hands of the founders.

There are other benefits for the minority stakeholder. Recent research[1] strongly suggests that the sharing of board members across companies can have important effects on companies’ innovative and patenting activity. Shared directors serve as a channel for the transmission of information across companies.