Alphabet gives startups a lesson in financial management

Google's Andrew Conrad

Last month, Alphabet ($GOOG), née Google, said that it would give its new businesses plenty of breathing room as part of its reorganization, allowing startups including its Life Sciences division the freedom to operate more independently. But Alphabet also wants to make sure that its fledgling companies can bear the load themselves, so it's offering them a lesson in fiscal management.

"After a period of big expense build up, there was an appreciation that (the company) needed to manage the cadence of spend," Alphabet CFO Ruth Porat said in an October earnings call, as quoted by the WSJ. So the company is tightening its purse strings and changing the requirements for its startups.

Alphabet is planning to make "bet" companies such as Google Life Sciences and Google X more accountable internally by requiring them to pay for corporate services such as computing, recruiting and marketing, people familiar with the matter told The Wall Street Journal. The hope is that the tactic will not only lead to more cautious spending but also more self-sustaining projects.

For example, if companies such as Life Sciences want to use their own recruiting team and hire from elsewhere at Alphabet, they won't get access to the company's internal-transfer network, the WSJ reports. And Alphabet will charge bet companies based on an estimate of what they would pay to get the service somewhere else.

The company is also grooming startups for life as standalone companies, creating financial statements that can be audited for each business, which could make it easier for them to spin off or separate from Alphabet in the future, according to the WSJ.

The move comes almost two months after Alphabet rejiggered operations at Google, becoming the parent company to the search engine magnate and other businesses including Life Sciences. Life Sciences in particular has been forging ahead with business, partnering with med tech giants on a slew of innovative projects and poaching top talent from key healthcare organizations to support its rapid fire expansion.

Earlier this month, Life Sciences announced that it would team up with the American Heart Association to research heart disease, funneling $50 million over the next 5 years into the initiative. The group also recently hired Dr. Thomas Insel, former head of the National Institute of Mental Health, to spearhead mental health med tech innovation.

The new structure for startups could boost business further down the line, Life Sciences CEO Andy Conrad said last month, as more autonomy translates into less competition for Alphabet's time, resources and talent. "It's going to get a little faster, more efficient and more independent," Conrad said.

- read the WSJ story (sub. req.)

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