The X Prize as a Model for Venture Capital

Behind the Prize at the X Prize: A New Model For Venture Capital

At a time when many people are saying the traditional venture capital model is broken, an influential Internet pioneer has developed a fundamentally different concept for investing in innovation.

San Diego resident Lee Stein explained his concept to me in a long conversation last week. He already has given shape to his idea in the form of Prize Capital, an investment firm he founded in 2006 in Del Mar, CA. Last week, the X Prize Foundation identified Prize Capital as the firm that put up the $25,000 award for the “What’s Your Crazy Green Idea?” contest won by a pair of U.C. Irvine students. But Stein says that wasn’t a true test of the Prize Capital model.

“We sponsored the YouTube prize because it gave us the opportunity to formalize our relationship with the X Prize Foundation and YouTube—and to watch and experiment with online marketing of prize ideas,” Stein says.

Establishing an incentive for “crazy green ideas” also reflects Stein’s personal passion for using innovation to help the environment. He is particularly alarmed about global deforestation, and says, “We are living in the era of greatest extinction since the time of Noah.” His environmental ideas are evident at Prize Capital, but before detailing those, a bit of background.

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