Corporate venture capital comes and goes in waves.

In good times, money flows easily into startups. When times turn bad, most corporate investors disappear, and the waves they create crash violently on the shore.

It doesn’t have to be this way. Corporations have the resources and potential to make venture a long-term strategic asset. The breadth of tools at their disposal – talented people, technology and business relationships – may be even put them at an advantage over traditional venture capitalists. What they lack is a map to the hidden gold mine.

In our view, finding the right direction requires a new model for corporate venture. First, it needs to evolve beyond the business cycle. Corporate venture arms must be in the business of funding strategic startups through the ups and downs. They can’t afford to turn off the spigot when bottom line pressures grow and cut adrift the seedlings they help plant. Program size must be rationalized for good times and bad.

Second, efforts must look inward as well as outward and recognize that internal corporate resources can be even more important than contributed capital. Corporate investors need to embody the notion that under the right circumstances spinouts can be a valuable alternative or complement to funding Silicon Valley’s latest fledgling startup. These spinouts can work independently or in concert with outside entrepreneurs. But they must have the freedom to experiment, even if that means cannibalizing a core corporate product. After all, if you don’t, someone else will.

This may sound quite radical. It may ruffle feathers. But you would certainly think twice if your competitor started doing the same.

Getting Started

When the desire for a venture program strikes, there are many guides to turn to for direction. Intel Capital is the gold standard for structuring a large, successful corporate-sponsored venture arm. Disney with Steamboat is a success story.

And Google Ventures is promising, if still new and unproven.

Don’t be afraid to turn your best assets loose, your ideas, people, technology and businesses relationships. Consider partnering with academia. Let a hundred seeds germinate. Find the ones worth planting.

Industry and academia harbor vast mines of innovation and their new ideas will push our economies and societies forward. Measured in untapped value, roughly $3.7 trillion of intangible assets and ideas lay dormant in industry and academia. Several times that sum in opportunity costs are lost not commercializing these intangible assets.

The Problem

Unfortunately, industry and academia often lack the entrepreneurial DNA, including the appetite for risk, the cultural heritage and the skill to convert initiatives into profit-generating new ventures. If it was easy, then a company such as Blockbuster would have found a way to marginalize Netflix and its better way of delivering DVDs. We are sure Blockbuster executives had the idea for Netflix, but few would risk their careers to cannibalize their core market.

That is exactly the mindset corporate chieftains need to cast aside it they want their companies to be limber and relevant in today’s fast moving global economy.

The Solution

The answer needs to include a new way of thinking. To us this means spinouts. Spinouts enable corporations to keep their strategic hand in the game of innovation in a stealthy way while staying focused on their core business and competencies. These entities can share risk with entrepreneurs through partnerships. And corporations always have the option to pull them in house and make them a line of business.

What they represent is a low cost opportunity to apply new solutions in the market before anyone else, enabling first-to-market advantage and enjoying the ability to increase strategic revenue streams or reduce operating expenditures.

Academia and non-profits benefit from spinouts as well, so incentives are already in place for joint development. At both universities and non-profits, commercial operations often conflict with non-profit and academic charters. What’s more, royalty revenue streams often have terrible ROIs. Academia and non-profits historically realize a less than 2% return on their innovation. Spinouts afford an opportunity to generate liquidity on research.

Making It Work

Entrepreneurship is hard and rare. Only 0.34 percent of the U.S. workforce is entrepreneurial. In order to effectively mine ideas and innovation from industry and academia, conditions must be set to reduce friction. Here are ten things to consider in making your program work:

• Research the Concept: One-off solutions are not the goal. Know that the problem you solve is endemic in an industry or industries. Know which companies would buy the venture before you start.
• Structure the License: Spin the idea out of the company.
• Create the Culture: Define and create your start-up culture.
• Recruit Talent: Build an entrepreneurial team or outsource this function to a committed partner who knows how to commercialize ideas.
• Validate Early: If the Company becomes the first customer, great! If not, find the first customer to test the product or service.
• Be Flexible: Build a commercialization plan (product development, customer acquisition, business plan and three year pro-forma) and know it will change.
• Be Lean: Figure out how much optimal capital is required to get to cash flow positive quickly and from which budget it can be sourced.
• Test the Business Plan: The product and service will never be perfect so test early and often with a customer.
• Fund the Venture: Capitalize the venture.
• Build and Share Infrastructure: Build advisory boards early and leverage administrative functions among partners.
• Go Like Hell.

This is not going to be easy. In fact it may be harder than setting up a traditional corporate fund. But the opportunity to change industries is an exciting target.

(Tom Klaff (pictured mid story) is the CEO of EIR, LLC and a serial entrepreneur who has grown and sold five companies including Surety, Reliacast and Collegetown. Ben T. Smith IV (pictured top) is the co-founder of MerchantCircle.com and Spoke.com, and former vice president venture development for EDS. Find them on Twitter @bentsmithfour and @TomKlaff. Both are graduates of Carnegie Mellon’s Tepper School of Management.)