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Innovation is the primary driver of global growth. Often companies themselves can be built on the concept of one good idea. Yet for big business, research and development can often be hindered by the corporation itself. Sometimes it can comes down to inefficiencies in the tools and processes. In some cases, a company's focus and resources may even be dedicated to processes that are not suitable to spur the company forward to their next evolution.

However, it's no secret that larger companies still value the idea of innovation. Reputable names such as 3M Co. (MMM), Hewlett-Packard (HPQ), and Google (GOOG) are well known for their policies of directing their employees to spend time specifically toward that very goal. We know that at least for Google, this is how valuable concepts such as Gmail, Google Earth, and Gmail Labs came about. So whether it be 3M's 15 percent program or Google's 20 percent copycat, the willingness of large corporations to dedicate such a large amount of resources to the cause emphasize the value of innovation.

Having said this, it bears considering that finding companies that specialize entirely in enabling others to innovate can be a very valuable concept in itself. Therefore let's take a look at two small public companies that are rapidly growing on this very "innovative" platform. These companies are Intermolecular, Inc (IMI) and Solazyme (SZYM).

Company NameMarket Cap (6/13/12)Price-to-Book RatioIndustry
Intermolecular$277.52 Million3.43Outsourced Research & Development
Solazyme$754.08 Million3.28Renewable Tailored Oils

Intermolecular

Founded in 2004, Intermolecular recently went public on November 18, 2011 when it raised $96.5 million in what was seen as a weak IPO outing. The company offers what it calls "high productivity combinatorial" (HPC) technology products and services. Its business model revolves around the pursuit of paid collaborative development agreements (CDPs). In layman's terms, the company specializes in pursuing joint research projects with large companies and offers a means to innovate more efficiently than they're able to do on their own.

The company currently boasts that it's able to speed up the research & development process by 10 to 100 times. It's able to do this because its underlying process allows for up to 192 experiments on a single substrate as compared to the traditional method which only allows for 1 on a given test run. According to the company's S-1 filing, this competitive advantage is protected by Intermolecular's vast IP portfolio in which it boasts owning or having access to over 577 U.S. patents as of July 15, 2011. For the moment, the company specifically focuses on recruiting large semiconductor and clean energy partners who operate with high-volume operations and high-growth potential.

What makes this company unique from an investment standpoint is the value proposition it offers to investors. Intermolecular enters into agreements with companies who pay them in order to participate in the CDP. This provides a consistent and defined revenue stream. The company has engaged in CDPs with reputable names such as SanDisk (SNDK), Toshiba, Guardian Industries, and most recently First Solar (FSLR). More importantly, the company arranges for royalty-bearing licenses on resulting developed technologies. While dependent on the ability of the partner company to successfully market its products, these royalties could be truly lucrative for breakthrough developments.

Solazyme

Founded in 2003, renewable oil innovator Solazyme is a little over one year out from its initial public offering on May 27, 2011. The IPO was largely considered a success for the company, which netted $227 million, an amount that surpassed pre-IPO expectations. The company utilizes a unique process using algae that grows in the dark inside standard fermentation equipment to create chemically-identical oil replacements. More importantly, it's developed the biological tool kit and the capability to tailor customizable oil profiles that are fit to industry and are often not obtainable by conventional means.

Most recently, the company announced the ability to create an oil profile that completely eliminates polyunsaturated fatty acids - a feat believed to be impossible through seed oil producers. While its triglyceride oils can be used to replace everything from petroleum to animal fats, the ability to innovate new oils into existence has opened the door for an interesting array of partners across the market spectrum. Companies like Dow Chemical (DOW), Chevron (CVX), and Unilever (UL) are already supporting joint research agreements that are believed will eventually result in deepening ties. Likewise, Solazyme already maintains joint ventures with Roquette (a large French starch company) and Bunge (BG) for the production of innovative food products and renewable chemicals, respectively.

What makes Solazyme a very impressive growth investment is its ability to offer unique solutions to existing industry and simultaneously offer a launching platform for innovation to big business. On the one hand, Solazyme's unique process adds value to existing markets. For example, it adds yield consistency to agricultural oil production, "green" and "renewable" attributes to fuel production, and even introduces much greater market flexibility to sugar producers. Yet on the other hand, Solazyme's flexible ability to innovate tailored oils opens an unfathomable new market potential for large corporate partners. This is why Unilever is pursuing tailored oil research and Dow is willing to deepen its ties with the company by buying millions of gallons of the company's oils.

Conclusion

One thing that remains consistent for both these companies is their ability to work even closer and profit more effectively with large companies who could otherwise serve as an advantaged competitor. Seeking collaboration rather than competition, both Intermolecular and Solazyme entice choice partners who can effectively market products in a way that these companies themselves would not be able to do. More importantly, both have developed a means to effectively profit off these companies while Intermolecular and Solazyme go about redirecting their own resources towards another technology improvement or target market. Such innovation collaborators offer a very long-term and lucrative potential that should not be overlooked by speculative growth investors.

Disclaimer: Please refer to my standard disclaimer located here.

Source: 2 Small Companies Helping Big Business Innovate