We'll Call It the "Don't Be Evil Fund"
Sounds like another one of those poorly conceived “20-percent time” projects, doesn’t it? Historically, corporate venture capital portfolios have a very mixed record. There are the adepts of the discipline–Intel Capital (INTC) and Johnson & Johnson Development Corp. (JNJ), for example–that have done well for their parent companies. And then there are the maladroits like Dell Ventures (DELL) and Applied Materials Ventures (AMAT) whose crowning achievement was their ignominious retreat from corporate VC in 2005. A risky and often thankless proposition, running a corporate VC shop. “… Venture investing is not the best use of a corporation’s capital,” says venture capitalist Fred Wilson. “It is inevitable that it will produce sub-par returns at best and significant losses at worst.”
So why bother? Well, if you’re a company that takes the long-term view, as Google (GOOG) does, you’re likely more concerned with long-term strategic goals than short-term financial ones. So why not take some of the vast wealth you’ve accumulated in pursuit of those long-term gains, invest it in some start-up’s new ideas and innovations and incubate them–short term? The start-up company might be the next you, right? And if it is, you acquire it (presumably, your VC investment deals include first-acquisition rights). And you do so at a price lower than the one it would fetch after taking funding from traditional VCs. Then you bring the Google hive-mind and infrastructure to bear on the start-up’s innovations and bring them to market or use them to enhance your own product and services.
If the start-up turns out not to be the next you, you don’t follow up on your initial investment–saving yourself the grief of a dud acquisition.
Essentially, you transform the emerging technology market into one vast Google Labs from which you have pick of the litter. How’s that for a 20-percent time idea?
[Image Credit: VC Wear]