Corporate venture capital, according to many, constricts innovation rather than foster it. I’m inclined to go with the view particularly as speculation mounts again about search giant Google launching a venture capital arm called Google Ventures. The Mountain View, California-headquartered search giant has not yet confirmed these news reports.
No matter how it is packaged, the venture investing model followed by the likes of Intel, Cisco Systems and Motorola ultimately exists to serve one purpose — incubate external tech labs with the objective of either absorbing those emerging technologies within the larger company or to simply arrest the growth of a competitive technology. Either way it is about protecting the competitive advantage of the larger company. There is nothing wrong with this, especially if it affords a profitable exit route for startup founders. But, it can also lead to innovation being driven by and therefore restricted to the sole interest of one large player.
Google’s intentions, if it does set up a venture capital arm, will become clear from the source of capital it chooses for its investments. If it goes the proprietary way, which means that the money that it invests in startups will come from its own balance sheet, it is clearly going with the Intel model. But if it decides to raise money from third-party investors, not only would that augur well for startups, it would also spell interesting times ahead for the venture capital industry.
Incidentally, the Indian venture capital market has been the first to get a taste of the search giant’s venture ambitions. In January 2007, it invested in Seedfund, a Mumbai-based seed investment firm — Contentsutra post. The next month it announced a similar investment in Bangalore-based seed investor Erasmic Venture Fund (now known as Accel India) — Economic Times article. Then in July the same year, it invested $3.75 million in Ventureast Tenet Fund II — VC Circle post. Finally, in December 2007 it joined a host of other institutions as one of the investing members of the New Delhi-based Indian Angel Network.
There is probably something to the speculation about Google’s formal foray into venture capital — the Wall Street Journal was the first to report on this last July — and it may do so sooner than later. The activity in India so far is certainly more than testing waters.
Update: Google has launched its much-speculated and anticipated venture capital arm Google Ventures, led by Bill Maris and Rich Miner. No corpus has been announced yet though the Wall Street Journal reports that it will commit about $100 million over the next year. The venture capital arm is looking to invest in “startups in industries including consumer Internet, software, hardware, clean tech, biotech, healthcare and others,” says the website’s FAQ section. Investments will range from “seed funding to tens of millions of dollars.”. Read more on what Maris and Miner have to say about the firm at the Google blog.
