Venture Capital: Corporates rev up their investments

General Motors joins a list of big-name companies making their own venture investments, including Google, Intel, Siemens and Deutsche Telekom. The Detroit-based auto manufacturer says it wants to nurture innovative technologies and bring them to market, and will also seek to make investments alongside other venture investors. However, there are significant differences in the way corporate venture funds operate compared to other early-stage investors.

Firstly, they are provided with funding from their corporate parents, and need not go through the trials of raising money from limited partners. This can help these funds provide the kind of financial clout not often seen among independent venture investors. It can also allow them to continue raising new capital when the economy is in recession, provided their parent company is doing well, whereas other investors may struggle to raise cash from pension funds and insurance companies.

Secondly, investment management, and particularly their approach to exit strategy, could be wildly different to those of independent funds. While a traditional venture capital fund will want to seek an eventual exit through the sale of the business, this may not always be the intention of a corporate investor. Corporate funds may eventually seek to sell their interests in a company in the usual way, through a stock market listing or trade sale, particularly where the investee's business differs significantly from the corporate's core proposition.

However, unlike an independent venture fund, corporates may also consider how the startup business fits into its own strategy and can ultimately become a part of the larger parent. Looking at the portfolio of Google Ventures, there are some companies which clearly do not have any direct fit with its core search and applications business, such as American ‘green' car maker, V-Vehicle. Other companies in the portfolio, such as web image advertising software developer Pixazza, or VigLink, which helps online publishers monetise their outgoing links, have obvious ties to Google's existing business arms. Finding strategic fits for Google itself is not the stated aim of the venture fund, but clearly there is potential for the tech giant to pick up patents and absorb some of its investments in the future.

The General Motors fund is specifically targeting automotive-related technologies. While some traditional venture investors might see its financial power, government backing and industry expertise as a threat, GM and others like it could offer the knowledge to turn an idea into a business and a different kind of exit strategy to turn seed capital into a great investment.

 

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