Google has a bevy of side projects and now there's another one: A reported $100 million venture capital fund.
This is Google's effort to take advantage of our resources to support innovation and encourage promising new technology companies. By borrowing the best practices of top-tier, financially focused venture capital firms and bringing to bear Google's unique technical expertise and brand, we think we can find young companies with truly awesome potential and encourage their development into successful businesses.
But the most interesting comment came from venture capitalist Fred Wilson in a terse post he says:
I don't think corporations should be doing venture capital and I don't think Google should be doing it.
The discussion was picked up on the Enterprise Irregular mailing list and the following points surfaced:
- The track record of corporate VCs hasn't been great.
- Corporate VCs don't necessarily compete with VCs overall in deals.
- Institutional investors are questioning the value of venture capitalists and Google's move could be seen as an endorsement.
The larger question is whether Google would be better suited spending its money elsewhere.
Big companies start venture capital units to help keep their competitive edge. Perhaps the most notable example is Intel, whose VC unit has invested in such entrepreneurial success stories as Red Hat, the North Carolina software distributor, and WebMD, the online medical-information company. But others have launched corporate venture capital units as well, including Comcast, Johnson & Johnson and UPS.
Corporate VC units aim to help their parent companies find highly profitable new projects, spot promising technologies before competitors do, and collaborate with the best new thinkers in their field. But to score these kinds of wins, companies must organize their VC efforts with an eye to the delicate balance between entrepreneurial finance and organizational reality.
The problem: Corporate VCs don't have skin in the game and can't profit from the investments. Ultimately, talent leaves.
That point is notable especially for newbie corporate VC funds. Intel Capital is one of the most successful corporate VC funds around, but it's unclear whether investors would have really wanted a one-time of dividend of $7.5 billion. Consider:
- Intel recorded a $200 million impairment charge on its VC portfolio in 2008.
- Intel has invested more than $7.5 billion in 1,000 companies with MySQL, VMware, Clearwire, Landesk, JBoss and Red Hat among the most prominent.
Over time, Intel Capital has arguably successful. But would you have rather had that $7.5 billion invested as a dividend?