Thriving Under Corporate Clout 
Large companies go on a funding spree to get their small competitors' cutting-edge ideas. 
By Jenny C. McCune
for Office.com

June 29, 2000 - Big names from the high-tech sector are joining the venture capital ranks.

Companies such as Hewlett-Packard, Oracle, Siemens, Lucent Technologies, and Intel have set up corporate venture funds. They're making offers that smaller competitors can't refuse: big bucks, marketing clout, and more.

"It's not just money; they're acting almost like a mentor to us," says Robert Fischer, vice president of marketing for Dallas-based viaLink Co., an application service provider in the food retail industry, which has received funding from Hewlett-Packard.

Although corporate venture funds have existed for close to 30 years, Jeanne Metzger, director of marketing at the D.C.-based National Venture Capital Association, says they have multiplied in the last two years as the returns on venture investments have jumped, and corporate giants have been looking for ways to develop new products and services through the companies that they invest in. 

According to NVCA figures, corporate venture capital firms invested $7.9 billion in 1999, up from $1.4 billion in the prior year. Although this represented a mere 16 percent of the $50 billion venture capital pool last year, it's a sector of the market that continues to grow rapidly.


      
"Everybody's getting into venture capital because there's so much money to be made," says James Canouse, senior vice president of Technest.com, the incubator arm of Atlanta-based venture capital and investment banking firm J.P. Carey Inc.
Corporate Venture Players
Siemens Mustang Ventures
Lucent Venture Partners
Oracle Venture Fund
Intel 64 Fund
   
   

"Corporations know the value of partnering with companies that can help them strategically and give them a return as well," adds Dorothy Langer of Langer and Co., a Boston consulting company that helps businesses develop strategic alliances and mergers and acquisitions.

The investments tend to focus on companies in high-return fields such as technology or biotechnology - the same pool of start-ups that regular VCs invest in. 

  

How Sweet It Is
Santa Clara, Calif.-based Siemens Mustang Ventures - one of three VC funds set up by electric and electronics engineering giant Siemens - is pretty typical of the corporate VC breed. It was originally capitalized at $300 million, of which $100 million was used during its first fiscal year. It now has about $200 million invested in 30 companies, 80 percent of which are in Silicon Valley. The rest are elsewhere in the United States, Canada, Israel and Europe. 

"We established Mustang Ventures in order to have access to emerging technologies that could complement Siemens Information and Communication Networks," says Bjoern Christensen, president and CEO of Siemens Mustang Ventures. "Siemens has very good engineers, but we saw that a lot of innovation was being created outside the company. We need to stay on the cutting edge. We can open many doors, whether it is access to global distribution channels or access to R&D resources. We advise. We nurture. We focus on support."


Next page: Pluses and minuses of corporate venture capital
   

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