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Summary:

According to the Wall Street Journal, Google may be trying to build out a corporate venture capital arm similar to other strategic venture groups at companies ranging from Intel to Motorola. The Journal reports that Google SVP David Drummond will be in charge, and that the […]

According to the Wall Street Journal, Google may be trying to build out a corporate venture capital arm similar to other strategic venture groups at companies ranging from Intel to Motorola. The Journal reports that Google SVP David Drummond will be in charge, and that the search giant has hired 33-year-old former entrepreneur and investor William Maris to help.

Since Google already invests in plenty of companies, from Current Communications to 23&Me, the genetic information company run by Sergey Brin’s wife, I don’t think this news it terribly new or exciting. It also has a program in place for clean and renewable investments as part of its philanthropic arm. And so far, its track record as an investor has been unproven or weak given issues faced by portfolio companies. Current faces lackluster BPL use, Meraki is trying to stay relevant and electric vehicles are still far out there.

When a company sets up a venture arm it needs to decide if the investments it makes are part of a money-making effort similar to the way Intel now invests its capital, or to push product lines or ideas. Google already invests in companies to further its technology goals, so it may be looking for a strategic arm to create financial returns.

The downside of setting up a formal investment arm is that investing in startups is a long-term effort and many public companies are driven by short-term results. In tough times, it can be hard to write down the value in the portfolio, as Dell and Boeing discovered after the crash. They have both discontinued their strategic investment groups.

Update: To create a successful strategic investment group a company really needs to focus, something Google has not historically done well. If the goal is to complement and push Google’s technology efforts, the comapny needs to figure out what those efforts should be, and ferret out the best startups in that sector. If the fund is motivated by returns, then Google will need to temper its desire to only get involved with the best, the brightest and the hottest items right now (You know like accepting a $17,000 a year daycare instead of $30,000), because valuations on those deals can be sky high. I’m not terribly optimistic that Google has the discipline to handle strategic investing, or even if it really should.

photo of David Drummond courtesy of Google

  1. If Google uses the same old strategy used by Intel, Dell and Boeing, they might end up with the same results as the old ones – because Walls Street mainly works on short term profits.

    It might be better for google to use its investment arm to focus on emerging markets and identify strategies (eg. Grameen Bank) that have the potential to be a killer idea.

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  2. Thing I don’t get is how does Google plan on exiting these investments (if it truly is a VC arm then exits would matter), and how will the market treat some of these investments.

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  3. [...] I was interested to see that there’s talk that Google will be launching a corporate VC arm. Google’s got a history of doing things well, so we’ll see if they can make it work. But I [...]

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  4. You wrote: “The downside of setting up a formal investment arm is that investing in startups is a long-term effort and many public companies are driven by short-term results. In tough times, it can be hard to write down the value in the portfolio, as Dell and Boeing discovered after the crash. They have both discontinued their strategic investment groups.”

    And you wrote: “I’m not terribly optimistic that Google has the discipline to handle strategic investing, or even if it really should.”

    I am quite surprised to read this. Google has always said that they don’t do anything for simply short term profits. They have repeatedly said that they are in it for the long haul and don’t worry too much about short term profit and loss. Google is yet to monetize some of their most famous acquisitions such as Youtube, Grand Central and Android. Yet, these are extremely important strategic acquisitions. I’d say the same about what Google is attempting to do in the energy sector. So, I don’t know why you are not optimistic about Google’s strategic investing.

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  5. [...] Google Eyeing a VC Arm? Speculation is high that the company will create an investment unit; till now the company has made numerous investments, including $5 million to Chinese P2P company Xunlei. (GigaOM) [...]

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  6. [...] — and Google — are, in many ways, acting like VCs. But unlike traditional investors, these companies are [...]

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  7. [...] millions upon millions of dollars down the drain on dot-bombs. As Stacey Higginbotham of Giganotes points out Thursday, Dell (DELL) and Disney (DIS) had such a devil of time winding down their venture [...]

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  8. [...] By Liz Gannes May. 3, 2010, 1:25pm PDT No Comments      0 Google — a year into operating its venture capital arm, which now counts 10 companies in its portfolio — [...]

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