General Motors aims to break into the venture capital business, having announced on Friday that it has created a new subsidiary called General Motors Ventures. Funded with an initial $100 million and tasked with identifying, developing and investing in innovative transportation technologies, GM’s new VC arm will have a learning curve to climb as it seeks equity stakes in companies with cutting edge tech and business models.
The venture arms of two major corporations in the IT sector — Intel, which has been investing in just about everything under the sun for nearly two decades, and Google, which launched a VC arm just a year ago — provide some cues for where GM should go from here.
The Heavyweight: Intel Capital
The venture capital arm of computing giant Intel makes equity investments in companies at any stage working on hardware, software and services targeted across a range of sectors, including enterprise, home, health, consumer Internet, semiconductor manufacturing and green technology. One of the the most active corporate venture initiatives, Intel Capital has invested more than $9.5 billion in upwards of 1,050 companies in 46 countries since 1991, including what Om has described as a “long and agonizing foray into communications semiconductor business” during the “go-go 1990s.” At least 174 companies from the Intel Capital portfolio have gone public, and 231 have merged with another firm or been acquired.
The New Player: Google Ventures
Google’s venture capital arm, Google Ventures, has been operating for about a year and has named 10 companies in its portfolio. During an event last month down at Google headquarters, executives from the VC branch said Google Ventures plans to invest at least $100 million per year in startups across various industries. They also emphasized that the venture arm intends to make returns on its investments and doesn’t plan to invest just for the sake of acquiring the startups and bringing them into Google.
Planting Seeds for New GM Businesses
Part of the overarching goal for Intel’s venture capital arm is to “drive global Internet growth, facilitate new usage models, and advance computing and communications platforms,” or in other words, support tech that could eventually — and even indirectly — boost demand for Intel’s own products and services. That’s why you see Intel investing in the ecosystem of communications and the Internet, and not just in the latest chip technology.
In GM’s case, that could translate to investments in improving fuel efficiency across the board (to help meet tightening fuel economy standards), whether through an efficient fuel injection system like the one from Transonic Combustion (which welcomed former GM exec Bob Lutz to its board recently), or efficient motors from EcoMotors. Investing in advanced battery technologies could potentially lower the cost of plug-in cars like the Chevy Volt. And new business models for providing mobility as a service (i.e. alternatives or additions to personal vehicle ownership like Daimler’s Car2Go car sharing network) could help GM diversify into services.
There’s also growing pressure for car makers to master the connection between vehicles, mobile phones and the web (through partnerships with companies that are controlling the mobile ecosystem, for example) which could help it bring in revenues via information and entertainment services.
Working With Partners & Co-investors
Earlier this year, Intel CEO Paul Otellini announced that Intel Capital had put together a new $200 million investment fund aimed at “key innovation and growth segments such as clean technology, information technology and biotechnology,” and that it had brought in 24 VC firms (including Kleiner Perkins, Menlo Ventures, Mohr Davidow Ventures, New Enterprise Associates, Draper Fisher Jurvetson, Khosla Ventures and North Bridge Venture Partners) to invest a total of $3.5 billion over the next two years.
As Liz has pointed out over on GigaOM, one of the best ways to garner a Google Ventures investment is to work with one of the two VC firms that have closely aligned themselves with Google: Kleiner Perkins and August Capital. But as the saga of V-Vehicle (a startup that basically bet it all on a federal loan that has not come through to build a high MPG car with a plastic shell) illustrates, following along with Kleiner Perkins’ greentech investments isn’t always the best move.
Woo the Innovator
If GM wants to lure in top innovators working on technology for next-gen cars, another cue from Google Ventures might be worth taking: Put entrepreneurs first. Liz reported in her piece, What Entrepreneurs Should Know About Raising Money from Google Ventures, that ”Google and its M&A team would prefer to keep their prize deals out of the hands of competitors, but Google Ventures is mandated to help its entrepreneurs first.”
Prepare to Lose (Sometimes)
The Google Ventures team also said it will be aiming for better-than-average venture capital returns, meaning they hope more than one out of every 10 investments will make money. But as Katie has explained (in this analysis of Google Ventures’ investment in V-Vehicle) going out of its way to operate as a VC fund and investing large sums outside of its core competency (the web) means Google Ventures — like other VCs, and like the new GM Ventures — will have to brace itself for those other nine startups that merely break even or lose money.
Given GM’s heavy backing from the federal government, it will face heightened scrutiny for any losing or particularly risky bets. As a company that has just repaid $6.7 billion in federal loans, and in which the government still owns a 61 percent stake (acquired through the conversion of $43.3 billion in loans), GM will have to walk a fine line taking calculated risks to align itself with auto innovators and gain access to cutting edge technology without igniting public ire.
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