Google's Entrance Into Venture Capital

This has been rumored for quite a while now. I don't think corporations should be doing venture capital and I don't think Google should be doing it. Here's what I said last July on the subject. Nothing has changed in the past nine months to make me think differently.

That said, I welcome Google to the business, wish them luck, and hope we find something to do with them.

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#VC & Technology

Comments (Archived):

  1. Richard Forster

    Hey Fred I’m interested in your view on whether you think they will get many quality internet start ups approaching them. Personally I think there is too big a conflict of interest.

    1. fredwilson

      That’s a real issue for sure but I don’t want to “trash a competitor”They bring real advantages tooI think we should take a “wait and see” attitude on this oneBut as a google shareholder, I don’t think this is a good use of their capital

      1. Richard Forster

        Sorry I didn’t want to put you in the position to “trash them”. If rock solid chinese walls were in place I’d agree they could bring a lot to the table. There could also be too much pressure on the start up management to utilise everything Google has to offer, which may not always be the best option.I was part of a start up a few years ago that was part funded by the venture arm of a well know firm of management consultants and we were constantly under pressure to use their services, which (cost apart) was often not in the best commercial interest of the company.

        1. fredwilson

          I think I may have mentioned that in my original post. Corporate investors can be a real hassle

  2. Phanio

    Have not heard that Google is getting into your business until now. What is their true plan? Is it to grow businesses for high return (a new value add for their shareholders) or are they looking to fund companies that they can absord?

  3. BmoreWire

    I believe AOL was a VC investor in and it seemed to have worked out well for both parties.

    1. fredwilson

      It can work but do you want your buyer to be in your board room?

      1. BmoreWire

        I wasn’t in the board room and I’m fairly new to this stuff so I don’t know. Nobody from AOL was on the board but they were investors I believe. I’m not sure of the magnitude however, but I do remember them on the old website as an investor (no mention of them on the S-1, however). What is the detriment in having a potential suitor investing (especially if they are not on the board)? Is it possible to manage this? Any rules of thumb?

        1. fredwilson

          Keep ’em out of the board room and keep their ownership below 20pcnt and ideally below 10pcnt. Don’t give them a rofr or a rofo or any say in an exit.Those would be my top threeI’m very negative on this subject right now. Its a bad idea in most instances to take corporate money

          1. David Semeria

            Are there really no circumstances where a corporate partner can be useful?

          2. fredwilson

            There certainly are but remember that a corporation is not a person and you can’t deal with them the way you can deal with me and my partners

  4. markslater

    well there is certainly many a tombstone from the last bubble (and i dont mean deal tombstone). All the carriers were in last time, all the cable operators, most of the enterprise software vendors (oracle etc). Dont recall a consumer brand that did this though fred?

    1. fredwilson

      Did what exactly? Invest in startups?

      1. markslater

        yes – or formed an investment vehicle that was semi / autonomous to the brand.

  5. Diego Sana

    this morning when i saw it on the news i was wondering what was your opinion about Google Ventures. Glad to realize you already talked about it, i`m going to read now 🙂

  6. Jonathan Deamer

    Love the discussion that’d developed here! Fred – wondered if your thoughts on corporate VC also apply to things like the CIA’s in-house VC firm, In-Q-Tel.…What do you reckon about it in general?

    1. Andrew

      In-Q-Tel is significantly different than corporate VC, and traditional VC, and I think in a positive way. My own observation having seen them work in a few different contexts is that they are a re-imagining of DARPA-style research projects, and that they put more weight on exceptional technology and less on the business side of things than a conventional VC. This is complemented by being one of most technologically savvy VCs out there, with a deep bench of very smart theory people at their disposal.The upside is that they will invest in technology-focused ventures that most VCs ignore, filling a gap in the VC marketplace that I think has been poorly served many times. The downside, ironically, is that they come to the table with customers built-in, which is one of the reasons I think they are more able to put less emphasis on the business model side of things; I put that as a ‘downside’ in the sense that the entrepreneur has to take more initiative in developing a broader business model than they might otherwise have to because there is less immediate pressure to do so from the VC side.I generally agree that corporate VCs are usually a bad idea, both in theory and in practice. In-Q-Tel, on the other hand, serves an interesting purpose in large part because they have a deep technology focus that the vast majority of traditional VCs lack. From that standpoint, they add value to the ecosystem.

      1. Jonathan Deamer

        That’s a really interesting viewpoint Andrew, thanks, not considered that business models would be far less important to them! Really it’s more like a way of bringing external projects into the internal R&D department than pure venture capital, it seems.

      2. fredwilson

        This is a great answer to a question that I could not answerThanks Andrew!

    2. fredwilson

      I have heard that In-Q-Tel was a financial success and there are some unique reasons whyI don’t know enough to explain that but I’d love to hear the whole story from someone who does

  7. jhi247

    Venture investing has a lot to do with brand. E.g. Sequoia has a great brand, this attracts the top entrepreneurs, they build the best companies, Sequoia’s brand further improves, this attracts further top entrepreneurs… Over the course of the years this becomes a money making machine that is hard to screw up. Why wouldn’t Google try to get into this business? They are THE brand of the Internet era. Which entrepreneur wouldn’t want to boast that Google is an investor in his or her company? IMO this is easy money for Google, and there is nothing wrong with turning 100M into 500M even in a big company.

    1. fredwilson

      we’ll see if it works out that well. I don’t think it will.

  8. markslater

    so – having further thought about this – lets say a company takes an investment from google – hits a homerun and is facing an exit where google (+2 others) is the logical buyer. How does the selling group (including google ventures) negotiate with its parent for the best price? How does the auction (if there is one) not get distorted in their favor?Unless they are happy to (as you point out fred) keep an ownership stake below a threshold and not take a board seat (these two are implicit negatives with an early stage investing strategy) one party or the other loses.

    1. fredwilson

      Its a mess. I don’t like it