Google Plans Venture Capital Fund Despite Downturn

Google has announced the creation of Google Ventures, a venture capital fund designed to invest in startups across the technology spectrum.

With the announcement this week, Google joins Intel and other companies in establishing a venture-capital arm for investment in smaller firms with potential. Google already has a philanthropic arm, Google.org, that has focused on investments in global health and clean energy.

“We’ll be focusing on early stage investments across a diverse range of industries, including consumer Internet, software, clean-tech, bio-tech, health care and, no doubt, other areas we haven’t thought of yet,” Rich Miner and Bill Maris, managing partners of Google Ventures, wrote on the official Google blog. “If anything, we think the current downturn is an ideal time to invest in nascent companies that have the chance to be the ‘next big thing,’ and we’ll be working hard to find them.”

Rich Miner helped develop Google’s Android platform and ecosystem; before joining Google, he was a vice president at Orange, overseeing research and development activities in North America.

Before joining Google, Bill Maris founded Burlee.com, a Web hosting company, and was a portfolio manager for Investor AB, a Swedish industrial holding company.

While Maris and Miner will judge and manage the investments, The New York Times reports that David Drummond, senior vice president of corporate development and chief legal officer at Google, will oversee the project.

News reports peg the amount of money Google Ventures plans to spend in its first year at $100 million (£70m).

On its new Google Ventures Website, the company suggested that it would be willing to invest up to “tens of millions of dollars” in startups, “depending on the stage of the opportunity and the company’s need for capital.” Google also held open the door to co-investing in opportunities with other venture firms.

On the same site, Google also asserted that its new venture – so to speak – wasn’t merely a new acquisition tool: “Acquisitions by Google of portfolio companies are possible, but this is not the goal or focus of our investment activities. Our focus is building great companies and generating long-term financial return.”

However, Google has a long history of purchasing startups and then integrating their technology into its core businesses. As far back as 2005, with its acquisition of Dodgeball.com, Google was building its portfolio of social-networking technologies; a year later, it purchased YouTube for $1.65 billion (£1.15bn).

On 11 March, Google released Google Voice, an updated version of GrandCentral, which Google acquired in July 2007. Google Voice allows users to condense his or her various phone numbers into a single one, among other phone-related services.

“The $100 million or so is not the type of funding they would need to go out and make acquisitions of major companies; it’s basically seed money,” Charles King, an analyst with Pund-IT Research, said in an interview. “I would expect them to proceed in much the same way as Intel Capital and IBM, in that they’ll find interesting companies and throw them a financial lifeline in order to help them survive, and then have a seat at the table.”

Google Venture’s public stance against being an acquisition vehicle, King continued, “may be a matter of political expediency.”

“There are any number of startups whose main reason for existing is to be acquired by a larger organisation, but that’s not always the case,” he said. “So from a socio-political standpoint, it’s better for Google to say they’re heading out there simply to provide guidance. If eventual acquisition was an explicit goal, they might risk scaring off more companies than they would attract.”