Google Plans Venture Capital Fund - InformationWeek

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7/31/2008
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Google Plans Venture Capital Fund

The company's VC arm will be led by David Drummond, Google's senior VP of corporate development and chief legal officer.

Google plans to launch a venture capital group, according to a report in The Wall Street Journal.

The company's VC arm will be led by David Drummond, Google's senior VP of corporate development and chief legal officer. It will also reportedly involve entrepreneur and investor William Maris.

Further details about the group remain unclear. Google said it does not comment on rumor or speculation.

Google made 16 acquisitions in 2007, 10 in 2006, and 11 in 2005. This year, it has only made two.

As of June 30, Google was sitting on $12.7 billion in cash. Clearly, it can afford to invest in a few companies.

Just as the CIA's venture fund In-Q-Tel backs companies developing technology with possible intelligence applications, Google may be inclined to nurture startups working on ideas that related to its search, ads, and apps business. By providing early-stage funding, Google should be able to make acquisitions more cost effectively, by avoiding the premium paid by latecomers.

But venture capitalist and Google shareholder Fred Wilson doubts that Google will be able to profitably invest its funds. In a blog post, he said he thinks "that venture investing is not the best use of a corporation's capital and that it is inevitable that it will produce sub-par returns at best and significant losses at worst."

Google has made two notable acquisitions, which were In-Q-Tel-funded startups: Keyhole in 2004 and @Last Software in 2006.

While many of Google's investments have been through its charitable arm, Google.org, the company also invests strategically in wireless companies like FON and biotech companies like 23andMe. Other companies in which Google has a stake include Meraki, Ubiquisys, and Xunlei.

According to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), with data from Thomson Financial, corporate VCs invested $1.3 billion in 390 deals during the first half of 2007, the highest percentage of corporate venture deals and dollars since 2001.

During that period, 20% of VC funds went toward software, up from 14% during the first half of 2006.

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