Would You Want to Have Google Ventures as an Investor or Co-Investor?

Google Ventures, the venture capital investment arm of Google, "came out" yesterday with a media day. Google Ventures has been up and running for a little over a year, but is now fully staffed.

Check out their web site -- it's handsome (no surprise) and sounds more or less just like any other corporate VC. According to PEHub, which had a reporter at the event, here are some of the operational details:

• Budget of around $100 million a year, but set annually by the corporate parent

• 16 investment professionals, which seems high for a firm putting $100 million to work per year


• Google is the sole LP in the fund

I'm writing this as I sit in a National Venture Capital Association (NVCA) session on "corporate and financial VCs working together," as part of the NVCA Annual Meeting in Burlingame. The first topic of the session: stories about co-investing between the two parties. The term "horror story" has come up several times already.

The players on this panel are pretty impressive: Qualcomm, US Venture Partners, Kleiner Perkins and Pfizer. But none of them have the stratospheric rep of Google.

At yesterday's event, Google made all the right noise about investing for value, not for making future acquisitions, and offering value to portfolio companies by putting Google's corporate resources at their disposal. This is what all corporate VCs say. In reality, there are few positive success stories regarding corporate VC. In many ways, having a captive VC arm isn't a natural fit for a profit-and-loss corporation. Here are some of the typical problems associated with captive VC arm:

• Leadership turnover


• Sudden strategic changes


• Uncertain funding stream


• Lack of clarity whether the VC arm is in business to make money like a stand-alone VC, or whether it is making strategic investments to further the larger corporate mission

From the perspective of the start-up company, getting an investment from Google must seem like hitting the jackpot. The name, the resources, the implied endorsement of the technology and business case -- it's a no-brainer. But -- here are some concerns I would have:

• Will Google value the company as highly as other investors, or will they argue that their non-financial contribution is so great that they deserve a discount?


• Will others in the marketplace see the company as an arm of Google, and therefore be wary of partnering with the company?


• Will other potential investors be scared away, unwilling to share the spotlight with Google?


• Will potential M&A partners be scared away from talking to a company that they think is "likely" to be acquired by Google, whether or not that's true?

And if you are considering being Google's co-investor, either by approving a Google follow-on financing or coming in after Google, is the Google name a positive or negative? Some of the questions are similar to the above:

• Will Google scare away other corporate partners or potential acquirers?


• Will Google drive valuation, for better or worse, as well as future funding decisions?


• Will Google play along like a typical "financial" VC, providing support to the company but letting them grow on their own, or will they seek to drive their strategy and decisions?

Make no mistake -- I know it would probably be great to have the opportunity to either co-invest with Google or to have them as an investor. But these are reasonable questions to ask about any corporate VC investment, and especially from a super-market-leader like Google.

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