Posted by: Rob Hof on July 31, 2008
Google is mulling the creation of a venture-capital investment arm, according to the Journal. But while I gather that is true as far as it goes, I don’t get the sense this is a big shift in strategy for the search giant, which has invested in startups for some time, as Miguel Helft in the New York Times’ Bits column notes. In fact, my colleague Aaron Ricadela wrote about Google expanding its venture-style efforts almost a year ago:
Google has begun making VC-style investments to the tune of about $500,000 or less in promising startups, often buying those companies afterward, according to partners at Silicon Valley VC firms who spoke on condition of anonymity. In an effort to keep spotting promising deals, Google has been hiring a stable of finance pros.
The key question is whether this is a good idea for Google, since traditionally people in startups work at startups because they don’t like working at large companies. Union Square Ventures’ Fred Wilson explains why corporate venture investing often doesn’t work well, and I think he’s right.
But the window for IPOs, the usual exit for startups and their VC backers, is slammed shut and unlikely to open up very wide for a long time to come. What’s more, for better or worse, it’s pretty clear that many startups are increasingly being formed to get bought rather than to go public. And the number of serious Web startup buyers may be dwindling as the economy worsens and a few large, fewer acquirers can afford to play this game, and cash-rich companies such as Google and Microsoft seem destined to become more dominant in scooping up promising startups.
So if Google is looking to increase its pace of investment and acquisitions, as CEO Eric Schmidt has implied recently, this looks like the best time to do it.