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Um, Hasn't Google Been Investing in Startups Already?

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.

Reader Comments

Elliott Dahan

July 31, 2008 6:04 PM

It is essential that Google treat the Seed investing stage differently from the Series A/B investing stage.The care and feeding of the Seed Entrepreneur requires a much larger geographic footprint for sourcing than a Series A/B fund; a strong relationship working with and supporting the Entrepreneur Infrastructure already in place (incubators, tech transfers, economic development agencies); assistance with pre-investment company sourcing; and, assistance with post-investment company oversight.

Additionally, small and vulnerable seed companies are very wary of exposing their technology, business models, etc. to corporate investors. Series A/B companies are a little less wary because of their VC/Institutional partners, but Seed companies are very leery of any outside entities.

The Google Fund should be designed to be a 2 part initiative with distinct processes and metrics: one part for the Seed and one part for the Series A/B.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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