Google to Venture Into Venture Capital
Google is in the process of starting a venture-capital arm, according to the Wall Street Journal.
This announcement comes just days after Google received some new competition from Cuil, a search engine founded by ex-Google employees including Anne Patterson, who originally developed TeraGoogle.
Cuil was founded with substantial financial backing from individual venture capitalists, a few of which are listed on Cuil’s “About” site. Google may be trying to help potential competitors use their energies in conjunction with Google rather than against it.
The new division of Google will be lead by David Drummond, Google’s Senior Vice President of Corporate Development and Chief Legal Officer, and William Maris, a former entrepreneur who was previously an investor. Several large corporations such as Motorola, Comcast, and Walt Disney have venture-capital arms. These divisions have been specially developed for the purpose of investing in promising start-ups.
Most individual venture-capitalists invest with the hope of a large pay-out when the company is sold or stock prices rise when the company goes public.
In the past, Google preferred to purchase companies rather than invest in them, which was the case with YouTube. Google bought YouTube for $1.65 billion in 2006. The only notable Google investments are Current Communications, a broadband company and Merkai, a wireless-Internet-equipment manufacturer in which Google has invested millions.
It is probable that Google will utilize this new division in conjunction with its philanthropic arm, Google.org. For instance, Google had previously announced plans to invest in renewable-energy, which would be the perfect situation for Google to have its venture-capital arm working together with Google.org.
This new division inherently comes with some risk for Google, as with any venture capital firm. On one hand, Google risks losing a substantial amount of money if its investments prove to be unsuccessful. On the other hand, Google would be able to prevent new competitors from rising up by investing in them before they pose too much of a threat, and later develop them into subsidiaries of Google. This would help Google continue to gain market share in online search by positioning itself to more quickly integrate software breakthroughs into its algorithm.
Google will likely invest in software start-ups and may even expand into services that target small businesses. But, it would be wise for Google to proceed with caution since their current business model has seen unparalleled success.
