Google Working on a VC Arm?

Google is planning to launch a VC arm, or so reports The Wall Street Journal, citing unnamed sources claiming to have been briefed on company’s plans.

(Dow Jones, publisher of WSJ, and Thomson Reuters, publisher of PEHub, compete in some markets.)

Google spokesperson Andrew Pederson says the company “does not comment on market rumor or speculation.”

A move into venture capital would be strange for the search company–especially after Google CEO Eric Schmidt openly derided the VC-oriented outreach programs run by other large corporations such as Microsoft and IBM as recently as two years ago.

Most corporate outreach programs, and VC Arms, are designed to make it easy for startups to develop applications for their platforms, as large tech companies recognize that the bottom line is tied to the success of smaller companies that utilize their infrastructure offerings.
In lieu of a formal program, Schmidt said the company would be open about its new projects and strategic direction. “We’re trying to tell everyone exactly what we’re doing,” Schmidt says. “Whereas, Microsoft adopted their program after they convinced everyone else that they couldn’t compete [against them].”

Schmidt badmouthed Microsoft’s outreach program when asked about it in a Q&A session following a Princeton University alumni event in 2006: “My impression was that the Microsoft program didn’t work too well – by no fault of Dan’l’s – it’s the company,” he says. (Corporate Vice President Dan’l Lewin ran Microsoft’s VC-outreach program at the time).

Schmidt’s criticisms may be justified. Corporations must carefully think through exactly what they hope to get out of a commitment to venture capital or an outreach program to startups and how such efforts will be structured.
Intel, for example, quickly ran into problems losing talent that was not compensated at a rate commiserate with the industry. Adobe eventually spun out its VC arm due to quarterly earnings pressures. Other companies, such as Enron, cut off their VC practices almost before they even got started.