Established technology companies have been stepping up their behind-the-scenes collaboration with the firms that bankroll startups, hoping to influence the strategies of new businesses that could become partners, competitors or even acquisitions.
Forsaking what were arm’s- length relationships, Microsoft Corp. and IBM Corp. say they’re having increasingly candid conversations with venture capitalists about their business strategies, including which technologies they are funding and which they might buy.
For officials at Microsoft, based in Redmond, Wash., that has meant opening up to an extent that would have been unthinkable five years ago.
Microsoft has been presenting venture-capital firms with a “technology road map” that outlines the needs of its 25 product groups, while urging VCs to consider how their portfolio companies might fit in.
“This opportunistic mapping is a way for us to carry on an effective conversation,” said Dan’l Lewin, corporate vice president for business development at Microsoft’s developer and platform evangelism division in Mountain View, Calif.
“It’s a structured way we can be clear with the VCs about how we can be helpful in providing tools and marketing and where we’re going so they won’t bump into us,” Lewin said.
IBM, meanwhile, has broadened its discussions with venture capitalists to include not only the startups they fund but also the patents the Armonk, N.Y., company is willing to license to those startups, as well as the technologies developed in IBM’s own global research labs that could be spun out and commercialized by venture- backed startups.
Both companies are willing to talk upfront about the possibility of acquiring venture firms’ portfolio companies – a coveted “exit” opportunity as the number of initial public offerings dwindles and the venture capital industry scrambles to recoup its investments.
“It’s very explicit,” said Deborah Magid, director of strategic alliances for the IBM Venture Capital Group in Menlo Park, Calif. “We see that a large part of the value of the Nasdaq was created by venture capital or venture-backed companies, and we want to be part of that.”
The new attitude has been welcomed at venture capital outposts.
In the past, the big incumbents often viewed the venture capitalists warily, as the financiers of disruptive technologies and potential rivals.
“Overall, there’s a more collaborative attitude today,” said Izhar Armony, a partner at Charles River Ventures in Waltham, Mass. “We’ve had senior-level visits from both IBM and Microsoft. They tell us what’s on their road map, they ask us about our road map. And they follow up.”
Other high-tech powerhouses, such as Oracle Corp., Intel Corp., Nokia Corp. and Cisco Systems Inc., have made similar overtures to the venture capitalist industry in recent years.
But venture capitalists say IBM and Microsoft have been the most aggressive, with both giants recasting their venture strategies after the 1990s boom.
Michael Skok, general partner at North Bridge Venture Partners in Waltham, said many large technology companies have concluded they have to look outside their organizations for at least some of their future technology.
That is partly because of the rapid spread of technology, and partly because some companies scaled back on research and development after the technology boom.
“Now that the market’s come back, they have to work with us to stay on the leading edge of technology,” Skok said.
Sometimes, the new channels of communications lead to acquisitions, many in the software field.
Microsoft has purchased 20 startups during the past year.
IBM has snapped up 16.
But more often they spur technology partnerships, which may or may not eventually lead to acquisitions.
Microsoft invested in venture funds as a limited partner during the 1990s but has since moved out of that asset class.
Five years ago it hired Lewin, a veteran of Apple Computer Corp. and NeXT Inc., to help forge a new venture capital strategy.
Starting with the premise that computing was shifting away from the desktop to new devices – from cellphones to smart cars – Lewin launched a team in 2002 to mine “the huge opportunities for new companies and new technologies.”
The team has met with more than 100 venture capital firms, individually or in groups, and has formed technology partnerships with 100 to 200 startups a year.
Microsoft offers advice on everything from software development tools to databases to computing architecture.
In sharing its technology road map, it also hopes to steer VCs away from backing companies that could challenge Microsoft’s home-grown technology – though that is ultimately the VCs’ decision.
IBM, like Microsoft, has been shifting away from venture investing.
For venture portfolio companies, IBM provides technology assistance and other resources.
And, in contrast with Microsoft, which chiefly supports proprietary software, it has promoted open standards and open-source software development.
