Daily Report: Multinationals Push Into Venture Capital - NYTimes.com

From downtown San Francisco to Palo Alto, Calif., companies like American Express and General Motors are opening offices in Silicon Valley and investing millions of dollars in local start-ups, reports Evelyn M. Rusli in The New York Times.

But unlike traditional venture capitalists, these multinationals are less interested in profits and more focused on getting a peek at the next wave of emerging technologies.

Big business has played the role of venture capitalist before, with limited success. During the waning days of the dot-com boom, financial, media and telecommunications companies sank billions of dollars into start-ups.

The collapse was devastating. Although some managed to make money, far more burned through their cash. In 2002, Accenture, the consulting firm, scrapped its venture capital unit after taking more than $200 million in write-downs. The previous year, Wells Fargo reported $1.6 billion in losses on its venture capital investments. Dell, the computer maker, closed its venture arm in 2004 and sold its portfolio to an investment firm. (It resurrected the unit last year).

Companies say they are taking a different approach this time. Rather than making big bets across the Internet sector, investments are smaller and more selective. For example, in August, Starbucks invested $25 million in Square, the mobile payments company based in San Francisco, which will be used in the coffee chain?s stores. This year, Citi Ventures, a unit of Citigroup, invested in Plastic Jungle, an online exchange for gift cards, and Jumio, an online credit card scanner.

Still, multinational companies are raising their profiles in Silicon Valley at a shaky time for the broader venture capital industry. While top players like Andreessen Horowitz and Accel Partners have grown bigger, most venture capital firms are struggling with anemic returns.

The market for start-ups has also dimmed in the wake of the sharp stock declines of Facebook, Zynga and Groupon, the once high-flying threesome that was supposed to lead the next Internet boom.

Source: http://bits.blogs.nytimes.com/2012/09/04/daily-report-multinationals-push-into-venture-capital/

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