Google co-founders’ superlative venturing approach

Search engine provider Google tends to deal in superlatives. Even its name is derived from a googol, the large number 10¹⁰⁰; that is, the digit 1 followed by 100 zeroes.

Its corporate venturing units tend to operate with similar supreme ambition and building an impressive track record of investing and selling its portfolio companies – with its parent the buyer of the largest number (a sixth) of those it has sold.

Last week’s shakeup of its parent into a conglomerate umbrella called Alphabet is unlikely to cause any diminution of appetite for investing in the future.

As a holding company, Alphabet will have separate divisions for Google and its venture investment and research units Google X, Google Ventures and Google Capital, as well as its life science startup Calico, drone supplier Wing, internet connections provider Fiber and home energy equipment supplier Nest Labs, while Niantic Labs, founded by Keyhole mapping technology pioneer John Hanke and known for its online game Ingress and Field Trip that pointed users to interesting things based on their location, will be spinning off.

As noted by blog Stratechery, Google co-founder Larry Page declared in Google’s 2004 Founders IPO Letter: “We aspire to make Google an institution that makes the world a better place”, a rather large departure from aspiring to capture a greater share of global advertising, and I suspect the strongest driver behind this change was that in Page’s mind “making the world a better place” was increasingly in conflict with “Google the institution”.

With the establishment of Alphabet, Statechery said: “Page had prioritised the former at the cost of abandoning the continued making and maintenance of the institution Google has become to the very capable hands of [new Google CEO] Sundar Pichai.”

Pichai is on the board of augmented reality company Magic Leap after Google led its $542m series B round in October. Given Google Ventures and Google Capital are now under the Alphabet group, it might be Magic Leap becomes the start of a new investment programme.

As Global Corporate Venturing profiled two years ago ahead of its formal launch, Google Capital has also been taking large stakes in fast-growing companies, albeit ones Google had no immediate plans to acquire.

Google Ventures, however, has walked a fine line in its venturing strategy between structuring itself as far as possible as an independent venture capital firm, with performance fees on returns from funds raised each year, while still using the parent’s name and raising money only from Google (now Alphabet).

It has continued to mix up a large number of seed investments with the capability to follow-on or invest in businesses showing exceptional potential, such as its leading role in healthcare technology company Editas’ $120m B round also last week.

Since its launch in 2009, Google Ventures has been involved in at least 460 rounds, including at least 52 exits, of which eight have been by Google, and 8 flotations, while its website says more than “300 companies have chosen us” and lists 231 of them.

Back in 2010, Global Corporate Venturing’s review noted how Bill Maris, managing partner of Google Ventures, said Google Ventures was seeking companies with huge potential and was not basing its investments on companies that bring strategic benefits to the parent company.

Maris said: “We are not serving a strategic purpose and looking only for companies to help Google. We are looking for companies Google can significantly help.”

Part of this help has been acquiring about a sixth of the 52 Google Ventures companies it has exited through closure or trade sale, according to Global Corporate Venturing’s database – see below for the exits table and for an application to join the beta test of our forthcoming data service email tlewis@globalcorporateventuring.com. (Google’s website reports 38 such trade sales.)

Bill Maris, managing partner at Google Ventures, in a blog post said: “On a day-to-day basis, Google Ventures remains unchanged, with continued enthusiasm to explore the world of invention and innovation around us.

“We started this fund to support inspiring entrepreneurs and companies that disrupt traditional industries and, in doing so, improve lives.”

The question is that while the day-to-day business of Google Ventures and the other investment units under Alphabet will remain the same, to what purpose will the parent use the returns and insights from them?

News provider The Week in its coverage, compared Alphabet to conglomerate Berkshire Hathaway as “it has a core business (search for Google, insurance and reinsurance for Berkshire) that accrues mind-boggling amounts of cash, which it then tries to deploy strategically.

“Like Berkshire Hathaway, it is now, and will only increasingly be, a collection of related businesses, rather than a single company with a single strategy and sector focus.

“Like Berkshire Hathaway, Google [now Alphabet] is also increasingly an investment company, through arms like Google Capital and Google Ventures, and not just a product company. Like Berkshire Hathaway, it wants to be seen as an acquirer that is friendly to CEOs and entrepreneurs, a key competitive advantage especially in Silicon Valley, where a strategic acquisitions culture often rubs visionary entrepreneurs the wrong way.

“Unlike Berkshire Hathaway, Google [now Alphabet] is also an R&D lab full of moonshot projects, but it’s clear that a Berkshire Hathaway-like structure would be the best way to develop projects that grow into significant businesses in their own right.”

Given the ownership structure of Alphabet means as its co-founders Page and Sergey Brin retain control through their voting stock, they can use the proceeds of Google’s cashflow to impact more people in more ways.

From Stratechery’s Do you Trust Larry? article: “Page estimates that only about 50 investors are chasing the real breakthrough technologies that have the potential to make a material difference to the lives of most people on earth….

“Not enough institutions – particularly governments – are thinking expansively enough about these issues: ‘We are probably underinvested as a world in that.’”

Page’s ambition seems to stretch to being number one in the ranking of these 50 investors.

 Editor note: the below list was extended on 19 August with two exits: PrimaTable and DataPad, and on 23 August by Rekindle and Objective Logistics this has changed the overall exits by M&A from 48 to 52.