The quest for a new cognitive ecosystem

This is an exciting time for corporate venture. Today more than ever, large companies are partnering with the venture capital and start-up communities to help fuel innovation and to keep their finger on the pulse of new technology trends. The success of this strategy is dependent on corporate venturing arms, and today, they are at the centre of many organisations’ growth strategy.

Corporate venturing is becoming a strategic must-have at leading organisations, with units entering deals at earlier stages than ever. According to Global Corporate Venturing, the number of corporations investing in venture capital has doubled in size over the past five years to more than 1,100 venturing units around the globe. Since 1995, corporate venturing investment as a percentage of total venture capital investment has grown by 80% and the number of corporate venturing units has continued to rise.

Being a part of IBM’s growth and innovation engine is an exciting undertaking. Since 2000, IBM’s Venture Capital Group (VCG) has been dedicated to building strategic relationships with venture capital firms (VCs) and their portfolio companies to create exciting new technologies and customer solutions and identify growth opportunities in new markets. The IBM VCG model really has not changed that much since launching. We are not looking to get a financial return through equity, but we are looking for top-line revenue growth through innovative partnerships with start-ups and VCs.

The IBM VCG is focused on seeking new solutions that will help our clients transform their businesses. IBM’s VCG partners more than 300 top-tier VCs and their portfolio companies around the globe to help guide and influence IBM’s strategic decisions. Through our VC partnerships, we synthesise trends and monitor young companies we believe have high potential for success and align with IBM’s key growth initiatives. Many of the acquisitions IBM makes were already visible to IBM at a much earlier stage through the VCG.

Working with the start-up and VC communities is a key factor in IBM’s ability to build and strengthen new markets, such as cognitive computing, cloud, mobile, and big data and analytics. For example, IBM Softlayer’s Catalyst programme offers a year of free cloud computing services to start-ups, as well as mentoring and strategy advice, to help participants quickly bring new products to market.

Another example is the recently announced landmark partnership between IBM and Apple that teams IBM’s mobile, big data and analytics capabilities with iPhones and iPads through a new class of business apps. This partnership draw on the strengths of each company: IBM’s mobile, big data, analytics and security capabilities, fused with Apple’s legendary consumer experience, hardware and software integration, and developer platform. This new class of smart, secure and elegant enterprise apps will extend innovation from consumer apps to the enterprise market, and create entirely new platforms upon which start-ups innovate.

In May, I had the privilege of speaking at the Global Corporate Venturing Symposium in London about IBM’s corporate venture group and how it supports IBM’s growth strategy in key technology areas such as cognitive computing, big data and analytics, cloud computing and mobile. I look forward to attending this conference every year and sharing stories and best practices with my corporate venturing peers. For readers who attended the symposium, this article is a recap of many of the topics I covered during the event, including a discussion around the infinite opportunities IBM Watson is creating for VCs and their portfolio companies.

This was a particularly exciting year for IBM at the symposium because Global Corporate Venturing announced IBM as the recipient of the Fundraising of the Year award for the IBM Watson fund. Receiving this incredible honour and recognition from peers in the corporate venturing community is very encouraging.

Traditionally, corporate venturing arms are tasked with investing money in companies aligned with their technology and strategy, and sometimes they end up acquiring the companies they invest in. In January 2014, IBM took a bold step into the era of cognitive computing by creating IBM Watson Group. A huge investment by IBM, the new business unit includes 2,000 new hires, a new headquarters in New York and a $1bn investment that includes $100m set aside for the IBM Watson Fund, which uses investments to spur innovation and fuel a new ecosystem of entrepreneurial software application providers from a variety of industries including healthcare, retail and travel.

The fund is used to seed and grow Watson-powered apps and businesses, including dedicated support to the entrepreneur and venture communities through workshops and seminars on topics such as development skills, as well as networking opportunities.

Named after IBM founder Thomas Watson, Watson caught the imagination of the world by beating the top human contestants on the television quiz show Jeopardy in February 2011. Since then, IBM has advanced Watson from a game-playing innovation into a commercial technology.

Today, Watson is an ultimate adviser, with its ability to sift through and understand huge amounts of big data at unprecedented speeds to assist professionals in making evidence-based decisions quickly and easily, while increasing knowledge and gaining value over time. Representing a new era of computing, Watson’s ability to process natural language has opened up new doors of opportunity. Watson can now provide users with new insights – enabling professionals to uncover new findings and connections that allow them to explore uncharted areas, and accelerate and improve decision-making across industries.

Recently, IBM unveiled IBM Watson Discovery Advisor, a new commercial offering from IBM Research. It is a first-of-a-kind system that can visually uncover patterns and pinpoint connections in related data to accelerate the discovery process to advance research and science. With Discovery Advisor, Watson is moving beyond analysing data for known answers at record speed, to helping accelerate scientific breakthroughs by uncovering the complexities and connections in huge amounts of data to speed up the hypothesis process and draw faster conclusions.

Entrepreneurs and developers will now be able to embed the IBM Watson Discovery Advisor into their services to create ground-breaking applications that reveal patterns visually and pinpoint connections in data to accelerate the discovery process.

Since the launch of the Watson fund earlier this year, the feedback from VCs we have spoken with has been incredibly positive. The VCs want to help their portfolio companies tap into Watson’s cognitive computing capabilities.

In February 2014, IBM announced the first direct investment from the Watson fund in Welltok, a social health management company. IBM’s investment was part of Welltok’s $21.2m series C funding led by New Enterprise Associates with new participation from Qualcomm Ventures. Additional participants in the funding round include existing investors Emer-gence Capital Partners, InterWest Partners, Miramar Venture Partners and Okapi Venture Capital. This funding roundbrought Welltok’s funding in the past nine months to more than $40m, making it one of the past year’s best capitaliseddigital health companies.

Since the investment in Welltok, IBM has also invested in Fluid, a US-based digital commerce company. The Watson fund investment in Fluid will be used for advancing new apps that empower online shoppers with Watson’s expertise and personalised advice. Fluid has developed Fluid XPS – Expert Personal Shopper – powered by IBM Watson, which calls on Watson’s ability to understand the nuances of human language and uncover answers from big data. Consumers who use Fluid’s app will interact with rich media and dialogue with Watson, as their new found “cognitive expert personal shopper” to help them make smart, satisfying purchases.

Watson is ushering in a new era of computing and creating a new world of opportunity for VCs and their portfolio companies. At the same time, the Watson fund is creating a new domain for IBM’s corporate venturing strategy. For nearly two decades, IBM has forged relationships with VCs and their portfolio companies to fuel innovation, bring new technology to market and identify companies to acquire in critically strategic areas for the company. We are enthusiastic about leveraging this experience investment and relationships with the VC community to support IBM in establishing a new business ecosystem for a new business unit. It really is an exciting time for those of us involved with corporate venturing.