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Multinational Companies Venture Into Start-up World

General Motors, American Express, and PepsiCo are among a handful of blue-chip companies to found venture capital departments.

#2: General Motors Made a Profit

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It looks like multinational corporations are looking to get a piece of the start-up action.

Several corporate giants have recently formed venture capital divisions looking to invest in innovative, early-stage companies, the New York Times reports.

American Express opened a venture capital office in Facebook's old Palo Alto headquarters earlier this year. Nearby, General Motors--a company typically associated with the Rust Belt, not Silicon Valley--has investors based in its own research lab, the Times says. In August, Starbucks announced a partnership with mobile payment start-up Square that included a $25 million investment in the company.

Last year, corporations invested more than $20 billion in start-ups, according to the Times. Global Corporate Venturing, a publication that cover the corporate VC market, reports that 200 of the 750 corporate venture units were launched during the past two years.

Outsourcing R&D

Unlike traditional venture capitalists--who might be put off by the disappointing market debuts of Facebook, Groupon, and Zynga--these blue-chip companies turned VCs are less concerned with start-up profits, the report says.

Rather, multinational corporations treat the start-up world like a research and development department; they seek nimble, innovative companies that are outside the corporate structure.

"We are in one of the most regulated and risk-averse industries in the world, so innovation doesn't come naturally to us," Jay Reinemann of Spanish banking group Banco Bilbao Vizcaya Argentaria told the Times. Reinemann, the head of BBVA's 1-year-old San Francisco office, has been given $100 million to invest in local start-ups.

New Source of Capital

For start-ups, these corporate investors offer the resources needed for marketing and distribution. Electric car battery maker Envia Systems received funding from General Motors in its latest investment round and views GM as its "absolute end customer," the report says.

This is not the first time multinational corporations have tried to claim a stake in the Silicon Valley start-up world. At the end of the first dot-com boom, large companies invested billions in start-ups--with disastrous results, according to the Times.

Accenture, for instance, shuttered its venture capital division in 2002 after losing more than $200 million. A year prior, Wells Fargo lost $1.6 billion on its VC investments.

Last updated: Sep 4, 2012

JOHN MCDERMOTT | Staff Writer

John McDermott is a business and culture reporter whose work has appeared in the Chicago Tribune and Playboy and on AOL.com. He recently moved from Chicago to Brooklyn, New York, to work for Inc.com.




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