Micron, Sprint Nextel Join Corporate Venture Capital Wave"

Micron Technology and Sprint Nextel have launched the latest in a recent flurry of corporate forays into the venture capital world. But rather than seeking a quick buck as many entrants did during the Internet bubble, these new efforts are intended to use one of the riskiest of asset classes for prudent, long-term growth.

Semiconductor maker Micron's venture arm, Micron Ventures, was formed in January and is authorized to invest up to $100 million over the next ten years in early-stage start-ups. Micron Ventures Director Ian Blasch said the venture arm already closed an undisclosed investment roughly one month ago, in a "semiconductor company in the communications space."

Wireless carrier Sprint Nextel's new venture capital effort, Sprint Ventures, was also formed last January and intends to make up to six investments by the end of this year, according to Sprint Ventures General Manager Scott Ford.

Sprint Nextel and Micron are only the most recent publicly traded companies to dive into venture capital. Vodafone Group placed the head of its largely inactive VC fund, raised in 2000 but hardly touched, near Silicon Valley last December to get a closer look at Web 2.0 technologies that might translate into future services and features for Vodafone customers.

Meanwhile, enterprise software developer SAP launched a $125 million fund earlier this month to seed companies writing applications based on its NetWeaver platform. And Japanese mobile carrier NTT DoCoMo planted a Silicon Valley beachhead when it formed DoCoMo Capital in San Jose in the summer of 2005.

Unlike the spike in corporate venture arms striving to turn a profit during the Internet bubble, the new influx of groups has a sharpened focus on reaping cutting-edge research and development from start-ups, to help their parent companies compete.

"All I see is more and more people coming in" to corporate venture investing, said Naveed Khan, executive president of the Strategic Venture Association, a trade association for corporate venture groups in Palo Alto, Calif. "They are reemerging, but with a more focused approach."

Khan had first-hand experience with the previous, profit-focused era of corporate venture capital as chief executive of Siemens Venture Capital, the arm of Siemens AG (SI), from 1999 to 2003.

"We'd have these meetings every quarter with our board of directors," Khan said, "and the CEO would say, 'Cut all the bull about strategy, how much money did we make?'" When the bubble burst, many corporate venture arms quickly lost interest, Khan said.

According to data from the National Venture Capital Association, the percentage of venture capital deals with at least one corporate participant spiked in 2000, at 27%. That statistic dropped to 16% in 2003, before bouncing back up to 19% in 2005.

Ford, of Sprint Ventures, said discussions about starting the venture capital arm began last September, spurred by the booming crop of start-ups in the wireless world.

"It just seems like wireless is hitting its pace, especially from the data perspective," Ford said.

The fund has access to an undisclosed amount of money, Ford said, and already closed one deal last December in a consumer-related wireless start-up - though he declined to be more specific. He said Sprint Ventures is investing to further the parent company's strategic goals - including better delivery of mobile phone content to its customers - rather than in the interest of turning a profit.

During the bubble, corporate venture investing "was a pretty popular notion, by in large to reap a quick return, and that's not what we're about," Ford said.

Blasch, of Micron Ventures, said the venture arm was launched as part of a broader effort by its parent company to move beyond its mainstay of memory chips for PCs and tap new markets for products such as mobile phones and servers.

"We're not looking for the next eBay, we're looking for companies that will help us push our strategy," Blasch said.

Blasch added his task is to bring potential investments to business development groups within Micron, to gauge whether or not they complement existing soon-to-be-launched Micron products, or provide components that complement those products.

John Taylor, vice president of research at the National Venture Capital Association, said the reinvigorated interest in corporate venture investing stems in part from corporations' cutbacks on internal research and product development in recent years. These corporations are nonetheless under pressure to quickly develop new products, Taylor said, and start-ups can help fill that void.

Khan, of the Strategic Venture Association, said that using start-ups for R&D may even be a way to hedge against risk - an ironic twist, given the daredevil methods of traditional venture capital firms such as those lining Silicon Valley's Sand Hill Road.

"It's a safer bet to put $10 million in five R&D projects at start-ups, then to start one within the company and spend $50 million on it," Khan said.

Despite recent talk of a resurgent Internet-fueled bubble, "I'm 100% convinced (corporate venture groups) are not in it for the Sand Hill Road venture capital model," Khan said, before adding, "if they are, they're not saying it."

(This story originally appeared in VentureWire, a daily email newsletter published by Dow Jones & Co. that provides in-depth
analysis on venture capital and high-tech start-ups. Dow Jones Newswires runs select stories from the newsletter.)

-By John Letzing, Dow Jones Newswires; 650-496-1341; john.letzing@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 1st June 2006