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Will Google Ventures Disrupt Venture Capital?

Posted by Dharmesh Shah on June 21, 2011 37 Comments

The following is a guest post by Brad Coffey, an early employee at HubSpot.  You can follow Brad on twitter @BradfordCoffey 

Back in March, Brian Halligan (our CEO at HubSpot) wrote a great post around his observations on why Sequoia wins at the VC game.  Brian’s assessment was based on HubSpot’s experience raising our Series D and was spot on in my opinion. Sequoia is agile, yet disciplined.  They are aggressive yet reasonable. They’ve taken the classic venture capital playbook and out-executed just about everyone. Incredibly impressive.

With all of their success though, Sequoia has a right to stay paranoid (#8 on Brian’s list). The VC industry is undergoing some massive changes and is in the process of being disrupted by a new breed of investors that are attacking the edges of the market and competing with a new, differentiated approach. Google Ventures, a co-investor alongside Sequoia in HubSpot’s series D, is one such firm. Google has a history of reinventing industries and questioning conventional wisdom – and they’re trying to do it again with their approach to venture capital.google ventures

6 Ways Google Ventures is Attempting to Disrupt the VC Industry

1) Engineering Support - This is the most unique and fascinating aspect of Google Ventures. Unlike most venture firms that compete on brand and ‘expertise’, Google Ventures has a unique – engineering focused - set of support they provide entrepreneurs: engineering scale consulting, UX/UI design research, and engineer recruiting aid. When the team at Google Ventures listed these services during our session for the first time, in my head it was: check, check, check. All challenges for HubSpot and pains that would be hugely valuable to improve. Compare that to the traditional pitch of VCs centered on a softer set of business model expertise and professional networking. It’s a point of competitive differentiation for Google Ventures and potentially a source of huge value for the entrepreneur.

 2) Unmatched brand On Main Street - HubSpot, like many companies, doesn’t consider its target market to be the technorati that spend their days reading TechCrunch and debating Groupon’s latest valuation. Instead it’s the small businesses that make up a majority of America’s economy – and it is with this market that Google has a superior brand. This is potentially a huge point of differentiation for Google Ventures. For a B2B company like HubSpot, including Google Ventures as an investor validates our business model for main street America.  These are people that may not even know about the term 'venture capital' -- they're happy just building profitable businesses.

 3) Helping with the tech talent war – One of the key challenges for startups, particularly those in the Silicon Valley and Boston is the tech talent war.  Meanwhile, Google gets over a million people sending their resumes in every year. The Wall Street Journal recently reported that Google Ventures has hired partners who will cull this database of applicants and help its portfolio companies win the talent war. The cash component of a venture capital financing is clearly useful. But, getting assistance in investing that cash into stellar talent is exceptionally valuable. Google Ventures is leveraging its unique position and strength in what is sure to be a popular value-add for its portfolio companies.

 4) Access to Google Proper - This somewhat goes without saying but Google Ventures is uniquely positioned to provide entrepreneurs with access to the rest of Google. Google Ventures was very transparent in stating that in practice this is not more than a warm introduction to the right people – it can lead to some great opportunities for entrepreneurs and is another great point of differentiation. As one example from fellow Cambridge-based and Google Ventures backed startup SCVNGR, the company was the first to publicly launch with integration to the Google Places API last fall. This integration solved a major strategic challenge for the company and enabled the company to scale internationally. This is an introduction that few venture firms could make so cleanly. 

 5) Non-Traditional Deal Flow - One of the disruptions happening in the venture capital industry at large is a sharp increase in the amount of non-traditional deal flow. Firms like DST and Y Combinator are expanding the market by converting previous non-consumers of venture capital into consumers (at both the very late and very early stages) and growing the market as a result. Google Venture’s has entered the fray with its own launch of Startup Lab. The program, started last fall, is designed to provide Google Ventures investments with a space to grow and thrive on at the Googleplex campus (and potentially provide HubSpot with a west coast office down the road). Ideally this enables Google Ventures to leverage the heralded facilities at Googleplex and increase dealflow for these early stage companies. More uniquely, Google Ventures also recently announced a $10,000 start-up referral bonus for its 23,000 employees and has a promise of more innovative deal flow programs to come. Through these programs Google Ventures is attempting to leverage its unique position within Google and create exclusive deal flow channels.

 6) Brilliant Insights - This item isn’t necessarily unique but I’d be remiss if I didn’t mention it. The folks at Google Ventures are smart. And although it’s not necessarily disruptive (there are lots of smart people in the venture community) with Google Ventures it was like they’d been secretly hanging around the halls of HubSpot the last 3 years. The most telling stat for me is this: I took almost no notes during a majority of the trip but came out of the initial Google Ventures pitch with pages of feedback. Great insights from smart people. Though not enough to disrupt the venture community by itself – it certainly doesn’t hurt.

So what do you think? Does Google Ventures have enough to disrupt the venture community or in a few years are we going to see them revert to competing with the business model and values proven by the established firms?