Will Google Ventures Disrupt Venture Capital?

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Will Google Ventures Disrupt Venture Capital?

 

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?

Posted by Dharmesh Shah on Tue, Jun 21, 2011

COMMENTS

Nice write-up Brad; lots of things I didn't know about Google Ventures. Having interned at Intel Capital, I remember that corporate VC was not well regarded in the VC community, both by fellow VCs and by those searching for funding. Intel Capital also cited some of the above, albeit usually for hardware start-ups, but I wonder why this sentiment existed.

posted on Tuesday, June 21, 2011 at 6:25 PM by arjun moorthy


The answer is no. There is no career path for Google Ventures folks within Google. Whereas a partner at Sequoia gets to run the show. So the natural life cycle for corporate venture groups is much shorter as a result than for successful venture firms.

posted on Tuesday, June 21, 2011 at 6:49 PM by Sean Murphy


I'm counting 6 reasons there, but I know you guys are just checking to see how closely I was reading ;)

posted on Tuesday, June 21, 2011 at 6:51 PM by April


Curious, but I wonder if some of this effort on Google's part is in response to Microsoft's efforts with start-ups, the NERN center in Cambridge, the free software, and start-up evangilists in every part of the country. Microsoft makes a compelling case for staying in the Microsoft camp as a start-up. What do you think, who gives you the better deal Google or MS?

posted on Tuesday, June 21, 2011 at 8:34 PM by John Cass


Great article. It opened my eyes to a lot of new things going on at google. I say that yes google has the power to disrupt venture capital. Will they remains to be seen. They have plenty of experience disrupting other industries it wouldn't surprise me a bit if they do it again. Personally I choose Google every time over Microsoft. Thanks for the article.

posted on Wednesday, June 22, 2011 at 12:01 AM by Don Tarinelli


Spot on all fronts Brad.  
 
I'm a co-founder of a Google Ventures start-up and am hugely bullish on how they're planning to disrupt and optimize yet another huge, yet in many ways, hugely inefficient market - VC. 
 
See my Quora post on GV: http://b.qr.ae/jDGVJ4

posted on Wednesday, June 22, 2011 at 12:54 AM by Chester Ng


Way to kiss your investor's rear. That's gotta be worth at least another $100M on next round's valuation. 
 
Google Ventures is an interesting new play. But ultimately will the next Facebook, Twitter, Zynga, Groupon come out of their portfolio? No. It's another Intel Ventures waiting to happen -- a reconnaissance arm for the mother ship but not really disrupting anything that would upset it.

posted on Wednesday, June 22, 2011 at 12:55 AM by Really


It seems like there's a lot of potential for Google to make an impact in the VC world with their huge resources and talent.  
 
But Google being Google, there's every chance that they'll be too smart for their own good.  
 
Just like the GMail "Call Dad" fiasco that many found upsetting and offensive, Google Ventures is offending some entrepreneurs by requiring ridiculous questionnaires that they claim to be using as part of their rigorous data gathering process. While I could accept this as part of their due diligence, it isn't. It's just for data gathering - to help improve their algorithm. You must fill out this dumb questionnaire if you want to get funded.  
 
Come on, Google eggheads. Get a clue. You're on a good thing with Google Ventures. Don't alienate entrepreneurs when there are plenty of other eager VCs out there ready to steal your leads. 

posted on Wednesday, June 22, 2011 at 1:06 AM by Russell


Problems I see that Google Ventures faces if they truly want to disrupt Venture Capital: 
 
 
 
They've _got to stop asking founders to opt out of an NDA before founders get buzzed in to Google Venture's office. Otherwise, they are going to have a hard time gaining an entrepreneur's trust. I'm sure it's a "It's not that big of a deal" issue from Google's perspective, because everybody has to opt in/out of an NDA on Google's campus, and it's the Google "normal". But, founders pitching dozens of VC's are going to notice the dramatic difference in signing in to a Google Ventures meeting and stopping by any of the hundreds of VC offices on Sand Hill Road. 
 
 
 
Google really needs to relax their "All your IP are belong to us" policy for their engineers, if they are truly going to promote startup culture and have founders want to pitch Google Ventures first when it comes to funding their ideas. There is precious little boot strapping while working at Google. The engineers that I know at Google that are boot strapping pretty much have to be in stealth mode otherwise they run the risk of tripping over Google's IP issues. If they are working on a startup while working at Google, they are _very, __very quiet about it. 
 
 
 
That creates a deafening silence silence within 5 miles around Google campus when it comes to Googler startups. Hackers & Founders has been meeting 3 miles away from the Googleplex for years, and I can count on one hand the number of Googlers that show up. How many Googler's hang out at the Hacker Dojo? How many ex-Googler companies are at 500 Startups accelerator, which is a couple of miles away from campus? I hear SunFire is full of them. But, you don't see those people hanging out at 106 miles too much. 
 
 
 
Unless they work at Google, hackers in the Valley are getting creeped out by how pervasive Google is, and how much data Google has on them. That very much works against Google Ventures when it comes to founder mind share. 
 
 
 
I'm sure to startups based in other parts of the country, Google is quite sexy, and having access to advice from engineers who've worked at Google is quite exciting. 
 
 
 
As a VC in the Valley, you want to have a good enough reputation, network and deal flow that you employ people to screen meetings and pitches away to maximize a partner's time. If any other VC in the Valley started offering me $10k per referral that I made to them, I'd run away screaming. 
 
 
 

posted on Wednesday, June 22, 2011 at 3:13 AM by Jonathan Nelson


Having had the unfulfilled promises of "access to a portfolio of companies to create scale” never seems to work as well as the courtship period with a VC firm suggests: another reason to justify a higher percentage for their investment. Each portfolio company is trying to survive and keep the growth promises made to the VC firm, let alone help your company do the same. 
 
 
 
Big companies incubating start up's to help grow their ecosystem of value added providers is nothing new (See Intel example above). This is done through direct investments at times, but more often through partner programs, incentives and margins. 
 
 
 
After reading through the comments to this post I see no compelling reason why this will not work and believe that taking such a high profile position is spot on and will disrupt the normal flow of VC deals as placing Google as a new first tier player creating competition with some compelling differentiation. 
 
 
 
A company needs more than capital to grow - most start-up companies lack access - to money, to talent, and to strategic partners to get them in markets that they have not earned the right to enter. 
 

posted on Wednesday, June 22, 2011 at 9:00 AM by Rob Manfredi


Thanks, Brad - really interesting. Can i pick up and attribute with links to this post in my magazine - which covers corporate venturing! 
cheers,jim

posted on Wednesday, June 22, 2011 at 11:10 AM by james mawson


Jim: Will speak on Brad's behalf. Feel free to post to your magazine (with proper linking/attribution back to OnStartups.com). 
 
Thanks.

posted on Wednesday, June 22, 2011 at 11:37 AM by Dharmesh Shah


Will be interesting to see how this plays out... Indeed the VC scene is antiquated and in sore need of some "new kids" to make them jump.

posted on Wednesday, June 22, 2011 at 11:52 AM by Oleg Temple


Would this be like how Google is disrupting social media? Because if that is the case, I do not see much disrupting happening in Google Venture's future.

posted on Wednesday, June 22, 2011 at 11:55 AM by Joe Baer


Interesting blog and it must have been very interesting deciding which VC's to go with in the last funding round !!

posted on Wednesday, June 22, 2011 at 11:57 AM by Chris Windley


Some said that corporate VC was not well regarded. That makes sense from the perspective of fellow (non-corporate) VC's.  
 
Is it the case for those searching for funding though? I see both pro's and con's of going with corporate VC. A start-up would have access to all sorts of resources, as described in the article re Google Ventures. On the other hand, there would be more rigid reporting standards etc. But is there such a shortage of ideas, and such an over-abundance of capital that would-be-entrepreneurs will turn their noses up at funds from Google and wait until something else comes along? 
 
Also, the Google Ventures idea isn't unique. While Intel is emphasizing partnership with academic institutions lately, Microsoft runs at least two VC "programs". So does AOL. Both have been around for a long time without depleting the idea pool. 
 
I am very curious about the particulars of the Google Ventures application form that was considered offensive (mentioned in another comment). 
 
Last thought: Google.org didn't turn out that well. It is more of a research incubator, I guess. Google Ventures is mostly about profit rather than corporate good citizenship. But GOOG will need to run Google Ventures differently than Google.com. (Part of the Google.org problem was due to managing it too similarly to reglar Google).

posted on Wednesday, June 22, 2011 at 12:04 PM by Ellie K


I think it is a good development for all entrepreneurs out there.

posted on Wednesday, June 22, 2011 at 12:08 PM by unicomserver


what a funny, puzzling query. 
NO ONE can alter, change or 
disrupt any process other than the one they are using in their own office. VC is older than Google. 
I am older than Google. 
U guys need to study history and 
management and sociology.

posted on Wednesday, June 22, 2011 at 12:09 PM by k. kemper


How do we get the MS e-Business Innovation Center (Incubator) plugged in to Google Ventures? We got some great Technology Companies needing capital. 
 
Thanks, 
 
Jim

posted on Wednesday, June 22, 2011 at 12:10 PM by Jim Finley


Sounds just like any other corporate VC's sales pitch, plus the Google brand.  
 
Google Ventures as a co-investor sounds fine, but as lead = welcome to the Googleplex.

posted on Wednesday, June 22, 2011 at 12:21 PM by Lee McKnight


My product is a B-2-B-2-C collaboration platform that has entered a recurring revenue mode. We are positioning for scaleability and have won a Dell Top 10 Innovator Award, a Forbes Most Promising Award and have been featured in Entrepreneur Magazine. I went to the Google Ventures site and there is no way (at least that I found) to contact the group. Anyone know how to do so?

posted on Wednesday, June 22, 2011 at 12:26 PM by Brian Javeline


A startup's key capital is their idea - which drives their passion, value and identity. Why would a startup want to share that with Google - for anything? Google Ventures looks like a corporate variation of the saying "a cocaine habit is God's way of telling you that you have too much money" 
Google has the extra cash to pour into a venture - great for them. I don't expect to see anything "disruptive" or "innovative" from it 

posted on Wednesday, June 22, 2011 at 12:34 PM by Peter Simmons


Anything to help the startup stay alive is a good think. Money is always hard to find, doing paperwork is easy.

posted on Wednesday, June 22, 2011 at 12:34 PM by Allan Caplan


Thanks! This was indeed valuable reading. Google is really innovative! Lot of value additions in comments section.

posted on Wednesday, June 22, 2011 at 12:49 PM by amitabh agrawal


Whether it's Mother Google or Google Ventures they will continue to transform how business is done, both on Main Street and Wall Street. Revert back? I doubt it.  
Continue to develop new processes, approaches, alliances, strategies, and business models? I expect nothing less.

posted on Wednesday, June 22, 2011 at 2:09 PM by Brett Relander


Arguably more interesting than Google Ventures ( and maybe more fun ) is the " Star-up " concept explained by Gary V 
http://garyvaynerchuk.com/

posted on Wednesday, June 22, 2011 at 2:18 PM by Chris Windley


The best thing for them to do would be to look at ventures outside the USA as soon as possible! 
 
Good luck to them VC is great when you have some turnover but sucks when you are starting out - someone needs to break this mould.

posted on Wednesday, June 22, 2011 at 2:30 PM by Nick Gray


Google Ventures is a good firm, but far from disruptive. You mentioned 2 advantages: Consumer Brand name, and rolodex of engineers, clients and collaborators. Only the first one is truly disruptive, yet it can't be fully realized in some recent deals Google Ventures has done, for example in Solar. VC is a people business, and most good firms have a strong Rolodex. Google Ventures with it's limited history does not have a absolute upper hand.

posted on Wednesday, June 22, 2011 at 2:32 PM by Marshall Yang


All 
 
I think i will be the least experience of all of you - when it comes to VC knowledge and exposure. 
 
Google Venture as a disruptor? I am not sure as i have had some very basic issues (perhaps, my lack of knowledge, connections and experience) i.e. have not been successful in receiving any response from them. [Any tips you could provide will be most appreciated :-)] 
 
I have called their office (their speech service doesn't recognize any of their team's name), send them emails - no one responds!; tweeted them - but still no response or feedback! 
 
With Google's might and resources - they could give other VCs tough time (but you would expect that from Google - however, i am not sure they are causing disruption in the industry - the way they did in software, online videos, search, maps, advertisement, etc, - they have model almost similar to Originate Labs (may not be 100% similar) -essentially, they're providing capital + resources + helping address issues on top of usual connections and introductions... 
 
BTW my website is underdevelopment and i am looking for strategic business partners and investors (the current version is <20% of vision).  

posted on Wednesday, June 22, 2011 at 3:22 PM by Zaheer Gilani


When choosing a VC to work with, the primary consideration must be trust. Everything else is less important than trust. 
 
Google fails that criteria -- badly. Google sucks data out of their partners and then unilaterally changes the deal terms. Partnering with Google is signing your company up for a slow death as Google drains the life blood out of it. 

posted on Wednesday, June 22, 2011 at 4:22 PM by Will.Spencer


Thanks for sharing. Can someone do a writeup on why not google ventures? My main concern would be is this patient money or impatient money. Any idea?

posted on Wednesday, June 22, 2011 at 7:07 PM by Sanjay


Google ventures is only limited to north-american businesses :-(

posted on Thursday, June 23, 2011 at 7:16 AM by Murtaza Khambati


Like someone mentioned, with Google, the issue is TRUST. Google are always in for their good, fair enough, everyone is but Google always flouts privacy. I dont use Google desktop and find it difficult using chrome cos of similar reasons. You may get the money and the technical boost but be sure they won't allow you to grow bigger than them and some of your niche yet-to-be-patented ideas may end up in their products. Sure they may cause a stir in the VC business but disrupt? not in my estimation cos pretty soon, they'll be seen for who they really are and what they stand for.

posted on Friday, June 24, 2011 at 4:36 AM by Kobina


I guess they would be one of the big players in the market. However, if you looking the investments in terms of acquisition the company has made, a fair share have been very unsuccessful. But then again, that is just my view.

posted on Tuesday, June 28, 2011 at 2:09 AM by Eddie Gear


Brad, great post! Interesting way to juxtaposition relationships with some of your lead investors. The commentary was as valuable as the post.  
 
After observing (and sometimes participating as an angel) the venture community for the last fifteen years or so, I think the entire community has seen the light and traditional patterns have finally been broken. I have to believe that Google looked at other corporate venture models (IBM, Msft, HP) and found their own way - as unique as Google is as a company itself. Glad to hear that you think it works.

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