Instead IBM acts as the ultimate “rainmaker” that can bring startups together with customers, partners and professional venture capitalists who have cash to invest. When startups need cash, IBM can put them in touch with more than 100 of the worlds top venture capital firms.
Last fall, Clark and other venture capital group executives visited China to meet with entrepreneurs across Asia to get a look at the latest companies and their ideas.
To learn more about how IBM discovers promising new companies and technologies around the world, John Pallatto, eWEEK West Coast News Editor, interviewed Drew Clark, founder of IBMs Venture Capital Group.
How would you describe IBMs approach to venture investing?
IBM is investing in startups, but not directly in a cash or financial sense. Its really in the success of these companies. Frankly, what the venture capitalists find most appealing about their partnership with IBM is the fact that they themselves, the professional investors, have the ability to seek out and find the best team, the best technology, the best new business models to invest in.
But then [they can] be assured that IBM is right there with them to help take the next step, which is to make their companies successful by introducing them to IBMs wide-ranging partnership network, to our go-to market channels and to our industries.
What was the result of your recent visit to China?
We typically try to be in each of the emerging markets. By that I mean the traditional “BRIC” regions, Brazil, Russia, India and China, at least a couple of times a year.
This was our second or third trip to China this year. We had done something early in the spring in Hong Kong, called the online gaming workshop, where we invited a large number of VCs and, more importantly, online gaming startups, to come and discuss opportunities and mutual interest in IBM.
This event in November was actually much larger. I think we had more than 200 attendees representing pan-Asia, over 70 VC partners across Asia, as well as a significant number of their portfolio companies.
If you are not directly investing in these organizations, how is IBM getting benefits from them?
Thats probably a good opportunity for me to give you some specific examples. Lets take an example like YeePay—a Beijing services company [and] a startup only a few years old.
This is an example where it wasnt so much the technology that caught our attention, as the business model. Theyve got great technology. But the fact that they had this vision for micro- payments—for bridging between the creators of content and the banks and other credit agencies and the telecom providers—that was unique and something we hadnt seen before.
Next Page: Searching for venture opportunities.
Searching for Venture Opportunities
It was almost a marriage made in heaven, because YeePay was seeking a partner who could provide infrastructure that would link those various entities together.
IBM was seeking a new business model to help us enter new markets and extend our reach.
So YeePay is a poster child for the kind of opportunities IBM generally looks for in these emerging areas.
Together we go to the market. Naturally, both entities win, because YeePay is getting into doors that werent open to them without the relationship.
Obviously, IBM and its branded strength can open a lot of doors in large enterprises and institutions that a small startup couldnt get into.
And that is just one example. I could give you many more examples. Its something that everyone can identify with. We could be looking at the PayPal of China here.
This is a profoundly important solution that developed there. It is really impacting the way Chinese consumers will enjoy and pay for their content. So this is significant and important.
How much are you [partnering] domestically in the United Sates as compared to globally?
In terms of our strategy and approach, lets say, we are here in Menlo Park, Calif. In our back yard is Silicon Valley, and the Sand Hill Road investors.
Of the $23-$24 billion total [venture] investment, a large part of that is here. So, naturally, a lot of our focus is here in California.
But increasingly the local VCs here—look at Accel [Partners], Mayfield, BMJ and others, all household names—are looking to Asia to complement the investments that they are making locally. And I think IBM certainly understands the opportunity to do the same.
So our reach is global and it really is looking to where innovation starts. And if there are innovative people like YeePay in Beijing doing great things … or any number of other startups in India, or the Philippines or Vietnam—wherever they are—thats where we are going to be.
So increasingly, I would say, we are looking to these emerging markets for innovation to satisfy the hunger our customers have for innovative solutions to their problems. So we are by no means limited to just looking in our back yard.
In fact I think that you will find that increasingly more of the—certainly a higher growth rate—but a still relatively small chunk of the venture pie is being invested in places like Asia.
Increasingly, you will see IBM seeking partnerships and relationships with young companies in these regions.
Are there particular hot technologies that you think will be important for IBM going forward?
Customers are still—even years into the bubble—still concerned with issues around security.
Theyre still looking for solutions involving issues like data security, privacy. Risk and compliance is an especially important topic on customers minds: the ability to be able to account for the security and privacy [of] data as embedded in media like e-mail. So when an auditor or government official inquires as to the security of customer data … they can easily turn to a system that shows them it is protected and secure.
Other areas that are interesting [include] the whole open-source open standards area. One of the challenges that a startup from Asia faces, for example, is [the question of whether] they have got a solution that is compelling enough to really be appealing to the United States, North America or Europe. They have got to craft that solution using open standards because it is the only way that their technology is going to plug in and interoperate with systems in those disparate places.
Next Page: Identifying hot technologies.
Identifying Hot Technologies
Yet another area that is fascinating is wireless broadband services. And this is an area that keep us coming back to Asia because they are clearly the global leader in innovation for wireless broadband.
If you go to a place like Seoul it is virtually a laboratory for new things happening in wireless broadband, for everything from ITTV to real-time video conferencing on cell phones to voting and e-shopping—everything is done, it seems, via ones handset.
“Software as a Service” is another great example. The notion of being able to offer software as a pure business value without the headaches of setting up IT operations, of having to hire [people with] expensive IT skills, is all very appealing to customers.
Its also appealing to startups, obviously, because they dont have to go out and hire a direct sales force. They dont have to hire technical marketeers to have to go out and demonstrate the product. They can offer it from a hosted capability.
So we think this is an inflection point really in how software is delivered and consumed using the Software as a Service capability.
Naturally we are seeing lots of VCs investing in this space. Some of our VC friends have told us recently they are really only investing in new companies that bring their innovation forward as a service model.
Do you expect that customer acceptance of Software as a Service, as well as investment in SaaS ventures, will accelerate in 2006?
Well, certainly the latter. VCs are already all over this model.
I dont know that 2006 is the year. I think it has already happened. I think that, in terms of customer acceptance, you would have to look at particular markets and industries. I dont think that you can make a broad statement because it does vary.
Not every application is amenable to this model. I mean, I dont know what it would be like to look at an SAP delivered over the Web. That is virtually impossible today.
Just look at Salesforce.com [Inc.]s huge growth and SugarCRM [Inc.] and some of these other offerings that are offering a service-based model.
I think that certainly for small and medium-sized businesses, 2006 will be a huge year for the acceptance of this model. I dont know about large enterprises. I think that they have a lot of other issues, such as legacy integration, configuration and customization, which might take a little bit longer. So it may be a few years. I dont know that next year is the magic year.
But lets just say the trend is unmistakable. Its growing. Its huge. And at least in terms of what we are seeing, where we sit, change is already happening.