Corporate Venture Investment Revisited

In one of my earlier writings on corporate venture investment I had discussed economic fundamentals of venturing and why it may and may not work.

Today, I see a very elaborate analysis of Google's venture investment activity in business week. The article lists strategic reasons why corporates may want to invest in early stage startups. Some of the notable reasons given are

1. To get first right to acquire the startup in case it succeeds and a potential bidding war can risk invaluable IP going to competitor's hand

2. To deploy oodles of cash lying undeployed & get better returns on idle cash.

While I accept the first as a valid strategic reason, I reject the second as an inferior way to deploy idle cash as this can potentially harm investors interest.

In short, Google's core competence is technology innovation and not financial investment and that's what investors would like Google to do first (For theoretically inclined, there is vibrant literature available on why it is better to return cash to investors by buying back shares or paying dividends rather than venturing beyond core competence.)

Well, again, as an entrepreneur, one can only be happy to find competition for the right to acquire a share in future.

Financing SmartFundit Way

Traditionally, financing against receivables, firm contracts that produce cash flows in coming months or even years, has been a good source to finance operations.

SramanaMitra blog has an interesting writeup on how entrepreneurs can use traditional and innovative financing options to Boot-Strap their ventures. With the help of marketplaces such as Smartfundit, entrepreneurs can even assist their customers finance their technology investments and expedite selling process.

Though I do not completely agree that these mechanism can substitute venture capital, I do agree that "working capital" nature of needs can be financed using such finance mechanisms. If the venture needs capital to fund asset creation including IP , entrepreneur does need risk capital to finance it.

I also found a useful Jargons section on SmartFundit that you can use to understand various options you may have to finance your needs.

Important lessons for entrepreneurs: Look for Venture capital if you need to finance assets that involve significant monetization risk. If you just need finance for working capital, there are better ways to finance your business.

New Venture Ecosystem India Update May 19, 2007

Vibrant equity market - a Pillar of New Venture Ecosystem

Easy availability of exit options is critical for healthy venture environment. India Inc raised a record Rs 25,000 crore from market in FY 2006-07 and thats a good news.

New Design Institutes may boost Design Centric Startups

Ministry of commerce is considering a new action plan under National Design Policy to make India a specialized innovation hub for sectors such as automobile and transportation, jewellery, leather, soft goods, electronics and IT hardware products, toys and games.

The plan also calls for four additional National Institutes of Design (NID). These centers would provide new design venture incubation and financing support through mechanisms such as venture funding apart from market development assistance for design oriented startups.

SBI Foray into Private Equity and Venture Cap

One of the biggest names in Indian Banking Industry is set to enter private equity and venture cap space with a fund size of about $1 Billion. My guess is that it is going to be more of private equity and less of venture cap, nonetheless, a sign of vibrant future for Indian venture industry.

Carbon Credits - Guilt Money Can Fund Your Venture

If your business model revolves around a green technology, thanks to Kyoto Protocol and green movement, you can get access to an additional revenue stream and access to clean technology.

Kyoto Protocol sets a limit on amount of greenhouse gases a country can emit. To limit emissions to predefined set quota, signatory nations limit emission from polluting industries. The protocol also prescribes a regulatory and market mechanism of tradable carbon credits to effectively implement a global emission control program.

This is how it works. Assume, there is a company 'A' in USA that emits 100K tons of carbon dioxide. Now, USA government brings a legislation, that forces company 'A' to restrict emission to 80K tons of greenhouse gas.

To comply, company 'A' has two options, either reduce emissions by 20K tons, that has a cost, or buy 20k tons of carbon credits from someone who has earned a right sell carbon credits.

Sellers in this market earn rights to sell carbon credits by undertaking any effort that will help reduce greenhouse gases in atmosphere. This could be a simple mechanism such as undertaking tree plantation or advanced mechanisms such as creating a business around clean technologies.

The amount of greenhouse gases emission you help prevent is the amount of carbon credits you can sell in the international market.

For developing nations the mechanism to participate in emission marketplace is Clean Development Mechanism (CDM). Under CDM, a developed country can take up a greenhouse gas reduction project activity in a developing country where the cost of greenhouse gas reduction project activities is usually much lower.

The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital and clean technology to implement the project. You can visit Wikipedia to know more about world of carbon credits, mechanisms such as CDM and much more.

You can call it making money out of someone else' guilt, nevertheless, going green was never so greener.