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After Doubling Fund Size, Google Ventures Looks For Next Google

This article is more than 10 years old.

Google is one of the world’s largest technology companies, but it wants to help create the next big tech giant. The company’s two-year-old venture arm, Google Ventures, is expanding, doubling its annual fund to a $200 million target this year, from $100 million last year. It is also expanding into the second floor of its building in Mountain View, Calif., now with seven investing partners and 31 people total, including partners specifically assigned to work on fields such as design, engineering, recruiting and marketing. The firm has 70 portfolio companies, and has been very active, intending to do 100 seed deals this year, in addition to more traditional Series A, B or C investments.

A number of corporate venture arms invest “strategically”—that is, only in companies that provide a benefit to the mother ship. For example, in Intel Capital’s case, that means companies that somehow drive chip sales. But Google Ventures invests in ideas that are in no way connected to Google’s search engine or any of its Internet products.

So why is Google so invested in this type of venture fund? The company wants to invest in innovation, and just generally likes to have entrepreneurs hanging around, said Google Ventures founding managing partner Bill Maris in an interview. The company wants that kind of energy and activity to keep it in an entrepreneurial mindset, despite its growth to 28,000 employees. Google Ventures is focused broadly on innovation and generating a financial return, and does not seek to otherwise benefit Google, Maris said. The firm has had two exits: vacation rental website HomeAway went public in June and gaming company Ngmoco was acquired by DeNA for $400 million in October. Another portfolio company, smart grid company Silver Spring Networks, filed to go public in July.

This Q&A with Maris, about the firm's growth, its relationship to Google, and his views of the venture industry, has been edited for length and clarity.

What makes Google Ventures different from other venture funds?

First, it’s the strength of Google -- it is Google Ventures. We have access to all these resources. It’d be foolish to ignore them. Google is really great at recruiting. We get millions of resumes at Google. We really have a knowledge base. There’s user experience design, and how to do product development. It’s a very entrepreneurial place. These are the strengths. We try to answer the question: when we were doing startups, what were those things that would’ve been useful to help us?

How is your recruiting different from other VC firms that have a recruiting specialist?

We do C-level recruiting. If you need a VP of product, there’s other VCs who are great at that. That’s why we syndicate with other VCs.

How has Google itself helped with resources for your portfolio companies?

Adimab (our portfolio company) does (yeast-based human) anti-body discovery. They try to solve problems with massive parallel computing infrastructure. We’ve been able to connect them with folks in Google to access some of the largest computing infrastructure in the world. We can give them access to scale that they could never afford and is not available commercially. We try to bring unique resources to bear. That could be engineering recruiting help, or user experience designers. We try to use what’s unique about Google to advantage us in the marketplace.

Does Google the company look to Google Ventures portfolio companies for innovation?

Larry (Page) and Sergey (Brin) started (their company) in a garage. I started in my apartment. It’d be obnoxious for us to invest in companies and say, ‘You should help us.’ The mindset doesn’t work that way. We want to help entrepreneurs. There’s a very, very strong commitment from Larry and from the board for what we’re doing and how we go about it. Innovation and entrepreneurship are really important to Google. It comes from the fact that the founders and lots of people who work here have done that job.

So what are your various roles?

My most important job is with the team. It’s to hire the best people, motivate them, and make sure they’re having fun. My other job is for Google. We’re independent. But I interact with executives and technology people at Google who want to work with portfolio companies. And I handle my own investments on behalf of the fund.

So how does the interaction between Google Ventures' portfolio companies and Google work?

I have no authority over people working at Google. It’s a separate legal entity. What happens is very social. We make intros. We can’t say, ‘you must meet.’ That wouldn’t be appropriate. But invariably (Google) people like meeting entrepreneurs and seeing ways they can help us and vice versa. If we were not in existence, (the startups) would still want to meet people at Google. But there’s 28,000 people at Google now. Knowing whom to talk to is as important as what to say. One of the things we can do is say, ‘this is the right stakeholder you should talk to.’ We’re putting in place hiring someone from Google who will be, for lack of a better name, a “venture concierge.” It’s to coordinate all that communication.

Are start-up valuations getting out of hand?

We’ve seen some things that make us nervous. But that always exists in certain parts of the market. We’re not freaking out about it. There’s still great things to invest in. But there’s a lot of craziness going on. There are startups with first time founders who are fantastic but are being encouraged to raise money on convertible notes with no cap. That’s not normal--in the sense that the market doesn’t usually work that way. Also, in my view it’s unhealthy for the startups--to give them a taste of something that’s unsustainable.

If you have a startup that raises its first institutional round at a $50 million valuation, the bar is so high for the next round to get to an exit you have to really scale quickly and effectively, otherwise it’ll look like a failure. But if you raise $10 to $15 million, it may look like a home run. It may be exactly the same company but the optics of how much it raised changes it. It’s especially happening in consumer Internet. In other areas like biotech there might be more rationality. To start an app company can be really meaningful and impactful but the dollar amount you need is lower.

In terms of your structure, you don’t have pressure to raise massive funds to bring in management fees, correct?  Can you be more patient with your start-ups?

It almost always takes twice as long and costs twice as much as you think, to do something impactful. We don't have an LP base who expects their money back on a certain timeline. Nor are they expected back to raise the next fund. We don't have that pressure. We don't have to push for an exit. You sometimes see VCs mark up valuations so they can say (to LPs), ‘Look how great we’ve done,’ (in order) to raise the next fund. With us it doesn't work that way.

When you have, say, $1.5 billion in funds under management your motivation, unless you’re super disciplined, is to raise more money. In the venture business, bigger isn’t always better. Our find size is the dollar amount we invest this year. If we invest $42 million this year then our 2011 fund is $42 million. (Google Ventures partners are compensated at least in part based on exits--sales or IPOs--of start-ups, in the manner of other venture firms.)

Do you have the freedom to do things other VCs don't?

We don't have an LP base watching saying, 'Do this.' We have an appetite for very experimental things. I got an email this morning about virality.  What does it mean to go viral and how does it apply to our portfolio and to viral adoption of products. (Google Ventures engineering partner) Graham Spencer, co-founder of Excite and Jotspot, is leading a team to study this question. We don't know where it leads.

Where is innovation happening? What are you looking at investing in?

Areas like cloud, mobile and security touch lots of people. There are 2.5 billion who have access through mobile devices. Those are big markets and when you have big markets you want access to that.

There are also areas of disruptive innovation for problems we think really matter. These are really hard problems that not enough people are really working on. Like global food supply. We’re investors in WeatherBill, which provides weather insurance to farmers instead of crop insurance, as a way to provide better protection for unpredictable weather events. We’re invested in a number of biotech companies, such as Ipierian, a stem cell company, Adimab, and others. They do fundamental science. It’s about atoms, not bits. Or physics. Things you have to do to create a potentially life-saving drug. Lots of people can learn (programming languages) Python and Ruby on Rails. That’s awesome. Period. Also there are great people spending many years into their thirties studying, getting Ph.D.’s, who want to cure cancer.

What’s Google Ventures Startup Lab?

Startup Lab is an experimental space we set up. Entrepreneurs may have a need to use a conference room. But office space is expensive. We said if this is a need why don't we try to solve it? We took a Google building that was empty and planned for Google growth. We took a bunch of furniture from the Admob acquisition and set it up for 120 people. We just started but it’s a hotel space, a touchdown space, a conference space. It also creates a group dynamic. When I started my company it was me in my apartment alone with the servers I bought on the phone from Dell. It’s really hard to do (a startup) alone. It’s good to be around others doing that same thing. And we get just as much out of it.

How does that relate to Google Ventures Startup University?

Startup University is a series of classes. There are certain categories of problems that start-ups encounter: how to find a great attorney, or you need financial audits or you need a secure web site or need to scale your data or recruit great engineers. People on our team are experts in these areas and certainly people in Google are.

We also separately have office hours and do things like put two of our recruiting team from Google with start-ups. They set up time to talk about anything. What to pay people, for example, or any issues. We also do classes and invite portfolio companies to attend, first come, first served, to talk about data security, user experience, etc.

How is the competition with other VC firms?

You won’t last long if think of it as competing. If you’re careful hopefully you’ll last longer than any start-up. We’ve studied the data. We know syndicating with other VCs--that alone correlates with better returns

Your firm has been very active with seed-stage investments. What’s your approach there?

At the seed stage we do 100 investments per year or more and generally invest under $250,000. It’s usually in the form of a convertible note rather a priced round. It’s usually a smallish (company), with a couple people with an idea. That's a stage where we’re here for them. It’s important for us with these start-ups not to over-steer. The problem with many funds or investors is it’s hard to know what a startup is going to be. I thought my company (Burlee.com) would be a web design company. Then web hosting took off and we became the global leader in that. As Larry and Sergey or Chad and Steve at YouTube would tell you, these things are hard to predict. We’re here for them. They can build what they build and we’ll see if the rocket is ready for launch.

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