Compaq sees corporate VC growing

SAN FRANCISCO: Corporate capital has gone from almost nowhere to controlling

almost a fifth of all venture financing over the past six years and that trend

will continue, executives in charge of venture investing for Compaq Computer

Corp. said on Monday.

Two reasons explain that trend in Compaq's view. First, venture capital firms

are seeking to spread the risks for new or additional financing of portfolio

companies. Second, start-ups are offering more of what established firms want:

incremental improvements to their products and services and operating

efficiencies, both gains that start-ups can help deliver with cash help.

"We're finding less fundamental-change technologies," said Bud

Enright, Compaq's vice president for corporate development. Enright said he now

receives at least one call a day from venture capitalists pitching deals, which

was not the case over the past few years.

For its part, Compaq made more than $500 million in private equity

investments in 2000 through venture capital firms and directly into more than 60

firms. In the recent past, venture capitalists had "wanted it all

themselves," Enright said. "They wanted to have as big piece of it as

they could."

But many venture capitalists, stung by the technology market's downturn, now

want investment partners to share risks inherent in technology financing, he

said. As part of their pitch to corporate venture units, venture firms are

selling start-ups with technology of strategic use to parent corporations.

For Compaq, that means opportunities in financing start-ups whose first round

of financing was picked up by venture firms. "The 'B round' is the sweet

spot for us," Enright said. "They've got a product, they're raising

money and they're probably ready to go to market."

Risk averse venture capitalists are helping raise the profile of corporate

venture capital, which will help decide the kinds of technology advanced or

sidelined this year, according to Brian Bonazzoli, Compaq's director of

corporate development. "What we do collectively has huge impact on the

start-up community now," Bonazzoli said of corporate venture efforts.

Compaq estimates that 18 per cent of all venture financing in 2000 came from

corporations, up from just two per cent in 1994.

(C) Reuters Limited 2001.