US venture capital seeks Web start-ups worldwide

Jim Christie

SAN FRANCISCO: Bruce Dunlevie will never be caught raising a clenched fist

against globalization.

Like many other Silicon Valley venture capitalists, Dunlevie sees greater

global trade as a benefit to his current and future investments - a view

increasingly spurring US venture capitalists to look abroad for technology

start-ups.

And that even includes start-ups aspiring to make a mark in the bloodied

Internet sector.

"We think globalization is fundamentally important to our

business," Dunlevie, a founding general partner of Menlo Park, Calif.-based

venture firm Benchmark Capital, told Reuters.

"In the old days, a company could start in Silicon Valley, Tokyo or

Munich and spend four or five years competing in their own isolated market. But

now the Internet has broken down time-zones," Dunlevie said.

Show a US venture capital firm a promising start-up abroad and its money will

follow because opportunities overseas barely have been tapped, Dunlevie said.

"Every Fortune 2000 company is still early in the process of Webifying

its business," Dunlevie said.

Venturing overseas



More and more US venture capital firms are partnering with foreign colleagues or
planting their own roots abroad.

Israel and Europe, for example, are in Benchmark's sights. Late last year,

Benchmark opened a Tel Aviv office for a $200 million fund investing in Israeli

start-ups - the first effort of its size for a Silicon Valley venture firm.

This summer, Benchmark aims to make a bigger name for itself in Europe, when

it sends Dunlevie to its new London office in a "year abroad" program

of sorts.

From London, Dunlevie will help find and groom start-ups across Europe,

though most likely in Scandinavia, Germany, France, England and Ireland,

Europe's leading tech markets.

Dunlevie also will scout business in Europe for Benchmark's US portfolio

companies, which include start-ups developing Internet applications,

infrastructure and business and retail services as well as networking equipment.

Dunlevie's year abroad will be time well spent, according to Manju Puri, an

associate professor of finance and venture industry analyst at the Stanford

Graduate School of Business.

"You have a growing recognition that a lot of the action is

overseas," Puri said, adding that "If venture capitalists are to be

hands-on, value-added investors, they need to have a close physical

presence" to their portfolio companies.

Also, US venture capitalists now facing a dormant initial public offering

market at home should take "exit strategies" worldwide, so that

foreign start-ups, like US start-ups, grow into acquisition targets or potential

IPOs on US stock exchanges, Puri said.

Corporate expeditions



Like US venture capital firms, US corporations also are stalking start-ups
abroad.

For instance, India, long a source of software talent for US high tech, now

finds some of the software engineers who left the country are returning as

investors - and they're being joined by some of the biggest names in US

high-tech.

Cisco Systems Inc., for instance, in January pledged $200 million to train

1,500 software engineers in India by next year. AOL Time Warner Inc. plans a

$100 million investment in India to develop Web browsing software.

International Business Machines Corp. likewise plans a foothold in India: a

Linux research center.

Meanwhile, IBM also is quietly expanding in Asia with its worldwide

"value-net" of venture firms to invest the company's money and to

introduce Big Blue to promising local start-ups.

Launched in 1998, IBM's network recently signed Crimson Ventures as a new

partner. The Silicon Valley venture firm invests in start-ups developing new

electronic-business infrastructure, software, outsourced services and

communications technologies.

But just as important as the start-ups that Crimson finances is where it does

business.

Tim Wong, director of IBM's Net Generation unit in Singapore, told Reuters

that major reasons for signing Crimson as a network partner were the firm's own

network of offices throughout Asia and the regional experience of their staff.

Crimson, headquartered in Palo Alto, Calif., has offices in Hong Kong,

Singapore, Taipei and Tokyo. The firm's Asia staff has worked for central banks,

local technology companies and regional offices of leading consulting firms.

Allies for start-ups



Crimson's Asia contacts and regional expertise are intended to strengthen IBM's
"value chain" of Asia-based venture firms.

"We've invested in eight venture firms in Asia, and we've also formed

close business relationships with other venture firms across Asia," Wong

said.

"Imagine a network of invested and non-invested venture firms globally

with thousands of portfolio companies. That's a very powerful thing," Wong

said.

Rather than invest directly in foreign start-ups, IBM leaves that to venture

capitalists in the field, because "These venture firms have eyes and ears

and expertise we don't," Wong said.

In exchange, the firms' portfolio companies can use IBM's technology, brand

and contacts, helpful resources for start-ups in securing Global 1000-level

clients, said Fred Ayala, a partner in Crimson's Hong Kong office.

"IBM is basically opening up its technology, its marketing intelligence

and marketing channels to our portfolio companies," Ayala said. "What

this allows us to do is to engage much more closely with IBM than previously

possible."

(C) Reuters Limited 2001.