Back in March, Brian Halligan, chief executive at HubSpot, wrote a great post around his observations on why Sequoia wins at the venture capital (VC) game. Brian’s assessment was based on HubSpot’s experience raising our series D [round] and was spot on in my opinion. Sequoia is agile yet disciplined. They are aggressive yet reasonable. They have taken the classic VC playbook and out-executed just about everyone. Incredibly impressive.
With all its success though, Sequoia has a right to stay paranoid (number eight on Brian’s list). The VC industry is undergoing some massive changes and is in the process of being disrupted by a new breed of investors that are attacking the edges of the market and competing with a new, differentiated approach. Google Ventures, a coinvestor alongside
Sequoia in HubSpot’s series D, is one such firm. Google has a history of reinventing industries and questioning conventional wisdom – and it is trying to do it again with its approach to venture capital.
Six ways Google Ventures is attempting to disrupt the VC industry:
1. Engineering support: This is the most unique and fascinating aspect of Google Ventures. Unlike most venture firms that compete on brand and "expertise", Google Ventures has a unique – engineering focused – set of support they provide entrepreneurs: engineering scale consulting, UX/UI [user experience/user interface] design research, and engineer recruiting aid. When the team at Google Ventures listed these services during our session for the first time, in my head it was: check, check, check. All challenges for HubSpot and pains that would be hugely Compare that with the traditional pitch of VCs centred on a softer set of business model expertise and professional networking. It is a point of competitive differentiation for Google Ventures and potentially a source of huge value for the entrepreneur.
2. Unmatched brand on main street: HubSpot, like many companies, does not consider its target market to be the technorati that spend their days reading Tech- Crunch and debating Groupon’s latest valuation. Instead it is the small businesses that make up a majority of America’s economy – and it is with this market that Google has a superior brand. This is potentially a huge point of differentiation for Google Ventures. For a B2B [business-to-business) company like HubSpot, including Google Ventures as an investor validates our business model for main street America. These are people that may not even know about the term "venture capital" – they are happy just building profitable businesses.
3. Helping with the tech talent war: One of the key challenges for start-ups, particularly those in Silicon Valley and Boston, is the tech talent war. Meanwhile, Google gets over a million people sending their résumés in every year. The Wall Street Journal recently reported that Google Ventures had hired partners who would cull this database of applicants and help its portfolio companies win the talent war. The cash component of a VC financing is clearly useful. But getting assistance in investing that cash into stellar talent is exceptionally valuable. Google Ventures is leveraging its unique position and strength in what is sure to be a popular value-add for its portfolio companies.
4. Access to Google proper: This somewhat goes without saying, but Google Ventures is uniquely positioned to provide entrepreneurs with access to the rest of Google. Google Ventures was very transparent in stating that in practice this is not more than a warm introduction to the right people – it can lead to some great opportunities for entrepreneurs and is another great point of differentiation. As one example from fellow Cambridge-based and Google Ventures- backed start-up Scvngr, the company was the first to launch publicly with integration to the Google Places API [application programming interface] last autumn. This integration solved a major strategic challenge for the company and enabled it to scale internationally. This is an introduction that few venture firms could make so cleanly.
5. Non-traditional dealflow: One of the disruptions happening in the VC industry at large is a sharp increase in the amount of non-traditional dealflow. Firms like DST and Y Combinator are expanding the market by converting previous non-consumers of VC into consumers (at both the very late and very early stages) and growing the market as a result. Google Ventures has entered the fray with its own launch of Startup Lab. The programme, started last autumn, is designed to provide Google Ventures investments with a space to grow and thrive at the Googleplex campus (and potentially provide HubSpot with a west coast office down the road). Ideally this enables Google Ventures to leverage the heralded facilities at Googleplex and increase dealflow for these early-stage companies. More uniquely, Google Ventures also recently announced a $10,000 start-up referral bonus for its 23,000 employees and has a promise of more innovative dealflowprogrammes to come. Through these programmes Google Ventures is attempting to leverage its unique position within Google and create exclusive dealflow channels.
6. Brilliant insights: This item is not necessarily unique but I would be remiss if I did not mention it. The folks at Google Ventures are smart. And although it is not necessarily disruptive (there are lots of smart people in the venture community), with Google Ventures it was like they had been secretly hanging around the halls of HubSpot the last three years. The most telling stat for me is this: I took almost no notes during a majority of the trip but came out of the initial Google Ventures pitch with pages of feedback. Great insights from smart people. Though not enough to disrupt the venture community by itself, it certainly does not hurt.
So what do you think? Does Google Ventures have enough to disrupt the venture community, or in a few years are we going to see them revert to competing with the business model and values proven by the established firms?
Comments:
arjun moorthy: Nice writeup Brad; lots of things I did not know about Google Ventures. Having interned at Intel Capital, I remember that corporate VC was not well regarded in the VC community, both by fellow VCs and by those searching for funding. Intel Capital also cited some of the above, albeit usually for hardware start-ups, but I wonder why this sentiment existed.
Sean Murphy: The answer is no. There is no career path for Google Ventures folks within Google, whereas a partner at Sequoia gets to run the show. So the natural lifecycle for corporate venture groups is much shorter as a result than for successful venture firms.
April: Curious, but I wonder if some of this effort on Google’s part is in response to Microsoft’s efforts with start-ups, the NERN centre in Cambridge, the free software, and start-up evangelists in every part of the country. Microsoft makes a compelling case for staying in the Microsoft camp as a start-up. What do you think – who gives you the better deal, Google or Microsoft?
Don Tarinelli: I am a co-founder of a Google Ventures start-up and am hugely bullish on how they are planning to disrupt and optimise yet another huge yet, in many ways, hugely inefficient market – VC. See my Quora post on Google Ventures (www.quora.com).
Chester Ng: Google Ventures is an interesting new play. But ultimately, will the next Facebook, Twitter, Zynga, Groupon come out of their portfolio? No. It is another Intel Ventures waiting to happen – a reconnaissance arm for the mother ship but not really disrupting anything that would upset it.
This article first appeared at Onstartups.com.