An announcement that Google is to create a European version its venture capital activities this is welcome news. Google Ventures’ recent $100 million fund for early-stage European technology firms provides a recent source of venture capital often lacking on this side of the Atlantic. Startups may also gain access to Google’s impressive technology and enterprise networks.
But what does this mean for Google? There’s definitely money to be made with the right investments, although the web giant is not desperate for more revenue. Perhaps more vital is the ability to discover recent technologies that might strengthen or threaten Google’s market position. Only last 12 months Google bought, among others: DeepMind (artificial intelligence), Nest (smart homes) and Skybox (satellite imaging). Nest itself was a recipient of Google Ventures funding in 2011.
What can we expect?
Google entered the European corporate venture market late. Others, akin to Intel Capital – the corporate arm of the American chip manufacturer – have been operating in this space for several years, combining effective investments with the possibility of acquiring shares or ownership of interesting technologies.
Over the years, Intel has poured money into a few radical technologies unrelated to its core business (akin to Metaboli’s on-demand video game service), while the overwhelming majority of investments have been closer to its current technology needs (akin to digital power provider Powervation). . Intel’s investments were made each through intelligence gathering by Intel Capital employees and through guidance from Intel’s operating departments.
If Google Ventures follows the same pattern in Europe, most future investments will likely be in areas closely related to Google’s core business.
A welcome addition
Even if there is an obvious element of public interest behind Google’s investment, it is still excellent news. Particularly welcome is the statement by the head of Google Ventures, Bill Maris, that in the US the company invests at all stages of business development – from the drafting board to the finished product. If this may be replicated in Europe, the biggest impact may very well be felt by early-stage high-tech startups, where financing is often the most difficult.
This is vital because the availability of risk capital – or its lack – changes the behavior of young high-tech firms and their subsequent development prospects. As a rule, greater access to capital means greater freedom to take risks and introduce innovations.
Take the biopharmaceutical sector for example. Research I recently conducted with Helen Xia from Loughborough University compared small firms in the USA and Europe. In the US, abundant venture capital has allowed these firms to take greater risks. Early in the drug development process, they were capable of evaluate many possible compounds, increasing their probabilities of identifying worthwhile recent drugs.
In Europe, where there was less venture capital, firms had to make use of fewer ingredients, reducing their probabilities of finding a silver needle in a haystack. European firms also seemed more reluctant to desert individual unions than their U.S. counterparts, perhaps attributable to the must keep investors on board.
European firms are at a drawback here attributable to a lack of venture capital or venture capital, and what works in biopharma will also work in technology. Google’s investment will help by providing early-stage firms with the time and space mandatory to discover the most appropriate growth opportunities.
It’s not only money
However, the value of investments like those from Google Venture goes beyond money because they have two other advantages. First, access to Google’s technology networks and address book can help firms effectively develop and commercialize their technologies. Secondly, there is a “signaling” or reputational profit, where a link to Google acts as validation of the recent business. This may help each in accessing other funds and in finding development partners.
Google’s fund is actually relatively small in comparison with other recent investment announcements. Last month, for example, the investment group that backed takeaway website Just Eat and addictive app Candy Crush announced a €400 million tech startup fund focused on Europe and Israel – five times larger than Google. But collectively, these investments send a broader signal that Europe’s technology clusters are maturing and becoming global hubs.
Whether it’s London or Berlin, Europe could finally face the challenge of promoting high-tech startups. But getting off the ground is one thing; world domination is something completely different. Now the continent just must create a business environment that will enable these firms to enter the global market.