5 Tech Startups Backed by Google, Citigroup, Cisco, Microsoft
Investors look to giants like Google and Cisco for clues to where the market is headed, but where do the giants themselves look when it comes to discovering the next big thing?
In many cases it's small tech startups, which some corporations invest in via venture arms. Corporate venture capital — or investments in startups that will serve some strategic purpose for the parent — can also provide a way for large companies to boost innovation within their own core businesses.
"Corporate VC is a fantastic opportunity to get in early on companies they might later buy or partner with," said John Taylor, director of research at the National Venture Capital Association in Arlington, Va.
It's often easier for a large corporation to invest through a separate venture arm rather than build a new product itself, particularly if the technology is disruptive — market-shaking — in its sector.
"Public corporations have to be focused on bottom line profit each quarter, so it's easy to deemphasize long-term research and development," Taylor said.
"With so much going on in universities and government labs, large companies can just place a few small bets on startups to see what's really happening on the front lines."
The relationship, of course, is symbiotic: startups that take investments from corporate venture arms gain access to a larger Rolodex than they would with a traditional venture capital firm, said Curt Nichols, vice president at Intel Capital. They can also benefit from the credibility and technology-expertise of their corporate partners.
"At the most basic level, our scale and our scope is extremely valuable to a startup," said Nichols.
Since peaking during the dotcom bubble when corporate venture capital dollars comprised 15% of all VC dollars, the segment makes up 8.6% of all venture investment today (through the first nine months of 2010), according to PricewaterhouseCoopers. That's up from 7.5% last year.
While the uptick has been led by crazy growth in the biotechnology and clean-tech sectors, Internet and software firms that focus on the booming mobile device market have also seen gains.
Read on for profiles of five cutting-edge startups backed by tech's biggest names.
Corporate Investors: Nokia, Qualcomm, Societe Generale, Citigroup
What it does: Mobile Payments
Obopay, based in Redwood City, Calif., creates technology that allows people to send and receive money using their cell phones. Competing in a crowded market that includes PayPal and startups like Boku, Obopay has raised about $139 million in venture funding from a number of large names, including Nokia and Qualcomm .
Qualcomm led a $7 million Series B funding round in 2006 and contributed to a subsequent $29 million round a year later. As one of the first providers to hit the market, Obopay impressed Qualcomm with a payment technology that the mobile industry had not seen before, said Nagraj Kashyap, a vice president for Qualcomm Ventures.
"Payments was the one area that had not come to mobile very elegantly, and we saw Obopay as a solution," he said.
Qualcomm was also drawn to Obopay's strong potential in emerging markets. While mobile payments has yet to take off in the U.S., the technology is valuable in India and Africa, where many people have phones — but not bank accounts.
The number of mobile payment users worldwide is expected to jump 54.5% from 70.2 users in 2009 to 108.6 million in 2010, driven by strong growth in developing markets such as Asia, Eastern Europe, the Middle East and Africa, according to Gartner.
Obopay partners with carriers like AT&T and Verizon , financial institutions like Citigroup and MasterCard and hardware manufacturers like Research In Motion , where a mobile money app is available in the Blackberry App World.
Next: What's ahead for Qualcomm investments?
Up next for Qualcomm investments: More mobile technologies, including augmented reality — the overlaying of digital data on a view of a real world environment seen in mobile apps like Yelp. The technology is used extensively in gaming and military applications on computers, but has also come recently to mobile to improve mapping and location-based services.
2. Silver Spring Networks
Corporate Investors: Google
What it Does: Smart Grid Technology
Smart grid companies provide hardware, software and services to help utilities reduce carbon emissions and manage energy consumption. Silver Spring Networks, based in Redwood City, Calif., provides an entire platform — including modules that gather data from electricity meters — to utilities that service 25% of the country's population, like California's Pacific Gas and Electric Company.
Silver Spring, which is reportedly prepping for an IPO, has raised more than $250 million in venture funding from investors including Google Ventures.
While Google has already made investments in renewable energy, including solar thermal company eSolar, electric car maker Aptera and wind company Makani Power, Silver Spring is its first foray into smart grid tech, which promises to decrease power usage and reduce costs for consumers.
As a major consumer of electrical power, Google benefits from clean-tech investments — anything the company can do to make that power less expensive will impact its bottom line, said Dallas Kachan, a managing partner at Kachan & Co, a clean tech analysis and consulting firm.
Investing in clean-tech also has a corporate social responsibility benefit, Katchan said, if Google can claim that it is offsetting its power requirements with renewable energy.
The clean technology sector received the third-highest level of venture capital investment in the most recent quarter with $625 million in funding, said a recent report from PricewaterhouseCoopers.
Google Ventures would not say how much it had contributed to Silver Spring, although its investment last year was part of a $100 million funding round with Foundation Capital, Kleiner Perkins Caufield & Byers and Northgate Capital.
Next: "A savior for technology in a lot of ways"