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How Google parent Alphabet invests in start-ups

  • Alphabet has many investment vehicles that help it keep a watch on tech built beyond the Googleplex, including GV, CapitalG, Gradient Ventures, and strategic investments made out of its corporate arm and individual business units.
  • Google's venture arm GV now has $2.4 billion in assets under management and aims to invest about $500 million per year in start-ups.
Larry Page
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Larry Page

A lot of corporations have venture capital arms or find other ways to invest in start-ups. But Alphabet, the parent company of Google, has at least three VC arms that we know about, plus a lot of other start-up investment activities.

This makes it an unusually influential player in Silicon Valley's start-up scene.

From a strategic perspective, this network of start-up investment vehicles lets Alphabet take early stakes in some of the hottest products built outside of the Googleplex, get a first look at emerging technologies, and ingratiate Google with the next generation of business leaders.

Here's a rundown of the many ways Alphabet puts money into tech start-ups.

GV (formerly Google Ventures)

Founded in 2009, the company's venture arm is described as an independent fund managing money for one limited partner, Google parent Alphabet. (Traditional venture firms make investments on behalf of a number of limited partners such as endowments, wealthy families and so on.)

These days, GV aims to deploy about $500 million into promising tech start-ups every year, and has $2.4 billion in assets under management, according to founders backed by the company.

The GV portfolio includes investments in a wide range of areas, such as:

  • Enterprise and business software companies such as Egnyte (online storage), Docusign (digital signatures), Slack (collaboration software for businesses) and Stripe (online payments)
  • Consumer brands such as Uber (ride-hailing) and Walker + Co. (beauty products)
  • Cutting-edge drone and robotics start-ups such as Abundant Robotics, Airware and Carbon

GV has always said that it's meant to be a pure venture firm, driven by financial returns rather than to invest in start-ups that help Google's other business units. Founding partner Bill Maris (who left in 2016) repeatedly said he wouldn't be involved with a fund hampered by the ever-shifting strategy of a corporate parent.

That said, GV has invested in 7 companies that were later acquired by Google, most notably home automation start-up Nest, which Google bought for $3.2 billion in 2014. Other tech companies that have acquired GV-backed start-ups range widely, including Yahoo, Facebook and Cisco.

Now run by CEO and Managing Partner David Krane, GV has announced about 30 new investments so far in 2017.

Capital G (formerly Google Capital)

Capital G, founded in 2013, is like a big sister to GV, though the two are managed separately within Alphabet.

Run by founding partner David Lawee, CapitalG makes far fewer investments each year, with just 3 in 2017 as of mid-August. It focuses on later-stage tech companies and labels itself a "growth equity fund." Most of the time CapitalG is investing in deals that involve at least tens of millions of dollars, according to Crunchbase data.

Its portfolio now includes established brands like the short-term rentals platform Airbnb, daily fantasy sports app Fanduel, and Glassdoor, a site that provides salary data and employee reviews of their companies.

Some of the ventures CapitalG backs are also in the GV portfolio, like payment tech firm Stripe. But unlike GV, which invests in companies based in North America and Europe, CapitalG also looks for opportunities in China and India.

CapitalG invested in Snap and Care.com, both of which are now public, and the firm sometimes holds shares in its portfolio companies after they go public.

The group declined to disclose detailed information about its fund, like how much it has invested since it was founded.

Gradient Ventures

As CNBC previously reported, Gradient Ventures was founded by managing partner Anna Patterson in July 2017 as an AI-specialized venture fund.

Unlike GV and CapitalG, which run as their own funds and are contained in Alphabet's "Other Bets" segment, Gradient is run off Google's balance sheet. The start-ups in the Gradient portfolio can also have Google engineers do rotations in their companies.

Some of the companies Gradient has invested in so far include Algorithmia, Aurima, Cape, Cogniac and Dyndrite.

AI is a highly strategic area for Google, and CEO Sundar Pichai has even called Google an "AI first" company. Alphabet has dedicated AI research groups, including DeepMind and Google Brain, and uses AI broadly in its search engine and other apps.

Other methods

Alphabet is known to make strategic investments in technology and infrastructure. For example, it has invested billions into clean power-generating projects and renewable energy start-ups to get closer to a goal of running its data centers on 100% renewable energy.

Google has made some large equity investments, including joining Fidelity in a $100 million investment in Elon Musk's space exploration start-up, SpaceX, and it led a $542 million round in augmented reality start-up Magic Leap in 2014 (prior to Google's reorganization into Alphabet).

Individual Alphabet divisions outside Google sometimes invest in start-ups that are related to their missions. For instance, in March 2017, health-focused division Verily invested in Freenome, a start-up developing a blood test to detect cancer, as CNBC reported.

In 2015, Alphabet division Sidewalk Labs, which is focused on urban improvement, invested in Intersection, a company formed from the merger of Titan and Control Group that rolled out public internet kiosks called LinkNYC in New York.

X, a kind of skunkworks lab at Alphabet, took an equity stake in at least one spin-out company: Dandelion, a start-up making it easier for homes to use geothermal energy for heating and cooling. (This seems to be the exception, rather than the rule, however. More X-related projects have stayed within Alphabet so far.)

Alphabet also makes non-equity investments in nonprofits and start-ups through Launchpad, an incubator space for early-stage start-ups, and its philanthropic arm, Google.org. In 2017, Google.org has doled out tens of millions in grants to education nonprofits, including Khan Academy and StoryWeaver, that use tech to accomplish their missions. Google.org has also invested in an accelerator for tech nonprofits, Fast Forward, in San Francisco.