C&B Notes

Multinationals Invest in Start-Ups

Large companies are trying to find creative ways to overcome their bureaucratic structures and drive innovation, but history says that they will be poor venture capital investors.  Despite best efforts and good intentions, we suspect that pattern to hold this time around in what is ultimately a speculative field.

From downtown San Francisco to Palo Alto, companies like American Express and Ford are opening offices and investing millions of dollars in local start-ups.  This year, American Express opened a venture capital office in Facebook’s old headquarters in downtown Palo Alto.  Less than three miles away, General Motors’ research lab houses full-time investment professionals, recent transplants from Detroit.

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The market for start-ups has also dimmed, in the wake of the sharp stock declines of Facebook, Zynga and Groupon, the once high-flying threesome that was supposed to lead the next Internet boom.

But unlike traditional venture capitalists, multinationals are less interested in profits.  They are here to buy innovation — or at least get a peek at the next wave of emerging technologies.

Companies say they are taking a different approach this time. Rather than making big bets across the Internet sector, investments are smaller and more selective.