Venture capital, done the Google way

MOUNTAIN VIEW, Calif.--After a little over a year in the venture capital business, Google now has 10 start-ups under its wing and plans further growth in 2010.

A mobile payments company called Corduro became the latest start-up to accept funding from Google Ventures on Monday, as fund executives hosted a wide-ranging discussion on the state of Google Ventures at Google headquarters. Google wants to invest about $100 million this year in interesting emerging start-ups, said Bill Maris, managing partner of Google Ventures.

Bill Maris, managing director of Google Ventures (Credit: Google Ventures)

Google Ventures launched in March 2009, but the company had not said very much about its activities in the intervening year. Over the weekend, Google Ventures launched a new Web site and disclosed that its team of full-time employees had grown to 16.

A company most known lately for snapping up start-ups left and right, Google has separate goals in mind when considering venture investments, said CEO Eric Schmidt. Schmidt, who is an assistant instructor for a venture capital class at Stanford University, said Google wants to emulate the strategies and tactics followed by the traditional venture capital firms that turned groves of fruit orchards in the southern Bay Area into Silicon Valley, but with a Google twist.

Google is interested in compelling start-ups that have computational problems, be they risk analysis, algorithmic processing, or some other complicated type of numerical challenge that is hard for a small company to pull off but second nature to Google. Companies that accept investment from Google can draw upon individuals from among Google's engineering team for specific needs: one Google user-interface design engineer, Braden Kowitz, helped an image-recognition company called Pixazza improve the usability of their Web site and tools.

This is a completely separate project from Google's mergers and acquisitions team, Schmidt said. When Google buys a company it's usually because a project team has identified a need and researched the available companies, or when an interesting company reaches out to Google looking to get bought, he said.

Venture investing, on the other hand, involves "new speculative high-risk investments," Schmidt said. It's also distinct from the investments Google has made through its Google.org arm or the energy investments it has made in that it is being run with a for-profit mentality, he said. Schmidt also moonlights as an investor in Tomorrow Ventures, which does not list him among its partners but which he mentioned briefly to clarify that it was a completely separate operation from Google Ventures.

Google accepts employee recommendations for potential investments, reasoning that its employees are in tune with innovative start-ups in their respective fields.

"Googlers know a lot of people, and the employee base that Google Ventures can tap are people who understand subtleties that the average VC firm can't tap," Schmidt said. "That doesn't mean we are better investors, but it means we understand this stuff."

So where is Google putting its dollars? So far, Google Ventures has put money into start-ups that align with Google's broader interests, such as OpenCandy, a software-distribution and ad network, and English Central, which analyzes video on the Web to help students learn English.

But there is no overarching goal or philosophy behind Google Ventures, Maris said. Google's leadership triumvirate (Schmidt and co-founders Sergey Brin and Larry Page) does not decide where specific investments are made, although they do set the budget for the fund, which will likely vary on a year-to-year basis.

Still, Maris was mildly surprised to learn for the first time during the roundtable discussion that Schmidt wants Google Ventures to expand overseas in the near future.

Right now, mobile applications are the hot venture investment area because of the low cost of capital needed to get a couple of developers off the ground and the potentially high reward as mobile technologies continue to develop. Google is obviously eyeing that trend with investments like Corduro, but it's important to avoid a "herd mentality" when it comes to venture investing, Maris said. Schmidt took great pains during the discussion to paint Google Ventures as something complementary--rather than competitive--to the existing venture capital industry. Google has plenty of money and technological expertise but it does not have nearly the experience that seasoned VC firms bring to the table, he said.

However, Google Ventures can learn a lot from those firms, he said.
"Venture is a phenomenal achievement of America. My entire life has been defined by the people who created the venture industry," Schmidt said.

Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom.

Be careful when you send e-mails, you can get into trouble!

Never underestimate the power of e-mail

HAVE you ever written an e-mail about someone and sent it to the same person when your intention was to send it to somebody else?

Have you written an angry e-mail and decided that it would be better not to send it, and then accidentally press the “Send” button anyway?

Are you still naive enough to think that anything inappropriate you send out will not come back to haunt you one of these days?

Goldman Sach’s bond trader Fabrice Tourre, who calls himself Fabulous Fab, has learnt the hard way that there are no secrets when it comes to e-mail.

His most famous e-mail that is now broadcast to the whole world went like this: “More and more leverage in the system. The whole building is about to collapse anytime now … Only potential survivor, the Fabulous Fab … standing in the middle of all these complex, highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

And if that is not enough, even his amorous e-mail exchange with “a gorgeous and super-smart French girl” is now a matter of public record.

For Tourre and other Goldman Sachs executives questioned by the Senate’s Permanent Subcommittee on Investigations last week, their e-mail trail going back to 2007 has provided much of the ammunition for the senators to grill them with.

Whether e-mail or SMS, the reality is that anything we put in writing is potentially a disaster waiting to happen.

If you don’t believe me, you should buy the book Great Email Disasters by Chas Newkey-Burden.
His book, published in 2007, is still selling well.

Asked by a Reuters reporter about Tourre’s e-mail indiscretions, he said, “People have always been indiscreet. We just have more power to mess up at our finger tips.”

According to the author, e-mail is convenient but highly dangerous. With an ill-considered click of the mouse, you can humiliate yourself in front of millions, lose your job or even end up in court.

Let’s get real. All of us commonly use office e-mail for private purposes. Although we are advised to keep our office and private e-mail separate, they often gel into one.

When we give out our name cards, our friends and contacts will often use our office e-mail to communicate with us, even on non-official matters.

Sometimes, we get unsolicited e-mail that may be deemed highly inappropriate from our company’s point of view but they still get through despite the various filters the IT department has put in.

I guess some will say this is an occupational hazard and part of the harsh reality of life in such an interconnected world. But we should never underestimate the power of the e-mail, and its potential of making us from a nobody to an instant celebrity.

Deputy executive editor Soo Ewe Jin was inspired to write this week’s column after watching “My Best Friend’s Wedding” on DVD where the character played by Julia Roberts wrote a fictitious e-mail to wreck her best friend’s wedding. And the Goldman Sachs proceedings too, of course.

Europe’s turn to face debt crisis

In the past, developing countries including in East Asia faced debt crises and suffered from IMF loan conditions. Today, a debt crisis has emerged in Western Europe that threatens the chances of a global recovery. 

THE global economy is slipping into a new crisis, with Greece being the epicentre and several other European countries already experiencing contagion effects.

It is quite surprising that Western Europe, considered a model of good economic governance, is now having to deal with a debt crisis.

Years and decades ago, debt crises hit Africa, Latin America and Asia as well as Russia and Eastern Europe.
The developing countries affected had always been accused of causing their own problems, with the faults variously attributed to corruption, mismanagement, bad governance and crony capitalism.

Greece is accused of fiscal irresponsibility, building up huge government debts and cooking the books to hide the extent of its deficits.

But it is increasingly difficult to ignore structural factors that contributed to the financial crises through the years.

If the lessons had been learnt from the Asian crisis that started in 1997, perhaps this European crisis would not have happened.

On the other hand, it is also vital to learn from Europe’s crisis so that Asia and other developing regions will not fall into new financial crises.

In Africa and Latin America, governments had taken too much foreign loans and crises developed when they did not have enough foreign exchange to service the debts.

In many cases, this was due to the fall in the countries’ commodity export prices, the rise in their oil import prices, increased trade deficits or economica lly unfeasible projects.

These crises exploded the myth that foreign loans to governments were safe as they could not default.
The pendulum then swung and it was thought to be safe to lend to the private sector as it would use the loans for profitable ventures.

The Asian crisis arose when too much foreign funds went to local companies.

This was made possible by financial liberalisation and deregulation. Thailand, South Korea and Indonesia relaxed the rules that had prevented locals from taking loans denominated in foreign exchange, and companies in each of these countries took foreign loans of over US$100bil (RM318bil).

The relaxation of rules also enabled foreign funds and firms to engage in currency speculation and manipulation.

The resulting collapse of the Thai baht had contagion effects on Indonesia and South Korea.

The three countries’ currencies depreciated and they faced default on their foreign loans and had to turn to the IMF.

Malaysia’s currency also depreciated sharply but it did not face a default situation because some regulations on foreign loans to local companies had been retained.

The Asian crisis exploded the myth that foreign loans to companies were safe because the private sector will make correct loan calculations and invest in profitable projects.

Now, the European crisis is exploding the myths that European countries are well governed economically, that there is no or little risk in loans to their governments, and that countries within the Eurozone are especially safe, as any nation in trouble will be helped by the others.

Many European governments have built up large debts and the loans have to be rolled over or new bonds have to be issued to service old loans and fund new budget deficits.

Greece has been struggling to obtain fresh credit to avoid a default on loans due this month.

It tried to raise new cash through the market but the interest has been priced so high due to the risks perceived that the government was unable to afford market loans.

For months, Greece has sought a loan package (at less than market rate) from Eurozone countries and the IMF but the terms and amount were still being haggled over, with Germany in particular insisting on stringent policy conditions.

Speculators have been blamed, including by some European governments, for making the situation worse by accentuating the increase in risk premium on Greek debt and the decline in the euro.

Last week, credit rating agency Standard and Poor’s downgraded Greek government debt (to junk status) as well as the debt of Portugal and Spain.

This triggered panic until moves for a final Eurozone-IMF package calmed the situation at the week’s end.
The package is now expected to be €120bil (RM508bil) to cover three years’ needs.

Even then a number of economists have concluded that eventually Greece needs a restructuring of its debts, with creditors and bond-holders taking a “haircut” or a partial repayment.

According to them, it is better for an orderly debt workout up-front now rather than a prolonged crisis and a possible messy default and unilateral restructuring later.

The fallout of a Greek default can be serious as European banks have US$189bil (RM601bil) exposure to Greek loans.

They also have claims of US$240bil (RM764bil) on Portugal and US$851bil (RM2.7tril) on Spain, according to a Financial Times article.

There are concerns that the crisis may spread to other countries through contagion.
According to OECD data, in 2010 the public debt to GDP ratios are 95% for Greece, 63% for Portugal, 42% for Spain and 38% for Ireland.

The public budget deficits are 9.8% of GDP in Greece, 7.6% in Portugal, 8.5% in Spain and 12.2% in Ireland.

Meanwhile, these countries are preparing austerity measures that are bound to cause a lot of pain.
In return for the loan package, Greece is asked to drastically cut government spending, salaries and allowances, freeze government jobs, overhaul the pension scheme and close state entities.

The angry reaction to this news in violent street demonstrations over the weekend shows how difficult it will be for Greece to agree to these terms.

When the measures are implemented, the reactions will be stronger. Asia can learn from this evolving European crisis.

It cannot be expected that governments can almost automatically roll over their debts or successfully float new bonds at reasonable interest rates.

Governments have to be disciplined in managing public finances and in limiting deficits and debts.
There also has to be the re-regulation of finance to avoid excessive leverage, speculation and unethical practices.

Global Trends by MARTIN KHOR