Most venture capitalists dream of finding the next billion-dollar company hiding in an inventor’s garage. Andy Garman, however, dreams of finding the next billion-dollar company hiding inside a current billion-dollar company.
Garman is a managing partner with New Venture Partners L.L.C., a venture-capital firm with a decidedly different focus on the venture market. Instead of dealing with tiny startups pushing big ideas-the quintessential two guys in a garage-NVP deals with the research and development departments of companies like Lucent Technologies Inc., British Telecom and Philips Electronics Nederland B.V.
“It’s quite a different kind of model,” Garman said.
In a typical venture-capital situation, funding firms will invest money in an independent company, either a tiny startup with no products or a growing business looking to expand. Such investments sometimes include a seat on the company’s board and the promise of a major return on investment if the company goes public or is acquired by another company. As part of the investment, venture capitalists sometimes use their contacts and industry knowledge to help push a company along, such as hiring new executives or arranging customer meetings.
NVP retains the spirit of venture capitalism, but breaks much of the mold. The firm teams with large corporations to gain access to their R&D efforts. NVP executives like Garman then conduct routine tours of the research labs and meet with the scientists, hunting for new technologies that could be spun off as independent companies.
NVP benefits by gaining access to a rich array of inventors and researchers. The company works closely with the R&D labs and brings potential startups to the attention of the corporation’s executives. If the corporation decides to spin out the technology, NVP helps form an executive management team for the new business and then helps to raise funds from other venture firms. It will also sit on the new company’s board. The linkup gives the corporations that NVP partners with the chance to capitalize on technological innovations that don’t fit into their core businesses. Such agreements essentially allow corporations to outsource their venture efforts to NVP.
“BT … produces a lot more technology than their business unit can commercialize,” Garman said. “That’s where we come in.”
NVP uses a number of strategies. The firm has worked to commercialize new technologies, or to spin off fully formed product teams. It has also licensed technology to existing venture-backed startups in exchange for equity. Finally, it has assisted in acquisitions of internally developed technology to turn them into freestanding businesses.
The NVP team came together in 1997 as the New Ventures Group at Lucent. The firm worked to spin off technologies developed in Lucent’s Bell Labs and managed to build a portfolio of 35 companies that raised a total of $350 million in additional venture funding. In 2002, New Ventures Group itself spun out of Lucent to become New Venture Partners L.L.C. The new firm continued to work with Bell Labs, and in 2003, it formed an exclusive relationship with BT to create new companies from BT’s R&D, professional and computing services unit, BT Exact. Just last week, NVP signed a similar agreement with Philips. Garman said the firm counts additional partnerships with several as-yet-unnamed corporations in the United States.
Under NVP’s new teaming with Philips, the companies first plan to spin off Philips’ electrowetting technology. The technology supports improved display screens for personal digital assistants, mobile phones and video cameras, and offers brighter displays while consuming less power.
“In research, you need to have long-term planning in creating and developing new technologies in anticipation of future trends and applications, which in due time may fall outside of the scope of Philips strategy,” said Rick Harwig, head of Philips Research. “Together with NVP we will be able to commercialize these promising technologies and turn them into viable businesses for the benefit of Philips and our innovation ecosystem.”
NVP funds a variety of startups, including several well-known names in the wireless industry. @Road, Azure Solutions, Celiant, Face2Face, Flarion, Intrado, SavaJe and others count NVP among their financiers. Around 80 percent of NVP’s portfolio is derived from the R&D operations of large corporations, while the remainder comprises independent startups.
