IBM sets up advisory panel of 7 venture capital firms

Big Blue wants to identify startups with hot future

August 23, 2005|By BLOOMBERG NEWS

NEW YORK - International Business Machines Corp. has created an advisory panel of venture capitalists to help identify startup companies that may become suppliers, customers or acquisition targets.

Investors from seven firms, including Accel Partners, Hummer Winblad Venture Partners and U.S. Venture Partners, will meet with IBM executives four times a year to suggest products and companies that may be of interest, IBM said yesterday.

IBM's venture unit has identified more than 850 startups around the world with the help of venture capitalists and provides the companies with sales prospects and advice, said Mark L. Hanny, an IBM vice president.

The panel is part of a plan by IBM Chief Executive Officer Samuel J. Palmisano to spend about $1 billion a year to build relationships with investors, professors and researchers that may lead to sales, Hanny said.

"We don't want to be [a venture capital firm], though we see they play a very valuable role," Hanny said. "We don't go into it with the idea of just making money."

IBM typically doesn't invest in startups, unlike venture arms at companies such as Intel Corp. and Microsoft Corp. IBM has used its venture program, founded in 2000, to identify acquisitions, including the 2003 purchase of Think Dynamics and last year's acquisition of Alphablox Corp.

The startups may use IBM's products, though that's not a requirement to be a partner, Hanny said. IBM encourages the companies to develop programs that are compatible with IBM applications or computers.

Venture-capital firms use conversations with IBM, which have taken place informally for several years, to get a jump on research that may lead Big Blue to create new products or expand into different markets, said David E. Liddle, a partner with U.S. Venture Partners in Palo Alto, Calif.

"It helps us understand the direction IBM is planning to take in its overall business," Liddle said, noting that companies in his portfolio have become IBM suppliers. He declined to be more specific.

"We stay close enough to IBM that we understand what capabilities are there before they are widely known," Liddle said.

Shares of IBM fell 16 cents to close at $82.60 yesterday on the New York Stock Exchange. They have declined 16 percent this year.

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