By Toby Lewis
IBM made a hugely exciting move in the world of venture capital a few months ago when it committed $100 million in a bid to boost its new IBM Watson Group business unit, which provides cloud services using Watson cognitive computing technology. The goal is to use targeted venture funding to help establish a sprawling ecosystem of companies that build web services and mobile apps on top of the Watson platform.
The strategy is a pioneering move within the field of corporate venturing. Typically corporations invest venture money in companies that are aligned with their technology and strategy. Sometimes they end up buying the companies they invest in. But IBM is pushing the model further than others by using its investments to help establish a new business ecosystem for a particular business unit.
For this reason, Global Corporate Venturing, the only media publication exclusively dedicated to tracking how corporates are investing in venture capital, gave IBM our Fundraising of the Year Award.
We believe that IBM’s aggressive move will stimulate interest among venture capital firms in investing in companies that are part of the Watson ecosystem and, more broadly, in companies developing cognitive computing technologies and services.
IBM has already invested in two Watson-related companies, Fluid, a San Francisco-based company that’s designing a shopping advisor for the retail industry; and Welltok, a Denver-based company that’s creating an app and online communities aimed at helping individuals to manage their health better.
Claudia Fan Munce, the head of IBM Venture Capital Group, last month also became the first chair of our editorial advisory board. (She did not vote in this fundraising category.) You can see her speaking on the sidelines of our Global Corporate Venturing Symposium in London last month here and collecting her award.
Corporate venturing itself is entering the spotlight of late. We believe the number of corporations investing in venture capital has grown by roughly 30% to more than 1000 units that we track today.
The number of deals being done by corporate venturing units has also started to boom of late. There was a surge of deals in May as investment activity picked up across many sectors. During May, Global Corporate Venturing tracked 177 corporate venturing investments in corporate venturing-backed companies worth $4.2 billion. Since Global Corporate Venturing started tracking data there have been roughly 1000 to 1200 corporate venturing deals in a year, so last month’s activity was significantly higher by volume.
This trend is driven in part by a shift in where research and development is occurring. The amount of R&D dollars invested by US start-ups, for example, has moved from single digit percentage points to roughly 30% of the total in recent years. Increasingly, large companies buy innovative younger firms for their innovations and intellectual property.
At Global Corporate Venturing, we will be tracking the Watson fund, and expect it to make waves in our industry. We also expect it to influence others in corporate venturing to be more creative about how they invest, and we look forward to seeing many more such novel experiments from IBM and its peers.
To learn more about the new era of computing, read Smart Machines: IBM’s Watson and the Era of Cognitive Computing.