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Big technology companies are increasingly setting up partnerships with venture capitalists to spin out new companies and technologies, as they seek to take better advantage of the billions of dollars they pump into research and development each year.
Spinning business units into new companies has long been a strategy used by groups looking to streamline their business or shed under-performing divisions.
But the spin-out of smaller research projects or licensing of individual technologies to start-ups in return for an equity stake is a rising trend as companies seek new ways to cash in on their hefty R&D investments.
“Eighteen months ago I could not have pointed to a corporation and said these guys are on the record for doing [IP] spin-outs,” said Bart Schachter, managing director at Blueprint Ventures, a venture capital firm.
“Now I can point to a couple of companies that have broadly indicated their interest in doing this.”
Companies that have indicated an interest in doing more to take advantage of their R&D output include Microsoft, Intel and Hewlett-Packard.
Blueprint teamed up with Intel to inject $17m into Landesk, a software company that was spun out of the world’s biggest chipmaker in 2002. Intel walked away with between $60m and $75m after Landesk sold to Avocent, a rival software maker, in April. “This is an asset that would otherwise have been written off,” said Mr Schachter. “Spinning it out, that’s a lot more attractive than shutting it down. That’s real money to the bottom line at Intel.”
Microsoft, the world’s biggest software company, set up a special division to look at IP spin-outs last year.
David Harnett, director of Microsoft’s IP Ventures programme, said: “What we are looking for is external startup teams that can bring technology to market for us.”
“It’s different than your classic spin out,” he said. “In this situation we look for outside entrepreneurs who can take a technology we have, get VC funding, and Microsoft in return gets an equity stake in their company and participates on the board.”
For big technology companies whose research and development budgets stretch into the billions of dollars, such spin-outs can be a useful way to monetize projects that would have otherwise lain dormant or even been closed down.
Walter Kortschak, managing partner at Summit Partners, the buyout group, said that pressure from Wall Street was contributing to the trend.
“There is a lot of benefit for many of these large companies to show Wall Street that they are focusing on their core business,” he said. “Many of these companies did acquisitions that led them somewhat astray during the height of the bubble.”