How VMware Funds Innovation like a VC

By Scott Kirsner |  May 13, 2013

Venture capital funding helps spawn Silicon Valley tech companies like VMware, a publicly-traded software company focused on virtualization and cloud-based services. So what could venture capital do internally — once a company is 15 years old and VMware’s size (roughly 13,500 employees)?

VMware vice president of innovation Julia Austin told me recently that the hope is that internal VC will foster new ideas generated by employees that may not  fit neatly into an existing product line.

As Austin describes it, her job at VMware’s Cambridge office is to “incubate, fund, and occasionally kill new ideas. She also oversees collaborations with East Coast academic institutions like MIT.

“We have a VC-like board of eight people, a mix of technical and business people,” she says. All are on the VMware payroll. “Anyone can pitch an idea, whether it’s in an adjacent area to our products or not. These are things that shouldn’t be in a business unit while they are being developed,” because they might not be seen as ready for the market yet, or they might not appear to have significant enough revenue potential. “We fund the best ones, and the people stay VMware employees. We give them a stake. The goal is to sell it back to the company. With their funding, we may give them hardware, a number of people, space, and support services. But it’s not an endless bank.”

A handful of ideas have gotten initial funding, Austin says, and “one project just got its B round funding. We expect them to have a business plan, and some idea of how to make money.” She says that it’s possible that VMware could spin some of the ideas out as independent companies, though that isn’t in progress yet.

Austin says that the company has committed to invest “millions” in these internal startups, and if successful, there is significant upside to the entrepreneurs running them. But there’s also risk: if an internal startup doesn’t click, she says, “the risk to the individual is, you need to find a new role at the company, within a certain window of time.”

Austin says that more than 60 ideas have been presented over the last year-and-a-half, in areas like R&D, customer service, and field sales. But she won’t be specific about what any of the projects are focused on, aside from saying that one is getting close to public release.

“It’s too early to tell you it’s a resounding success,” she says. But it is a very interesting way for a large tech company to foster innovation…