“No matter how big your company is,” says Jim Lussier, “there’s more innovation going on outside your company than inside.” That was the central rationale at Dell for relaunching its corporate venture capital team, which had effectively been disbanded in 2004. While the original venture capital effort was more oriented to financial gain, Lussier says, Dell Ventures 2.0 is “much more focused on harnessing innovation and entrepreneurship outside the company, and helping us transition from being a hardware company to an end-to-end solutions company.”
There’s a recognition at Dell that while acquisitions are one way to expand the company’s range of products and services, venture capital investing can help “build ecosystems around our products,” Lussier says. Dell went private last year, after 25 years as a public company, in a very contentious leveraged buyout. The Round Rock, Texas company has more than 110,000 employees and $57 billion in 2013 revenue.
Lussier, the managing director of Dell Ventures, came to Dell in 2011 from a traditional VC firm, Norwest Venture Partners. He offered InnoLead an inside look at Dell’s approach — and advice for others entering the world of corporate venture. (See below for slides outlining Dell’s VC strategy, as well.)
- There was a Dell Ventures 1.0, set up around the time of the Internet boom. That was more about providing mezzanine finance, and it was a financial gain-oriented fund. Dell Ventures 2.0, which is what we’re doing now, is much more focused around assisting Dell in the transition from being a hardware company to an end-to-end solutions company.
- Starting and stopping a venture fund can scare entrepreneurs. But our CEO, Michael Dell, is one of the world-class entrepreneurs in the world. With the company going private, Michael is here to stay. I can’t tell you how many time I’ve reached out to an entrepreneur to find out that Michael has already called them. He just loves entrepreneurship. He’s always looking for the next big thing.
- If you look at venture firms, they can range from purely financial to purely strategic. We’re in between, but definitely oriented toward the strategic.
- There are three or four organizations that have done corporate venture capital well, and that have done it for a long time. Among them are Intel Capital, SAP Ventures, Comcast Ventures, and Qualcomm. (InnoLead spoke to veterans of Intel and Qualcomm for this 2013 story on corporate venture capital.)
- You need to make sure that you’re tied in with the business. For us, every investment must have business unit sponsorship. We need to get buy-in from the business unit, so we involve the business unit president, key product and strategic teams, and CTO teams within the business unit. Trying to have a venture team go out and source deals and then throw them over the wall to the business unit is the opposite of what you want to do. In an area like storage, as we did a gap analysis with the business unit, we felt that flash was a technology that would need to come from outside. So there’s a lot of buy-in from the get go. As opposed to, “Hey, we found this deal and it looks interesting.”
- We’ve got seven people at Dell Ventures, and we announced a $300 million fund at our Dell World conference last December. We’re focused on areas like storage, the data center, cloud computing, big data, security, and mobility. We meet weekly to build the pipeline, and to analyze deals.
- Businesses naturally tend to focus on an operating horizon. But as you get people involved in the venture process, they begin to see that there are new horizons out there beyond where the business is currently focused. That’s where the real learning for the organization is.
- Our portfolio has 17 companies in it. Our average investment has tended to be $3 million to $5 million per round. We look for companies with teams and products and customers that are getting ready to scale. We want to team up with [traditional venture capitalists], who tend to serve on the startup’s board.
- We’re very clear about the value we can bring: our brand, 10 million business customers, 20,000 sales people, and our channel programs, where we can put a product on our price list and sell it as a Dell product. We can also help companies with product planning and advice. I think entrepreneurs realize that there’s a value proposition in working with us that can help them build their business faster.
- We do road shows where we bring leaders from our business units out to meet entrepreneurs and VCs in places like Silicon Valley, Boston or Israel. We also do other events around themes like big data or the cloud, where we have “speed dating” conversations. Startups talk about what they’re doing, Dell people talk about what they’re doing, and we explore the fit, and figure out possible next steps. Another initiative is the Dell Founder Club, which brings together the startups we’ve invested in to network and share best practices.
- Acquisition is always going to be a good tool in some cases. But it’s just one tool. Corporations need multiple tools. Investing shouldn’t be the only tool, either, but it does have a role in helping a company get to where the puck is moving.
- To me, it’s pretty obvious: no matter how big your company is, there’s more innovation going on outside your company than inside. So how are you going to harness those outside ideas? The idea that people who work for you are always going to come up with the next big idea — it isn’t going to happen. The real innovation is happening outside. So how do you tap into it in a way that is a win for the entrepreneur, for the company, and for your customers? In the end, that’s what we’re really all about — bringing the best solutions to our customers to meet their needs.