HP is investing $2 million in New Media Venture Partners (NMVP) and will provide up to $15 million in debt financing to help the company fund and incubate e-commerce start-ups. In return, subsidiaries of NMVP will use HP products and services.
The push is part of HP's continuing effort to become more aggressive in associating itself with the Internet. By ingratiating itself early on with Net start-ups, HP is hoping to make sure it is the hardware, software and consulting services provider of choice as these companies--if they are successful--begin to grow rapidly.
And, like any other investor, HP stands to reap the rewards of its investment if any of NMVP's companies get acquired or go public. Start-up investing has become fairly widespread among established technology companies. At Dell Computer, for instance, there are two: one that invests company funds and a separate fund associated with chief executive Michael Dell.
These sort of investments are increasingly leading to substantial returns. Apple Computer, Compaq Computer and Intel all stated that investments boosted their earnings for the fourth calendar quarter. Intel, for example, saw earnings rise by 5 cents per share, according to estimates, or $175 million, on its investments.
HP said it is already working with two of NMVP's subsidiaries. One, Moon Crescent Studios, is a digital animation and live-action entertainment company. Another, Virtually EveryThing, is working on installing shopping kiosks in retail centers to combine online shopping with traditional retail storefronts.
"We want NMVP and other winners in the next chapter of the Internet to be satisfied, loyal HP customers for the long haul," Craig White, senior vice president and general manager of HP Technology Finance, said in a statement.
White heads a group that currently finances about $6 billion worth of equipment purchases and also underwrites some of the riskier equity deals for HP. The recently formed "E-services.solution" group pursues a similar strategy, though the deals usually involve giving away equipment in exchange for a cut of future revenues, as is the case with HP's recent deal with Qwest.
White said HP is looking to build a $1 billion portfolio in venture debt financing and revenue-sharing deals.
Although most of HP's deals won't start paying off until later this year at earliest, a number of other PC companies have already seen early investments in Internet start-ups pay off.
Apple, for instance, parlayed a $12.5 million stake in Akamai Technologies into a billion dollar windfall. Incidentally, HP has invested $32 million in a competitor to Akamai called Xcelera.com.
A number of high-tech companies have also been able to ride the Linux wave to financial success through pre-IPO investments in Red Hat and other Linux providers.