Corporate investors treading lightly in rocky market

Executives charged with making investment decisions for some of the best-known technology companies say the economic downturn is forcing them to invest more cautiously.

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Executives charged with making investment decisions for some of the best-known technology companies say the economic downturn has caused them to lower their expectations and invest more cautiously.

John Chapman, director of business strategy for Hewlett-Packard's E-Services.Solutions organization, said the computing giant is now focused chiefly on deals with larger, more established companies such as China Mobile, instead of start-ups.

"Our risk profile is more conservative than it was a year ago," Chapman said. "The dot-com crash over the last several months has chastened the entire market."

Richard Birney, vice president of venture investments for IBM, said Big Blue is not changing its investment strategy but has had to alter the returns it expects to see from the venture funds where it invests.

"I'm having to recalibrate my expectations from whatever was going on last year; some of the funds were getting over 100 percent rate of return," Birney said.

Maureen Lawrence, a partner with Lucent Venture Partners, said that since the downturn in the market, the fund has "been reserving more money for follow-on rounds because companies are not exiting as quickly."

Swept up by the bull market of 1999 and 2000, many technology companies started their own venture capital programs, or made considerable investments in already existing VC funds. The purpose was not only to reap some of the gains being enjoyed by other investors, but also to hunt down young companies with promising technology that could help business.

Companies including HP, IBM and Sun Microsystems used their investment portfolios as a way to prove they understood the Internet economy while trying to lure customers that could potentially become big-budget buyers down the line.

The aggressive investment tactic, however, backfired on some companies. HP, which launched its $1.5 billion "Garage" investment program last year, was forced to write off investments worth $365 million, or 15 cents per share, during its most recent earnings announcement.

Other companies say some of the companies they invested in changed business models in the face of market conditions, making the investment no longer of interest.

However, even the worst investments have not been too much of a drag, executives say, since their companies are interested in more than a simple cash return on their investment.

"We're not interested in how much money you're going to make when you IPO," IBM's Birney said. "We're looking too at how much revenue the two companies can create together, and what is our share in that."

Executives from Microsoft, HP and Lucent Technologies agree that creating customers, finding intellectual property, and forming business partnerships have been key in their venture investing programs.

"We look at how these companies can help us increase the functionality of our platform," said John Fernandes, a business development manager at Microsoft.

Though HP is more cautious in corporate investments now, "we have not pulled back completely," Chapman said. The company still is interested in investments that spur companies involved with printing, imaging and some types of software, he said.