Big Blue's green machine
As part of IBM's green initiative, its venture arm is on the search for the next clean tech start-ups.
LONDON (CNNMoney.com) -- IBM is going green in more ways than one. The tech giant said earlier this year that it would commit $1 billion annually to develop more energy efficient data centers.
As part of that "Big Green" initiative, the company's venture arm is on the look out for the next clean tech start-ups.
CNNMoney.com spoke with Claudia Fan Munce, the leader of IBM's (Charts, Fortune 500) Venture Capital Group, about the company's search for the next clean technologies. Excerpts from the conversation are below.
CNNMoney.com: How is IBM involved in green technology?
Claudia Fan Munce: Clean tech is a big opportunity for us. IBM has a huge energy and utility practice, with customers ranging from utility to large petroleum companies. But our interest is in the demand side of clean technology, not the supply side.
Q: It seems like there are a lot of advances occurring on the supply side, with investments in the production of ethanol and alternative fuels booming. Why focus on the demand side?
Munce: I grew up in Brazil, where they've been driving cars using ethanol for more than 20 years - but it's really debatable whether ethanol is a better alternative when it comes to the environment. Brazil has its own problems with pollution.
The demand side focuses on finding ways to use our natural resources more efficiently - figuring out how to distribute water purification technology on a broad scale, for instance. There is a lot of IT innovation taking place now on the demand side - figuring out how you store, distribute, price and leverage a resource. I really feel analytics is adding a whole new layer to the demand side of clean tech.
Q: What do you mean by analytics?
Munce: For instance, the electricity you and I use at home costs the same whenever we use it, but for the supplier there are peak and off-peak prices. Now there are new business models being developed where suppliers cash in on power during off-peak times and store it to sell later. Massive amounts of data are required for tracking consumer behavior and optimizing distribution, and you have to transfer, store, retrieve and back up all of that data.
Q: What is IBM's role in all of this?
Munce: IBM is a big supplier when it comes to anything related to data. We provide the infrastructure to deal with the amount of data that these companies are trying to analyze, we take care of the data farms - and we provide a service layer on top of that so they can focus on what they're good at.
Q: IBM doesn't make direct financial investments but partners with VC-backed firms. How does that work?
Munce: We work with a select set of VCs that we consider to be top tier - that really know what they're doing - real CEOs who understand the market and who work with enterprise companies.
We don't do due diligence on every VC firm's investment - we are spending time working with VCs so they understand IBM's strategy and can come to us if they think a company in their portfolio is going to be valuable to IBM as a partner or acquisition.
Q: How do you choose the VCs you work with?
Munce: We start with the top tier of VCs and then that shrinks down significantly after due diligence. The U.S. has about 600-plus VCs and we work with about 50 of them.
We're looking for new partners - people who understand the market and relationships. This is a relationship-driven industry, and people we have good chemistry with tend to be the people we work more frequently with.
Q: How do start-ups benefit by working with IBM?
Munce: We really invest significantly once we find portfolio companies that are best of breed in what they're doing in that space. We invest time and money to make sure their technology works the way it should.
And because IBM has such a strong presence in the energy and utility industry, we can provide a lot of sales leads and introductions to our customers. That is a huge value added, something the VC partners I work with love.