Startups get big help from Big Blue - page 2 of 2

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In terms of geography, where do you expect to see the next cleantech startups?

China, actually. I honestly think, and people have called me crazy, but I honestly think that China will be the source of many significant new innovations in cleantech.

For the rationale, you only have to look at the problem and see that they've got it acutely in many ways, in terms of environmental issues and challenges, in terms of rising costs. I think that necessity drives innovation here and I think that we're going to see a very large wedge, lets say, into certain areas of cleantech coming from China.

And that's great, because they're going to produce it at scale, they're going to produce it at a price that's going to be very attractive to western countries like the U.S. So I think that we're going to benefit from this focus coming from China.

Some of the early things we're seeing, for example, are not necessarily smart grid kinds of things, they're more on the edge. Some of the innovations I've seen so far are coal gasification, for example. They've got some amazing research programs around coal gasification, they've got some fundamental research being done at the universities that is absolutely leading edge.

Carbon sequestration. We're seeing some great work there. Coal is a fact of life in China, as it is in the U.S., and it's going to be with us for a while, in terms of coal-fired power plants. So China is not sitting still. They're working on it, because they have to breathe that air every day.

We can kind of dismiss it as, 'Well, coal's here, but I don't necessarily see it, so it's not going to bother me.' In China, you see the results of coal every day when you walk outside. I think that they understand the problem more crystally and they are hard at work at solutions that are probably going to make their way over here, because they're going to be built using a very economically model. They're going to be built at scale. We know that the scale of the challenge in
China is much greater than in the U.S., in terms of the number of people that are affected and the sheer number of plants we're talking about, for example.

Men are bringing one new coal-fired plant on a week in China. That's a scale that we have trouble understanding in the U.S. The solutions that they are going to create I think are going to be very attractive to the U.S. and other places because they're going to be delivered at scale and the price will be good. And I think that it'll be very innovative.

How do you hook up with the startups?

In many cases we're among the first people that a VC will call when they ink a deal.

Part of the value we offer is that access to our partnership channel and our go to market programs. Usually when a VC signs a deal with a company that's in one of our sweet spots, they'll give us a call right away and say, 'Hey, I just put $5 million into this company that does this. I need to get you in touch with the CEO of this company and let's get something going, let's get a conversation going with the head of your retail industry or your utility industry.

That kind of conversation happens several times a week, with the VCs calling us. Other times, maybe an equal number, maybe a little greater, we're calling them, saying, 'Hey, you know we've just been with our people in the banking industry and they really want a partner in India to help do mobile micropayments. I've noticed that you've got two companies in your portfolio doing that. Can we meet with them and talk about our requirements. So it happens that way, too.

Some of it's driven from our knowledge, the venture group's knowledge, of where our gaps and strategic imperatives are, and some of it's driven by the VCs knowledge of where IBM's looking. And after working with them for eight years, we're fairly comfortable with each other. They know our hot buttons.

In the case of cleantech, we've identified a dozen or so VCs that are really contributing 90 percent of the deals. We know these are the players, these are the people active in the space. Those are the people we spend most of our time with.

In fact, in the case of cleantech we've organized that into something we call the IBM Cleantech Advisory Network. So we've actually got a network of these VCs that we correspond with and interact with all the time. And that helps us really focus the conversation to the people who really get what we're talking about, and vice versa.

When you work with these companies, are your IBM scientists actually going in there and taking apart the technology and telling them what they can do to improve?

Absolutely. In some cases, I don't know if I'd phrase it that way, 'taking apart,' but certainly we're looking at it from the point of view of our customer.

We have knowledge of our customers' IT architecture, since in many cases we built them. We know how it goes together. We're extremely able to advise a startup, and a lot of the startups come to us under that premise.

Maybe they don't have a specific customer in mind right now, but they come to us in general and say help us harden this or help us scale this up so that we'll be ready to go into the banking industry or into telecom or whatever it is. We get a lot of requests.

In fact, we got so many requests that we set up a few years ago these things called innovation centers, which we have 40-some-odd around the world. These innovation centers, there's one here in San Mateo, Calif., there's one in just about every major capital or innovation area. There's several in India, several in China, for example, one in Brazil, Russia, so we got one in all the BRICs (Brazil, Russia, India and China).

These are basically places where a startup can have this conversation, and more than conversation, they can walk in with their technology, either physically walk in or virtually over the web, you don't have to physically drive up and come there, you can come over the web, and basically we'll work with you. We'll work with your application and your service and help advise you and help make sure that it's robust and ready for prime time.

It's really our flagship way to interact with these startups, is through these centers.

We needed a place where developer could talk to developer and have that interchange, and that's what the centers are about. It's all free of charge to the venture-backed companies. It's not a money-making deal, it's actually a cost-center for IBM, but yet we feel it'll pay off, because after all we're doing important things to help prepare these companies for eventually becoming an important partner for IBM.

If we can invest in them in their lifecycle, not in capital, in this way then maybe the customer that we eventually bring them into will like what they're doing well enough and respect the maturity of their technology well enough that it will generate new business for IBM, in terms of maybe integrating that into a customer's business process, for example.

So you wouldn't want to move to a model of directly investing in these startups?

I don't think that's for us. We don't ever preclude anything, but it's currently not for us. We don't need to do that. Why be encumbered, and I do in one sense think of it as encumbrance, by financial interest?

We'd like to keep the discussions strictly strategic. What kind of value can we provide you and how can you help us? If you think about it, if you're an owner of that company, you own one or two percent, the discussion invariably goes in a different direction. Because now you've got a financial stake and now maybe instead of sitting down and thinking about all the ways that we can help get this company to market, now we're worried about do we have the right CEO in there? And
I don't like the way the management team reacted in the last board meeting. And how come they're getting less dilution on their shares than we are?

Who wants to get into that kind of discussion? I don't. I'm an engineer, I'm not going to get into that. So I think IBM approaches it from the point of view of let's keep the discussions strictly strategic and value-based and let others be concerned with short term financial and management teams and all that.

We think it works, because the VCs DNA is well-suited for that. They hire the right people to do that, they know how to do it. IBM's DNA really is geared much more toward markets and customers and deep technology. So it's complementary the way we've laid it out.