New Ventures Adventures

Dec. 21, 2004
Technology outside Lucent's strategic realm can still create value.

Not all technology created at Bell Labs fits nicely into one of the 11 Lucent businesses. Rather than allow these opportunities to founder, there's a good chance they will be turned over to Lucent's New Ventures Group (NVG). This internal venture-capital business has launched 12 entrepreneurial start-ups based on homegrown but noncore discoveries since the group was created in 1997. "We are taking technology that may not be fully utilized by the traditional business units at Lucent and stretching that technology even further by forming new businesses and by spinning those businesses out to grow new value for Lucent," says Ralph Faison, NVG vice president. When the group was formed, a typical venture scenario saw some of the entrepreneurial-minded members of the Bell Labs discovery team moving to the start-up to provide continuity in the technology development. These members were issued phantom stock in the new venture, maintaining their Lucent compensation package, but losing all bonus opportunities tied to Lucent corporate performance. The bargain they struck was to have the venture valued at the end of three years, with a possible distribution of that valuation based on phantom-stock holdings. Today's NVG model is true venture spinout, aimed at value creation for some eventual exit transition, be it acquisition by another company or IPO, possibly in seven to eight years. "We are held to venture-capitalist benchmarks to deliver a return not dissimilar to Lucent's overall goal, in the range of 15% to 20% internal rate of return against capital invested," says Faison. To date four ventures have been spun out. They are based on fingerprint identification, digital radio, optical data storage, and over-Internet collaboration tools. "All are external businesses with external investors on their own and growing at a nice pace," Faison adds. (Lucent holds ownership stakes from minority to majority.) While NGV is focused on spinning noncore technology out of Lucent, a second group, Lucent Venture Partners, looks to invest in tiny start-up companies whose technologies will complement existing businesses. Funded to the tune of $100 million, Venture Partners takes a minority stake in highly speculative start-ups, hoping they will break the code on some new market opportunity. At some point, it might make sense to spin these start-ups into Lucent or to develop OEM or cross-licensing arrangements with Lucent.

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