By the late 1990s, funneling millions of dollars in corporate venture capital into startups was standard operating procedure for many big technology companies.

Not for IBM Corp., though. Yes, the company's transformation from a bastion of proprietary technology to a champion of open systems was under way, creating a need to interact with young companies and their financial backers. But big organizations don't change everything at once, and an unsuccessful foray into VC in the 1980s had left some scars. Thus it wasn't until 1999 that IBM became active in venture investing again.

The man who got things going is Richard Birney, a career IBMer with a degree in engineering. Birney's three previous assignments had been in strategy, and in the last of these, he helped the company come to the key decision, also in 1999, to exit the applications software business.

As vice president of venture investments, he now works on the financial side, where he reports to corporate development chief Dave Johnson.

In the past five years, Birney has built a team around the world that, while not large (at least by IBM standards), manages a sizable network: relationships with 80 venture capital firms, including Accel Partners of Silicon Valley, Sofinnova Partners of Paris and 3i Group plc of London, and investments in 43 funds. IBM rarely invests directly in companies. "I'm trying to create an ecosystem that has the reach, size and scale to service a company like IBM," Birney explains. He adds, "I have to find firms that are willing to invest a little time to understand our strategies."

Birney describes his operation as a matching agent, trying to connect business units with companies and technologies that can advance their strategies. The connections can pay off in several ways. Startups may become customers for IBM products, and also resellers of them. Or IBM and a young company may partner and sell together to third parties. "For a small company, that's a big deal," Birney says. "They get global reach without having to build a global channel." No wonder IBM has so many more VC relationships than VC investments: Money often isn't the most valuable thing it has to offer.

Not least, Birney's venture capital network enables IBM to track, and also influence, potential acquisition targets. The latter capability ties in neatly with software group strategy. "We try to educate them up front," Birney says, "that if they ever envision being an acquisition candidate or strategic partner of IBM, then they are wise to develop their product so it's synergistic with IBM platforms."

Birney's team often helps in acquisitions - whether by identifying a target that fills a need for a business unit, by making initial overtures or by identifying alternative targets to improve IBM's negotiating position. A recent example is Think Dynamics, the venture-funded Toronto company the software group's Tivoli division acquired last year. "We knew the VCs," Birney says. "We introduced them." Then the M&A team went on to handle the transaction.

Birney's team isn't the only group at IBM busy on the VC circuit. The corporate strategy team under senior vice president Bruce Harreld is active too, with San Jose, Calif.-based Claudia Fan Munce, director of IBM corporate strategy's venture capital group, working to increase acceptance of IBM's strategies and standards in the venture community.

IBM still isn't widely known as a corporate venture capital participant. But with Birney and his colleagues continuing to build, and with the company raising its profile at events such as the International Business Forum corporate venture capital conference in February, which it co-sponsored, that will surely change. - Joshua Jaffe

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