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Cruising the VC Champs Elyses

This new new ventures effort dates back to the early 1996 trivestiture that saw the old AT&T split into its current namesake company, NCR and Lucent. In what NVG President Tom Uhlman calls a “desire to break the mold from AT&T,” Lucent challenged employees to move faster and help their company grow. A lot of this nimbleness could be achieved in the business groups. But then-Bell Labs President Dan Stanzione felt his enterprise was underexploited, and that a trove of technology could not get to market speedily enough-if at all-through conventional channels.

Stanzzione’s challenge prompted Uhlman-then Lucent’s senior vice president for strategy, development and public affairs-to propose the separate business entity that became the New Ventures Group. Fundamentally, the enterprise would be different from the programs many companies run to provide venture funding to outside firms that not only promise to fill technological holes but may even add to profits. Instead, NVG would concentrate on internal inventions. The added revenue from spinning off Bell Labs’ technological booty constituted only part of the prize. Equally important was to plant seeds in fertile areas that could one day become major sources of growth. Having an alternative channel for developing technology would also set an entrepreneurial tone that it was hoped would permeate Lucent’s R&D pipeline, motivating recruits and longtime employees alike.

In mid-1996, Uhlman hired former BoozAllen & Hamilton consultant Stephen Socolof to help launch the New Ventures initiative. The pair spent months studying what had worked-and what hadn’t-at similar efforts run by Xerox, Intel and others. One basic tenet they picked up was that their venture arm had to shed conservative corporate structures and act more like true venture capitalists-moving quickly and taking risks. They motored up and down Palo Alto’s Sand Hill Road, the Champs Elyses of venture capitalism, culling VC success secrets. This reconnaissance drove home the imperative of due diligence-evaluating an idea’s market potential, competition and so on-and then providing seed money in discrete stages, adding to the pot only if key technological or market milestones are met. Veteran VCs also advised Lucent to look outside the firm for business and even technical expertise to help consider and launch these ventures-and to provide equity compensation rather than sticking with conventional salary structures. All had proven hard to do in corporate venture arms; all were deemed essential.

The first spinoff was launched in late 1996: a firm called Veridicom, which makes a fingerprint analyzer on a silicon chip for identification and security. About a year later, with a handful of ventures under way, Uhlman’s initiative became a full business group. Despite all their precautions for quick and thorough evaluation, however, Socolof admits the initial group members were overwhelmed by scores of ideas covering everything from semiconductors to optics to the Internet. It also turned out that Lucent harbored fewer true entrepreneurs with the experience to lead spinoffs than planners had imagined.

Both factors led to NVG’s bolstering its capabilities with a cadre of “entrepreneurs-in-residence.” Working mainly out of cubicles in the swank, carpeted New Ventures wing-a stark contrast to the adjacent linoleum-lined Bell Labs-these tended to be young business-school types who also had experience in selected technical areas. Not only could they help evaluate ideas and develop them into workable business plans, they were also prepared to join any new venture-perhaps as chief executive or chief operating officer-to get it off the ground.

Another lesson Lucent learned was that it shouldn’t try to fund its ventures alone. The original idea had been to keep total ownership of proprietary ideas. But the group soon realized that outside VCs brought added benefits that more than made up for Lucent’s taking a smaller share. For one thing, they had experience in launching startups; Lucent didn’t. They also carried golden Rolodexes of contacts essential to developing businesses-and in many cases enjoyed such standout reputations that just putting their name on the investor list increased the odds of success. Socolof says it initially proved tough for Lucent to grasp “this whole notion of being willing to take a smaller piece of the pie to create a bigger success.” But grasp it the company did. NVG today counts some 40 VC firms as investors in its endeavors.

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