Boeing Takes Flight From VC, Follows Dell, Applied

Corporations continue to fall in and out of love with the venture capital business. The latest big company to distance itself from VC is The Boeing Co. (NYSE: BA), PE Week has learned. The Chicago-based aerospace company is ending its five-year program of backing external venture capital funds – SpaceVest Management Group and Phoenix Partners, among them – which was part of its broader strategy to identify snazzy new technologies.

That venture initiative – which has translated into investments in 30 venture funds altogether for commitments totaling $250 million – is getting the axe “portfolio-wide,” says Boeing spokeswoman Anne Eisele.

Eisele suggested that while not “directly causal,” the ouster in November of Boeing chairman and CEO Phil Condit – who was replaced by former McDonnell Douglas CEO Harry Stonecipher – has the company’s new top-level management assessing how well Boeing’s various programs align with its overall strategy. Some, such as the venture unit, are not passing muster.

Yet Boeing Ventures isn’t disappearing entirely. Rather, it has decided to continue its “Chairman’s Innovation Initiative,” an internal program through which Boeing provides resources and financial funding for business ideas that originate from its own employees.

So far, the program has overseen investments in nine companies, some of them direct spin-offs, though it has made just two investments over the past couple of years.

In 2003, Boeing invested $50,000 in MessageGate, whose messaging security and compliance software was incubated at Boeing. The company has gone on to raise more than $13 million over five rounds from Polaris Venture Partners and other investors, according to The MoneyTree survey from PricewaterhouseCoopers, National Venture Capital Association and Thomson Venture Economics (publisher of PE Week).

Boeing’s departure isn’t likely to make much of an impact given the VC industry’s continuing capital overhang. Yet it isn’t the only corporation to recently turn its back on venture capital.

After nearly four years and $23 million of investments in startup technology companies, the VC partnership of Applied Materials Inc. (Nasdaq: AMAT) was terminated late last year. A source within the group says that the partners are hoping to spin out as an independent firm via a management buyout, so long as they can find LPs interested in the early-stage semiconductor space. Other possibilities are a sale to a financial or secondary buyer.

The closing of Dell Ventures was more surprising.

As reported late last year by PE Week Wire (an online publication affiliated with PE Week), Dell sold its stakes in 20 companies, which was nearly its entire direct investment portfolio, to San Francisco-based Lake Street Capital.

The portfolio represented a little less than $100 million of invested capital. The book looks to hold some gems, though, including several startups that appear poised to register for public offerings. One of those companies is 2Wire, which makes gateways and modems for the DSL market and is garnering increasing interest from Wall Street as it expands into the set-top box market.

Two others are BlueArc, a manufacturer of a high-end storage systems, which has raised $150 million from Dell and Meritech Capital, among others; and, which has raised $86 million over three rounds from Dell and Kleiner Perkins Caufield & Byers, among others.

Dell spokesman Lionel Menchaca called the closing a “natural progression.”

Dell Ventures had invested in 87 companies in its six years of corporate venturing, slowing the pace considerably as it has made just one investment each of the last two years. One of its highest profile stakes was in the Internet comparison shopping site, which became a portfolio company because Dell was an investor in Epinions before the two Internet companies merged. launched a $123 million IPO in October. Shares, initially priced at $18, were trading at about $27 a share last week. Dell did not sell its stake in to Lake Street.

Meanwhile, as Boeing, Dell and Applied Materials exit the VC business, others are entering it.

As reported in November, Amgen Inc. (AMGN) has formed Amgen Ventures, a $100 million fund that will back emerging biotech companies.

Also, Xilinx Inc. (Nasdaq: XLNX) announced last month the launch of a $100 million corporate venture capital fund, focused on programmable system design technologies. It will be named the Xilinx Ecosystem Venture Fund.