By Drew Wilson Courtesy of EE Times Europe (03/17/2008 10:37 AM EST)

BERLIN — Europe's strength in wireless technologies and the growing appeal of Central and Eastern Europe continues to pull in corporate venture capital, primarily from the U.S. Intel Capital, the venture capital division of Intel Corp. (Santa Clara, Calif.), for instance invested $639 million in companies worldwide in 2007 with Europe accounting for roughly 25 percent.

Intel is attracted to startups working in wireless broadband, convergence of wireless and fixed line and mobile applications, according to Ashish Patel, managing director of Intel Capital EMEA.

"We're putting most dollars in the region into enabling wireless broadband," Patel said. "By the end of 2008, you'll see a lot of devices with in-built processors getting the signal straight to the laptop for wireless broadband and not connecting to a hotspot or DSL."

Intel's latest investment came in early February when it made an undisclosed but "substantial" investment in U.K.-based Freedom4, a wireless broadband developer.

Patel also sees increasing investment in Central and Eastern Europe. In the last 18 months, Intel Capital has made startup investments in Bulgaria, Romania, Czech Republic, Poland and Russia.

"In terms of venture dollars into Central and Eastern Europe, it looks like a hockey stick over the last few years," he said. "We see investors there who were not engaged there previously and that will increase."

However, Patel said he's been disappointed by relatively low European corporate venture capital activity. "Corporations in Europe have a lower propensity to take on risks like a VC [fund] does," he said.

In 2006 IBM Venture Capital set up a European office in Dublin, Ireland to scout Europe's startup landscape. It has since hooked up with several Irish startup companies including DAON, a biometric software developer and Biancamed, which has developed systems for the wireless medical monitoring of patients.

IBM doesn't make direct equity investments but provides startups with technology and resources and helps with marketing, reseller or OEM agreements. The strategy avoids conflict between financial and strategic goals, said Deborah Magid, director of strategy for IBM's Venture Capital Group.

"We're not worrying about how the company is returning money to us and can focus on the technology," she said. "We also have a very broad system of partners and didn't want to get into a conflict situation where we put money into one company and therefore can't put it into another company working in an adjacent space."

IBM's VC Group launched in 2000 and to date has formed business partnerships with 1300 venture-backed companies. These startup relationships are important because around 30 percent of IBM's revenue is derived through such partnerships, Magid said.

Indeed, IBM often acquires its startup partners. For example, IBM met France-based startup Meiosys, a server software developer, through VC partners. It acquired the company in 2005.

Since 2000, IBM has made about 50 acquisitions; 20 of them were venture-backed companies she added.

In Europe, Magid cited several areas of technology strength that IBM has noted in startups, including mobile telecom, especially in the Nordic countries, biotech and life sciences, energy and clean tech, Internet-related technology to include 3D Internet and virtual worlds.

IBM is also keen on what she calls the next set of emerging markets in Central and Eastern Europe. It partners with Polish VC firm MCI Management to look for startups and runs a software R&D lab in Krakow.

"We are interested in places where technology and skill is growing," she said. "A lot of emerging markets have strong university systems with new talent."

Another U.S. corporation, Cisco Systems, announced in late 2007 a €30 million (about $45 million) fund together with 3TS Capital Partners targeting Central and Eastern Europe.

Corporate venturing soared in 2007 among U.S. corporations, which account for the bulk of worldwide corporate venture capital. Investment reached $2.4 billion or 8.3 percent of total VC investment, according to the National Venture Capital Association.

"If you exclude the bubble years of 1999 to 2001, corporate VC is at record levels," said John Taylor, vice president of research at the NVCA. "We expect these numbers to remain relatively constant."

Corporations are realizing the entrepreneurial sector is often a better place for product development than internal efforts, he added. "A lot of the internal R&D has been replaced by teams that scout companies that have received venture-backed funding," Taylor said.

Investment patterns are also changing. U.S. corporations are investing more venture money outside the U.S. Almost half of Intel's venture capital investments are abroad, for example.

Sector emphasis is changing. As a rule, ICT/software has pulled in 70 percent of both corporate and private VC investment, life sciences 10 percent and everything else 20 percent. ICT/software last year dropped to about half due to the rising investment in the so-called 'cleantech' sector, he said.

Taylor said the NVCA had looked at startups over the ten years to 2000 and found the success rate of all venture capital investments was only about 25 percent. A good proportion of the other 75 percent of startups simply fail. Corporate venture capital success rates are higher because they tend to invest in the later stages, often after a startup has developed a working prototype, he added.