July 11, 2007 4:00 AM PDT
Newsmaker: Motorola's internal VC and early money's role
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The Early Stage Accelerator (ESA) program, started in early 2004, is headed by Jim O'Connor, the former leader of Motorola Ventures, which invests in start-ups outside the company. During his time with Motorola Ventures, O'Connor oversaw the creation of investment operations globally and invested in over 50 ventures.
Now his attention has turned inside Motorola where he taps the creativity of the company's 20,000-some engineers to take early stage research into commercial products.
The second largest cell phone maker in the world, Motorola has been struggling recently to regain its footing in a market that is getting increasingly more competitive. The company hasn't had a hit product since the Razr, and it has reported net losses amid sharp price cuts on its products.
But CEO Ed Zander has promised that the handset division will show a profit for the year. The company's biggest challenge moving forward is finding new products to excite the market that will help it compete against rivals Nokia and Samsung Electronics, which have made gains in recent quarters. While the ESA program won't likely fuel all of this development, it could help.
CNET News.com chatted with O'Connor recently and got the scoop on how this internal VC fund operates and how it can help drive growth for Motorola. Below is an edited version of the conversation.
Q: What is the Early Stage Accelerator program?
O'Connor: It's an internal venture fund that is used to create different businesses using technology developed by Motorola. The group was started at the beginning of 2004 within the office of our chief technology officer, Padmasree Warrior.
How did the program form?
We had a lot of great technology, but we weren't commercializing it. And we needed to find a way to take new innovations and make the business case for it and be able to start pilot programs with customers.
I came to Motorola as part of the venture funding group in 1999. And basically we were funding companies that were developing new technologies outside the company, much like Intel Capital has done. We still do that.
But we also looked at the more than 20,000 Motorola engineers around the world and realized we could fund them like start-ups, giving them small chunks of money or seed capital to create a prototype that we could use to expose to product groups and customers.
Can you give some examples of technologies that came to market as a result of the ESA program?
The best example is a project we called Canopy that was incubated in the labs in 1999 until 2003. It eventually became the seedlings of our wireless WiMax technology. In 2004, when ESA first started the project they had about 10 people working on it. So we put the commercialization wrapper around it to go to market so it could be a self-contained business. And then we migrated it into the traditional network business. If we hadn't had the ESA group, the technology could have stayed in the lab environment or maybe it would have been killed. But we were able to bring scalable marketing and get in front of customers.
Are products from this group being deployed today?
Yes, the Canopy project moved out of the ESA program in 2004, and now Sprint Nextel is using some of these products in its 4G WiMax network, which it's currently building.
Are there other examples that you can talk about that are more recent? Yes, there is a trial we are doing right now in Namibia with a cellular operator using wind- and solar-powered bay stations. Cellular bay stations need to connect to the electrical grid to get power, and as you know in rural communities in places like Africa, India or China, power is constrained, so we aren't able to provide as much coverage as we'd like. We developed technology in Swindon, England, and Southern Africa that is the first of its kind to help solve this problem.
The interesting thing is that this went from an idea to a trial in less than nine months. That is warp speed in terms of start-up incubation.
How much do you invest in these in-house start-ups?
Usually the investment is similar to what a venture capital fund would put into a Series A or seed round of funding; about a few million dollars. The wind- and solar-powered project was a low cost investment because it involved a lot of existing technology. Solar- and wind-powered technology has been around for a while and what we had to do was integrate the technology. The trials are going really well so far.
How is what you do through ESA different from what a regular research and development group does?
The difference from our perspective is that we're taking research out of the lab and ideas out of PowerPoint and putting them into prototypes that can be tested in pilot programs.
Does Motorola still do pure research?
Yes, I'd say about half the R&D budget is spent in the labs on pure "blue sky" research on innovations, things that can change the world. Motorola is one of the larger research organizations in terms of companies. The other half is spent looking at technologies that are closer to being developed into products. But the idea is that eventually all research should lead to a feature or product that can be commercialized.
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CEO like they did their other employees.