Google Inc.'s new investment arm has $300 million in fresh capital to put to work this year and is starting the dealmaking with its first foray into Web education.
Google Capital, established by the search company to back late-stage technology startups, is getting twice as much money as it had last year, said David Lawee, who manages the unit. Google Capital is putting $40 million into Renaissance Learning Inc., an education software company, and aims to do five or six deals this year, Lawee said.
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After jumping into early-stage investing in 2009 with the creation of Google Ventures, the Mountain View, California-based company is funding a team that can write bigger checks for Web businesses that are further along in their development. The group, which officially debuted today after doing two deals in 2013, expects to almost double its staff to 15 in the next year from eight today.
"Google Ventures kind of invests across the spectrum but predominantly invests in early-stage companies, and they have an organization that's super well configured for that," Lawee said in an interview. "Google Capital is only investing in late- stage investments, and we're building an organization completely configured around that."
Google Capital's objective is to triple its money from each investment over the course of five to seven years, Lawee said. That's the type of return it expects from Renaissance Learning, which is used by nearly 20 million students and teachers in more than 60 countries. Google Capital is investing at a $1 billion valuation.
Founded in the 1980s, Renaissance Learning was publicly traded until 2011, when it was acquired by private-equity firm Permira Advisers for $455 million after a bidding war. The company, based in Wisconsin Rapids, Wisconsin, provides digital tools for reading programs, letting students and teachers exchange ideas via the Web or on mobile devices. Students from kindergarten through high school use the software to improve their reading and math skills.
"They have salespeople all over the country, interacting with the schools," said Lawee, who previously ran mergers and acquisitions at Google. "A lot of people are talking about disruption in education, but these guys are actually doing it."
Education is one of the key investment areas for Google Capital, Lawee said. Another is companies that target small and medium-sized businesses, where Google is trying to bolster sales of its cloud software and services.
Last year, Google Capital was part of a $125 million investment in LendingClub Corp., an online peer-to-peer loan service in San Francisco. Earlier, it joined private-equity investors in backing SurveyMonkey Inc., a provider of online surveys.
Google Capital's employees include Gene Frantz, who joined from TPG Capital; Laela Sturdy, previously a director in Google's commerce business; and Ted Fike, a former principal in Google's corporate development group.
While Google may be new to late-stage investing, it can provide a competitive advantage to companies by helping them in areas like marketing, Lawee said. And with more funding, he expects to start looking at deals outside the U.S.
"We have a lot of competition, but our competition is primarily from financial investors," he said. "Their voice is certainly useful. We're just additive."
Prior to joining Google in 2005, Lawee was an entrepreneur and helped start Xfire Inc., an Internet company that Viacom Inc. bought for over $100 million in 2006. He was vice president of marketing at Google before running corporate development.
Unlike Google Ventures, Google Capital will avoid funding companies that may compete with Google, Lawee said. Google Ventures has invested in online music service TuneIn Inc. and Web couponer RetailMeNot Inc. The venture group also backed digital thermostat maker Nest Labs Inc., which Google bought earlier this year for $3.2 billion.
Still, the investing groups have similarities. David Drummond, Google's chief legal officer, is on the board of both units, and each have commitments of up to $300 million this year from Google. And they have one other thing in common: the goal of making money.
"Nothing matters if we don't make returns," Lawee said. "Building a successful investment firm that leverages the insights of Google and all these things we are talking about -- that's like a 20-year vision."