Home Depot, Anheuser Busch and soap giant Unilever may not seem like the kinds of companies that live on the cutting edge of technology. But they're among a fast-growing number of consumer brands that are setting up shop in the Bay Area with new venture capital funds and startup dens.
They come here to find better ways to develop products. They learn how to reach and read consumers in the brave new world of social media. And they also come with checkbooks ready: While corporate tech investing flagged in the wake of the dot-com bust -- from $20 billion a year in 2000 to less than $2 billion a decade later -- in recent years it's come back with a vengeance. Through the first nine months of this year, corporate VCs have collectively invested more than $5 billion, according to one recent estimate.
"There are now more corporate VCs in Silicon Valley than traditional venture firms," said Mark Radcliffe, a tech attorney with DLA Piper in East Palo Alto, citing data from the website Global Corporate Venturing.
The efforts of these consumer giants are wide-ranging. Anheuser Busch has a "Beer Garage" in Palo Alto, where it experiments with new digital marketing tools. Ford, Volkswagen and BMW are looking for the hottest consumer technology to load into their cars. And retailers such as Target are trying to figure out how to use Silicon Valley technology to tap into the new ways that consumers shop.
"The key areas we're focused on are the unexplored, and underexplored, sections of technology. This is where a presence in the Bay Area is so valuable," said David Newman, head of Target's Technology Innovation Center in San Francisco.
The center opened early this year with a team of 20-odd developers and designers who hope to bring more valley know-how to the Minneapolis-based retail giant. Newman said next-generation e-commerce, artificial intelligence, big data and mobile technologies are all in his sights.
His team also meets dozens of times each month with startups focused on those areas. Some of them take advantage of office space in the center. And while Target doesn't have a venture fund per se, a representative from the company's corporate development team is based in Newman's shop, in case those working relationships lead to discussions about investments or acquisitions.
Things go a step further at General Motors' Advanced Technology Silicon Valley Office in Palo Alto, which helps the automotive giant scout technologies that might make their way into future cars.
"Our mission here is to be GM's eyes and ears," said managing director Frankie James. "We want to be someplace at the pulse of consumer electronics."
James said her team, by trolling entrepreneur "meet-ups" and demo days, has met with some 700 startups since opening its doors in 2006. More than 10 percent of those interactions lead to an investment from GM's new, $100 million venture capital arm or a collaboration with company researchers in Detroit. Valley-born mobile Wi-Fi technology is now available in Cadillacs and some GM sport utility vehicles. Likewise, the sounds a hybrid Chevy Volt makes to communicate with its driver were developed at Stanford, where James earned a Ph.D. in computer science.
"It doesn't matter if you consider yourself a tech company -- you need to get tech-savvy, both in the way you reach your customers and in how you manufacture," said Duncan Logan, chief executive of a San Francisco startup warehouse called RocketSpace.
Logan founded RocketSpace two years ago to offer shared office space and infrastructure; among its big-name alumni are Spotify and Uber. What Logan didn't anticipate was that having so many tech companies under one roof would become what he calls "a honey pot" for corporate America.
Dozens of companies, including Lego and Home Depot, make regular visits to RocketSpace as part of its corporate matchmaking program. Most of the time, Logan said, they forge partnerships, funding deals or acquisitions. Some program participants, such as American Airlines and Microsoft, even set up permanent "innovation teams" at RocketSpace.
To help big brands dip a toe into the valley, global advertising powerhouse WPP each year brings about a dozen high-level executives from clients such as Mazda and InterContinental Hotels for a weeklong "pilgrimage." On a visit in September, participants met with the CEOs of Yahoo (YHOO) and LinkedIn, as well as leaders at Google (GOOG), Facebook, Twitter and Apple (AAPL).
"There's an explosion of different ways of reaching the customer," said Mark Read, who heads WPP's digital efforts from London. "Only by coming out to the valley can (companies) really get a sense of what's going on."
WPP also operates a small venture arm based in Woodside, which places it in good company: According to venture capital analysis firm CB Insights, corporate venture investing in the United States recently hit a nearly three-year high. Names like GE and Johnson & Johnson were among the most active investors.
For startup entrepreneurs, the uptick in corporate venture helps soften the shakeout in traditional venture capital, where some investors have pulled back amid weak returns. For the corporations, putting balance-sheet cash to work can turn out new products more cheaply than in-house research and development labs.
"A lot of the innovation's taking place outside the four walls of the corporation," said Radcliffe, the attorney, who helps valley companies broker relationships with big corporations elsewhere.
"And if you don't pay attention to that," he said, "you're going to get run over."
Here's a sampling of big brands that have set up shop in Silicon Valley recently or come here on fact-finding missions:
Source: Staff research