SAN FRANCISCO -- Cisco Systems announced Wednesday it will invest $150 million into early-stage companies so the networking giant can foster -- and benefit from -- emerging and disruptive technology trends.

San Jose-based Cisco will dump millions into startups and startup accelerators that are part of an emerging technology revolution that aims to connect up to a trillion ordinary things -- from dishwashers to coffee makers and airplanes -- to the Internet. The Internet of Things, as industry experts call the trend, will revolutionize homes and businesses -- homeowners may get a text message when their water heater needs to be replaced and vintners could get automatic alerts when grapes are ready to harvest -- and Cisco wants to be part of the booming market.

With its new investment, Cisco becomes the latest old-guard tech giant -- following Intel and SAP -- to dedicate money and entire business units to partnering with tech startups that have caught the eye of investors and consumers. In some cases, the fund also could be a primer for acquisitions.

"There really is no monopoly on innovation," said Hilton Romanski, senior vice president for corporate development at Cisco.

Cisco has been an investor for two decades -- a total of 80 investments for about $2 billion -- but this new fund will enable the company to attract partner funders for bigger investments, become more active in the startup community and expand its portfolio, Romanski said. Cisco's $150 million fund will be invested over the next three years and helps establish a new Cisco investment arm, similar to Google's venture capital business Google Ventures.


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Cisco's first investments, unveiled Wednesday, include Ayla Networks, a startup in Sunnyvale that makes software to collect information sent over the Internet from devices such as air conditioning units and door locks, and delivers that data to manufacturers and consumers. The technology will tell you when you've left the lights on or left the sprinklers running, said Ayla co-founder and Chief Executive David Friedman.

"There is such massive social benefit," Friedman said. "How many lawns were being watered in California when it was raining?"

Cisco is leading a $14.5 million investment in Ayla, nearly tripling Ayla's previous fundraising. Other investments include Evrythng, a UK-based startup that makes applications to connect consumer products to the Web; and Bay Area-based Alchemist Accelerator, which helps launch startups that sell products to businesses. Cisco is eying a few Alchemist companies for investment; the accelerator has launched five startups that create technology for the Internet of Things, and with Cisco funding, it hopes to take on another 20 this year, said Alchemist managing director Ravi Belani.

Cisco is one of several valley companies poised to benefit from the Internet of Things.

"The more things that are connected to the Internet, whether it's a thermostat or tennis shoes, Cisco benefits with the back-end infrastructure," said Jayson Noland, an analyst with Robert W. Baird.

Research firm IDC predicts this shift will generate nearly $9 trillion in annual sales by 2020. IDC also estimates that the population of Web-connected things will grow to 212 billion by 2020; and Tom Lee, a professor at Stanford University, expects there will be a trillion things connected to the Internet within two decades.

The new Cisco fund may help the three-decade-old company bounce back from a recent slowdown. Cisco has been hit with huge rounds of layoffs over the past few years. It also faces growing competition in overseas markets, and its revenue growth slowed to less than 6 percent in the latest fiscal year from 11 percent in 2010.

Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.