If you want to be technical about it, Todd Chaffee's title at Visa International is executive VP of Corporate Development and Alliances. He's also president of Visa Marketplace, Visa's fledgling investment arm. And his responsibilities – Chaffee himself has to take a breath before plunging into the list – cover advanced technologies, technology research, technology strategy, business development and alliance management. And, of course, global investment management.

If you want to be less technical about it, you can just think of Chaffee, in this era of drug czars and transportation czars and health-care czars, as Visa's technology czar. If you want to be even less technical about it, call him Visa's predicting-the-future czar.

Chaffee occupies what may be a wholly new position in corporate investing. He is responsible both for plotting the technology strategy of an extraordinarily influential company - Visa, based in Foster City, Calif., is owned by its thousands of member banks - and for managing an investment fund that is supposed to turn Visa's banking prestige and know-how into VC-level returns.

Why put these roles together?
Chaffee's explanation is simple, and radically at odds with the conventional thinking in most big companies outside Silicon Valley. It is, he says, simply more efficient to develop new technologies by investing in startups than to develop them with the slower processes of a big corporation. Think of his view as the ultimate evolution of the "skunk works" concept developed by companies like 3M and popularized by business guru Tom Peters.

The twist here is that Chaffee's strategy is not to build a skunk works, but to invest in one. Or, rather, 20 skunk works, most of them involved with Visa's core interests of online commerce and payment systems. Those investments are becoming increasingly important as Visa, which has traditionally been involved with moving money from banks to merchants, faces a variety of subtler problems as the charge card becomes a proxy for identity on the Net.

Companies like Intel and Cisco Systems have seeded the West Coast with strategic investments in the hope of accelerating the development of technologies that will be useful to them. For such companies, the idea is obvious. But in an industry where "bankers' hours" are a recent memory, it's a new concept.

Since 1995, Chaffee has made 20 investments for a total of $30 million, most of it focused on the Internet. He expresses his attraction to the Net in a voice that mixes the tones of a die-hard believer with those of an astute analyst. "It's a ruthless driver toward efficiency," he says. "Look at the chaos that a Buy.com [the Net computer store that sells below cost and tries to make up the money with advertising] can create. It's a force of nature that will keep rolling into business."

He says Visa's gain amid the chaos thus far comes out to well over $200 million. Two of the companies in which Visa invested, VeriSign (a Net-security technology company) and Open Market (a commerce-software company) have gone public. Meanwhile, the $300,000 Visa put into a joint venture with Yahoo – originally called Yahoo Marketplace – has turned into Yahoo stock worth more than $100 million. (Ironically, the original joint venture folded after Yahoo decided to build its own shopping mall.)

In normal times, these returns would be unbelievable; even in the Web frenzy, they are extraordinary. And at least one other Visa-backed company, CyberSource, is rumored to be on the verge of a public offering.

Chaffee, well attuned to the immediate profit potential in technology investment, has the option of occasionally straying from Visa's traditional provinces to pursue a great deal. He divides his investments into "strategically core," "strategically supportive" and "strategic opportunities" – the last, a euphemism for "young tech companies just way too good to pass up."

Visa is now raising a fund from its member banks, so Chaffee should soon have a lot more money to invest. Which leads to an interesting issue: Because VCs in corporate units don't get a piece of the pie, as VCs in independent firms do, corporate funds have rarely been able to attract top managers. "The fact that the partners don't have a carry [a percentage of earnings] will always be a problem for corporations trying to do venture capital," says Fred Wilson, managing partner at New York's Flatiron Partners, the venture firm responsible for leading Chase Manhattan Bank's Internet investment plans.

Chaffee says the structure of Visa's funds is a subject of continuous discussion. Don't be surprised if Fortune 500 corporations start rewarding VC-style returns with VC-style compensation.

 

Copyright ©1999 by Internet Industry Publishing, a subsidiary of IDG Communications Inc.
Reprinted from The Industry Standard. 315 Pacific Avenue, San Francisco, CA 94111.