FOSTER CITY, Calif. - "Visa International is carving a place for itself in the venture arena and wants to look more like a Sand Hill Road firm than a typical corporate venture group," said Todd Chaffee, Visa's executive vice-president for corporate development and alliances.
Visa discovered the power of equity investing in 1994 after buying half of Intelidata, a home-banking software company that later went public. Since then, the credit card company has reaped some $200 million, having backed hits such as Yahoo! and VeriSign Corp.
The company has invested some $10 million alongside partnerships managed by Kleiner Perkins Caulfield & Byers, Bessemer Venture Partners, Mayfield Fund, U.S. Venture Partners, Morgenthaler Ventures, Asset Management Co., Greylock Management Corp. and Sequoia Capital.
Unlike many corporate venture operations, Visa never has been a limited partner in a private equity fund and has no plans to become one. The company limits itself to direct deals in the United States, often backing early-stage start-ups, and works with Visa member banks on international deals, focusing on opportunities that can help build businesses beneficial to the credit card company and the banks.
Domestically, Visa does not engage in seed-stage deals, but it comes "pretty close," Mr. Chaffee said, noting that it took part in the first and second rounds of financing for VeriSign. Visa typically puts $1 million to $1.5 million in early-stage deals, sometimes taking board seats and otherwise asking for visitation rights.
Most of Visa's early-stage portfolio companies have directly introduced themselves to the credit-card corporation, which then invites one or two venture firms to join the deal. However, when it comes to later-stage deals, Visa typically is invited into the deal by a venture firm. Rarely does Visa participate in deals shopped around by investment bankers. While the corporation seeks high returns - and focuses on them more than many other corporate venture operations - every investment must be a strategic fit. Mr. Chaffee sees that limitation as a plus because it keeps Visa focused on the industries it knows best. Nevertheless, he uses broad parameters to define a strategic fit.
For example, the corporation backed Nuance Communications, Inc., a spin-off of speech recognition company SRI International, because Visa viewed Nuance's technology as a way for Visa member banks to improve customer service. Visa backed VeriSign to gain insight into E-commerce security, and the corporation invested in Yahoo!, viewing it as an electronic commerce gateway.
Although Mr. Chaffee is the only person negotiating deals for Visa, he works with four in-house teams: an advanced technologies group that scans the marketplace for new technologies or approaches; a technology research group that studies new technologies to determine how they would apply to Visa; a business development group that conducts traditional merger-and-acquisition opportunities; and an alliance management group that coordinates partnerships with other corporations such as Microsoft and Hewlett-Packard.
Visa does not have a fund dedicated to venture activities, but Mr. Chaffee foresees an active program. "The snow ball is starting to pick up speed here," he said. Visa wants to be a "significant" player.
Reprinted with permission by Venture Capital Journal. ©1998, all rights reserved.