SAN FRANCISCO – Founded in 1995, Visa International’s venture capital program has made 15 investments, committed a total of $23 million and exited all but four of its investments. While it may not be a venture capitalist’s typical investment pace, Visa has established a solidand profitabletrack record with its most selective approach to venture investing. The company has realized gains of more than $350 million for an annualized IRR of about 215%, and according to Sarah Perry, a senior vice president with Visa International and head of its VC program, “knock on wood, we haven’t lost a company yet.”
The mission of Visa’s venture program is to scout technologies and capabilities that will affect the future of financial services and the payments industry and enable it to deliver value to Visa International’s more than 21,000 member institutions. The VC program also seeks to invest in and form strategic alliances with a select group of companies that it believes can help create the next generation of commerce: u-commerce.
Perry describes u-commerce as the merging and integration over time of the physical and the virtual world, where you may not be face-to-face, but still have the levels of trust, convenience, protection and security in addition to the ease in performing transactions even though you are physically far apart. “U-commerce will enable us to provide frictionless, instantaneous, commerce on a worldwide basis,” notes Perry.
One of the critical areas of Visa’s u-commerce vision is security. “Since trust is so much the symbol of the Visa name, and security is one the primary components of trust, it has always been important to us,” says Perry.
For example, Visa invested in Argot Systems, which Perry says is a tremendous company that has an innovative solution for software-based authentication.
Visa also made an investment in and formed a strategic alliance with ZoneLabs, an Internet security company.
“ZoneLabs has an expanding set of PC and enterprise-based solutions that allow users, whether in an enterprise or at home, to feel confident about the information that is entering or leaving their PC,” she explains.
To find the technologies and companies that will pave the way for u-commerce, Perry and her investment team have developed a six-step investment process that entails defining key macro trends; identifying attractive segments; evaluating and selecting best-of-breed players; establishing strategic alliance relationships; negotiating investments terms; and partnering with top tier VCs to grow companies.
Perry says in a given year, Visa reviews between 500 and 700 opportunities. From that, it produces market assessments on key areas of technology development and innovation that have the potential to affect the future of Visa members. “For example, we might pick five or six sectors, such as storage, mobile commerce, security, peer-to-peer or privacy, where we would say these are hot sectors that have a lot of potential,” says Perry.
From the couple of hundred companies Visa reviews, it might perform 10 in-depth assessments and form eight alliances in a given year. “The end goal is value, and the value has two measures: the quantitative value delivered by the investments and the qualitative value delivered by the activities of the strategic alliance,” says Perry. “We may find great companies that don’t meet our criteria for an investment, but we would form a strategic alliance with them. It might be because the company is a little too early for us and we want to work with them and help them grow, form an alliance, see what traction we can get going and then invest at a later stage.”
Visa tends to make the majority of its investments at the series B stage, where it believes it can really add the most value. Typical investments range from $500,000 to $5 million, with the average investment being around $1 million to $2 million. “We don’t put tremendous amount of capital to work,” notes Perry. “It isn’t so much about generating huge sums of money, it’s really about creating value and making sure our interests are aligned.”
Visa recently made an investment in NextPage, a provider of peer-to-peer business technology, alongside Oak Investment Partners, CIBC Capital Partners, Dominion Ventures, Intel Capital and Tidal Ventures.
“Wherever we see an exchange of information going on between two parties anywhere in the world, we see a potential for commerce,” says Perry. “Where there’s an information exchange it’s a leading indicator for value exchange, and value exchange is really one step away from commerce itself.”
Visa also formed a strategic alliance with NextPage. As part of the alliance, Visa has assigned an executive representative to work with NextPage to implement NextPage technology at Visa. Visa also plans to participate in co-marketing programs and events with NextPage.
Staying the Course
With many VCs taking a beating from the market’s downturn, Visa’s venture program has remained unscathed. “Deal flow has been impacted a bit; however, we really stuck to our guns and our formula throughout 1998 and 2000, when things were very high and them came down quite rapidly,” notes Perry. “We have stayed the course and we believe that has been the secret of our success.”
Perry and her team are still actively searching for the very best companies and technologies that want to work with Visa to build that next generation of u-commerce infrastructure. “Our plan is move ahead as it always been, because there really is no market tie to value creation and innovation,” she says. “Our belief is that the pace of innovation is continuing at an explosive pace and that Visa needs to remain open, alert and proactive in its search for technological innovation that can help us write the future of the payments industry.”
Following are some of the portfolio companies in Visa International’s venture capital program:
Arcot Systems Inc. (Santa Clara, Calif.) delivers authentication and signing solutions to secure transactions, ensure privacy and reduce fraud in enterprise and Internet environments.
Co-investors include Accel Partners, Goldman, Sachs & Co., Novell Technology Capital, Onset Ventures, Oracle Ventures, Raza Foundries and Wachovia Capital Partners.
Ariba (Sunnyvale, Calif.) is a provider of business-to-business solutions and services, providing a comprehensive, open commerce platform to companies worldwide. Went public June 1999.
Co-investors include Amerindo Investment Advisors, Benchmark Capital, Crosspoint Venture Partners, Technology Crossover Ventures, Van Wagoner Capital Management.
CyberSource Inc. (San Jose, Calif.) provides risk management and electronic payment solutions for enterprise businesses selling via multiple sales channels. Went public June 1999.
Co-investors include CE Unterberg Towbin, DLJ Communications Partners, General Electric Venture Capital Corp., Global Retail Partners and Vulcan Ventures.
Extensity Inc. (Emeryville, Calif.) is a provider of Internet-based applications for employee relationship management. Went public October 2000.
Co-investors include DB Investor, Hummer Winblad Venture Partners, Integral Capital Partners, Kleiner Perkins Caulfield & Byers, Lehman Brothers, Lightspeed Venture Partners and Sumitomo Corp.
NextPage Inc. (Lehi, Utah) is a provider of peer-to-peer business networking technology that connects information and people across organization boundaries.
Co-investors include CIBC Capital Partners, Dominion Ventures, Intel Capital, Oak Investment Partners, Tidal Ventures and epartners Venture Group.
Nuance Communications Inc. (Menlo Park, Calif.) delivers speech recognition, voice authentication and text-to-speech software that makes the information and services of enterprises, telecommunications networks and the Internet available from any telephone. Went public April 2000.
Co-investors include Alloy Ventures, Asset Management Co. Venture Capital, Attractor Investment Management, Cisco Systems Inc., Fidelity Ventures, Goldman, Sachs & Co., Intel Capital, Intelligent Systems Corp., Mayfield Fund, Morgenthaler Ventures, Motorola Ventures, SRI International, Sun Microsystems Inc., Trans Cosmos USA and US Venture Partners.
Oasis Technology Ltd. (Toronto, Ontario) is a provider of software that enable payments to be made any time, any place and from any device.
Co-investors include ABN Amro Private Equity, BancBoston Ventures, HarbourVest Partners LLC, Intel Capital and VenGrowth Capital Funds.
Trintech (San Mateo, Calif.) is a developer of open, interoperable and secure electronic payment products, including payment software solutions and e-commerce solutions for the banking and retailing industries. Went public October 2000.
Co-investors include BancBoston Robertson Stephens, Chase H&Q, HarbourVest Partners LLC, Pilgrim Baxter & Associates and RS Investments.
ZoneLabs Inc. (San Francisco) is a creator of Internet security solutions for consumers, small businesses, enterprises and service providers.
Co-investors include EastWest Venture Group, Intel Capital, Oxford Bioscience Partners and Pacific Venture Group.
Visa International is located at Post Office Box 8999, San Francisco, Calif., Tel: (650) 432-3152, Fax: (650) 432-5768. The firm’s Web site is www.visa.com.