Business Maverick

Business Maverick

Google alumni seeks $500m for fund tied to Alphabet’s X

Google alumni seeks $500m for fund tied to Alphabet’s X
Google headquarters in Mountain View, California, U.S., on Thursday, 27 January 2022.

Gideon Yu, the former chief financial officer of YouTube and Facebook, is leading an effort to raise about $500-million for a fund affiliated with Alphabet Inc.’s moonshot lab, X, according to people with knowledge of the matter.

Yu is working to launch a fund that would be independent but closely affiliated with the lab, according to multiple people familiar with the situation, who added that many key details are still being hashed out. The effort would be focused on investing in startups that spin out from X, an outcome that the lab is embracing as Alphabet ramps up financial discipline

The group is aiming to complete the financing by the end of this year, said some of the people, all of whom asked not to be identified discussing private information. They also said that the fundraising target could change. 

A spokesperson for X declined to comment. Yu did not respond to requests for comment. Alphabet itself is not raising a fund, one person said.

Launched by Google founders Larry Page and Sergey Brin in 2010, X dazzled the public with its attempts to find imaginative solutions to some of the world’s biggest problems. But in recent years, the lab has had to pursue its mission on a budget as Alphabet has sharpened its focus on search and artificial intelligence.

In January, the lab laid off dozens of employees and undertook a restructuring intended to make it easier for its projects, which have included the self-driving car effort Waymo and augmented reality headset Google Glass, to carry on their work outside the lab. Known internally as Scale Co., the new fund will support X spinouts as they enter their next phase of growth — or scale, in Silicon Valley parlance — the people said. 

Yu and his team have been meeting with prospective investors, an effort that has included going straight to the organizations that typically back VC firms as limited partners. Yu is trying to raise cash at a difficult time for the venture industry overall. Last quarter, 100 funds raised a lacklustre $9.3-billion, according to PitchBook data. That compares to more than $70-billion raised in the first quarter of 2022.

If Yu and his team are successful, their fund would be the fourth that is affiliated with Google and its parent company Alphabet, joining GV, CapitalG and Gradient Ventures.

On Wednesday, Alphabet announced that Eli Lilly & Co. executive Anat Ashkenazi will serve as its new CFO, replacing Ruth Porat. Porat has moved into a new role as president and chief investment officer, in which she will oversee a division that includes X. In a statement to Bloomberg last month, she said she was “excited that X leadership is increasingly pursuing opportunities to scale and monetize many of those innovations to deliver sustainable value creation.”

Among the most prominent startups that have spun out from X is 280 Earth, which uses industrial waste heat to power machines that suck carbon out of the air. The startup, which has been cited as a model for future spinouts, attracted investment from Brin and Yu.

In an interview last month, Yu said he was drawn to X’s focus on society’s biggest problems, and the years of rigorous vetting that the projects have undergone in the lab. 

“I am doing everything I can to convince Astro and Ivo and Benoit to allow me to invest in more projects,” Yu said, referring to X leaders Astro Teller, Ivo Stivoric and Benoit Schillings. “I would consider that an incredible source of potential deal flow, potential investments for myself.”

But X may have to overcome some skepticism from investors who question why Alphabet is parting with the projects, or who were irked by previous interactions with the lab. 

In the past, while exploring investments directly into some portfolio companies, X talked with the Singaporean state investor Temasek Holdings Pte. Temasek didn’t pursue investing, in part due to concerns over the companies’ ability to become profitable, according to people familiar with the matter. “The statements that Temasek is looking to invest in X is untrue,” a Temasek spokesperson said in an emailed statement.

For much of its history, X didn’t have much interest in meeting with venture capitalists and other key players in Silicon Valley, seeking to cultivate a spirit of isolationism that they believed was crucial for hatching bold, world-changing ideas.

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