Three years ago, Xerox Corp’s former chairman, David Kearns, walked into the office of one of his top executives, Robert Adams, with a copy of ‘Fumbling The Future’ and said, I don’t want this to happen again. Do something about it. The book documents all the developments taken for granted today that first saw the light of day at Xerox Corp – graphical user interfaces, personal computers, local networking, laser printers, mice – all developed by Xerox engineers but taken to market by other companies, which profited hugely. So Adams created Xerox Technology Ventures with $30m capital and a mission to promote employee ideas and products that were too small or unusual for the parent company. Three years later, Reuters reporter Michael Connor has been back and finds that the venture is near the break even point. Xerox Technology Ventures has organised 14 companies since 1989, of which 11 are alive and well, two have closed and one has been taken back into Xerox Corp, according to Adams, president and senior principal of the subsidiary. In 1994, we will take one or more of the top four public, Adams added. Eight of the surviving 11 companies – a mix of software, publishing, manufacturing and business-services groups – are producing revenues, and Xerox Corp should get back the equivalent on paper of its $30m cash investment and other costs by December. You can say it’s just on paper, but it is a milestone, Adams commented. After all, Adobe Systems Inc was started by former Xerox employees. Adams is now looking for more venture capital, mostly from outside Xerox, because he has nearly exhausted the original $30m. Xerox Technology Ventures does not just sit back and wait for a knock on the door from a group of frustrated employees: it is proactive, scouring Xerox research labs for marketable products and ideas that do not fit the company’s strategic plans or are too small for a sales force accustomed to selling machines costing tens of thousands of dollars a time. The Xerox sales force would scoff at selling a $1,000 item, Adams said.
Keeps 80% of the equity
Xerox keeps 80% of the equity in the start-ups and gives the rest to the Xerox engineers and a manager, typically an outsider, hired to run the business. Although independent from the parent, each start-up gets capital, office space, technical expertise and the credibility of Xerox in dealing with customers and suppliers. These guys have the best of both worlds, Adams said. If there’s a problem between marketing and engineering, it’s settled right there in that room. One of the start-ups, ChannelBind, a manufacturer of a low-volume page-binding device, had sales of $5m in 1991, only its second year of operations, and the benefits of the Xerox connection in that case were access to the overseas marketing affiliates, and space on the Xerox stand at trade shows. Others inlcude Decisus Inc (CI No 1,337), and Document Sciences Inc and PixelCraft Inc (CI No 1,934). For Xerox Corp, there is the prospect of typical venture capital returns – 20% to 500% over six years or more as well as an outlet for talent. What you need to run a big company is antithetical to what you need to make a small company grow, Adams said. And of course if one of the firms turns out to be another Adobe, no doubt Xerox will hang on to it.
