Nike Follows Google Into New Model Of Corporate Venture Capital

Sep.28.11 | About: Nike Inc. (NKE)

Many companies have dabbled in venture capital over the years, especially those born themselves from venture capital.

Intel Corp.'s (NASDAQ:INTC) Intel Capital, for instance, originally funded by Arthur Rock, has made about 1,100 investments totaling $9.8 billion over the last 20 years. Among Intel's successes were mySQL, VMWare (NYSE:VMW) and ZoneLabs.

The aim of these old-line corporate venture funds is to make money for the parent. Chevron Technology Ventures Investments (NYSE:CVX), for instance, has spun-out dozens of companies in the last decade, many far removed from the energy business like Frictionless Commerce, a supplier relationship management firm acquired by SAP (NYSE:SAP) in 2006.

The Nike (NYSE:NKE) Sustainable Business and Innovation Lab, now getting its 15 minutes of fame, has a different focus. Like Google Ventures (NASDAQ:GOOG), it's aim is internal as well as external.

It's something investors should take note of. Making money is one thing. Seeking new brands (as with the Adidas-backed Hydra Ventures) is a second thing.

Improving operations is a different bottom line.

In the case of Google, this has meant investing in smart grids, power inverters and biofuels which aim to cut its energy costs, thus improving its internal bottom line.

As I have often written, Google's secret source is its focus on delivering Internet infrastructure at minimal cost. Nike's secret is a fully-integrated branding experience from design to production through distribution and marketing.

Nike's fund will focus on both green energy and more efficient manufacturing, aiming to cut both labor costs and improve margins directly, as well as make money spinning-out new operations. The company is already well-respected by investors, drawing a Google-like PE of over 19.

Just don't measure the Nike Lab's bottom line merely by its own bottom line. Instead, look to see how Nike capitalizes on its investments in its own operations. That's the new model.

Disclosure: I am long GOOG.