Some companies follow the model of the venture capital industry by setting up investment funds and offer a financial investment.
Smaller companies also are involved and they don't necessarily have to put up hard cash. AEA Technology, formerly part of the UK Atomic Energy Authority, offers a variety of agreements from royalty payments to joint ventures. It looks for companies that need additional resources to develop – anything from technical to marketing help – to turn science and engineering ideas into commercial reality.
Why do they do it?
Apart from getting a financial return, there are many different reasons for setting up a venture fund.
For technology companies, the answer is simple. They can either take advantage of a technology that can boost their own product or they can knock out a potential competitor of the future. Small, flexible companies in the biotech or high-tech industries can challenge industry leaders in a short space of time. Intel now has a US venture capital fund designed to help its new computer technology.
SmithKline started its venture capital fund as part of its constant search for new technology, explained Brenda Gavin, president of Smithkline's fund – SR1. As it searched for new drugs or medicines, Smithkline would either find companies with great ideas that were not developed enough – and therefore any deal would have been risky. Alternatively, Smithkline would find that many of the best technologies already had been patented.
Although SR1 operates separately, Gavin explained that the introductions to SmithKline do happen and can lead to deals.
However, one of the more surprising companies involved in this sector is British Steel which set up British Steel (Industry) in 1975. It invests in small businesses in former steel-producing areas with a view to creating jobs.
British Gas also entered the market in 1988 following its privatisation with a £30 million fund. Although the mandate outlined a desire to make money, it was designed to invest in technologies of interest to the gas industry or technology that could reduce operating costs.