IBM Sets Up $500M Fund For Internet Startups

The $500 million fund set up by IBM Corp. this month to finance Internet ventures builds on the company's campaign to push hardware, software and services to Internet startups.

IBM's Global Financing Group also announced that it will work with venture capital firms to finance the purchase of IBM technologies and services for Internet startups that have already completed their first round of venture capital funding.

The move builds on IBM's announcement of less than a month ago that it will finance e-commerce projects by clients of Ernst & Young LLP in New York. At that time, IBM executives said Ernst & Young customers were expected to use nearly $500 million in IBM funding.

Programs like these are "almost like the price of entry into the Internet market these days," said Laurie McCabe, an analyst at Summit Strategies Inc. in Boston. With companies looking to invest in Internet start-ups, it's important for system vendors to have funding programs, McCabe said. "It's a way to have a pulse on the venture capital community, and it is also a way to ensure that your technologies and services have mind share" among the startups, she said.

IBM has earmarked more than $1 billion in funding programs for Internet companies. Its programs include the funding of venture capital firms specializing in Internet companies, acquisitions of startups, deferred payment programs and rent-to-own offerings.

IBM is hardly alone. Other system vendors - most notably Hewlett-Packard Co., with a $1 billion fund, and Sun Microsystems Inc. - have similar programs in place.

Similarly, Chicago-based Andersen Consulting last December said it's forming a venture capital firm, called Andersen Consulting Ventures, that will invest $1 billion over the next five years in e-commerce businesses. Another integrator, Cambridge Technology Partners, also announced plans last month to set up a fund to help dot-com startups.

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