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Big Brother Is Funding You

Corporate venture-capital arms now control 38% of the country's $13 billion venture-capital kitty, but few entrepreneurs even know they exist. In fact, the list includes household names such as Ford, AT&T, Cisco, Intel, Lucent, Johnson & Johnson, SmithKline Beecham, Dow Chemical, and Reuters. With independent venture-capital firms favoring Web ventures, corporations are funding sectors that have been left behind because they require more patience, such as health care and biotechnology. How to get their attention? Dig hard and be persistent. Companies tend to bury their venture operations in merger or business-development departments. Like independent VCs, they'll still expect 50% returns on seed capital and 25% to 30% payouts on later financing rounds. And mixing with the corporate crowd isn't for everyone: Linked to one big company, you may be limiting your ability to sell to its competitors.

Infertile Eggs

Business incubators are a noble concept: Economically strapped regions provide startups with cheap office and support services, exempt them from taxes, and then make their money back when the company grows into a big local employer. But there's little evidence that it actually happens that way, or that the $20 million in Commerce Dept. funds is well spent. The agency itself has no hard data comparing incubated companies to regular startups, and major success stories are rare. The most prominent winners include Peapod Inc., the online grocery store, which lived from 1989 to 1996 in an incubator sponsored by Northwestern University in Evanston, Ill. But when its rent doubled, Peapod flew the coop for nearby Skokie.

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