For the last four years, paralleling the rise of the Internet, Visa International has been in the venture capital spirit.
Visa has put more than $10 million into start-up companies, including some of its high-profile Silicon Valley neighbors such as Verisign Inc.
The value of those investments has skyrocketed to more than $200 million, said Todd Chaffee, executive vice president of corporate development and alliances. But Visa-indirectly putting its member banks out on this high-tech limb-is not in it just for the money.
"This is slightly different than traditional venture capital programs- this is a strategic investment program," Mr. Chaffee said in an interview. "We look for companies that are strategically supportive of our member banks and of Visa's business overall."
Like any venture capitalist, Mr. Chaffee must balance risks in the portfolio. Most of the investments are in small companies, and individual commitments are usually kept under $2 million. Big payoffs can come when a privately held start-up goes public, which can take anywhere from one to four years.
But just as the investments can grow, so can Visa's role in the chosen companies and the benefits it can import into the payments business.
"We are trying to make sure that we keep the banks competitive and in the game," Mr. Chaffee said.
Visa has made strategic investments in several software enterprises that support purchasing and corporate cards. One was Ariba Technologies Inc. of Sunnyvale, Calif., a pioneer in operating resource management systems. Visa U.S.A. automated its own purchasing system on Ariba software.
Visa was also an early investor in Verisign, the digital certificate technology company in Mountain View, after its spinoff by RSA Data Security Inc. in 1995. The card association earned a handsome paper payoff after Verisign made its initial stock offering this year. Well before that, Verisign had been designated the preferred provider of Visa-branded certificates in the Secure Electronic Transactions framework for Internet payments.
Visa also owns pieces of the Internet search engine Yahoo, with which it has a marketing alliance, and Nuance Communications Inc., the voice recognition software company.
"First we form a strategic relationship or alliance, and then as part of that relationship, if it makes sense, we will make an equity investment," Mr. Chaffee said.
"It is a very cost-effective and low-risk way to do product development, and more important, we are able to generate healthy financial gains as a way to reduce the fees that our members pay."
Visa gets input in strategy and product development, and in some cases a board seat.
The company describes a relationship with BroadVision Inc. of Redwood City, maker of the One-to-One marketing and relationship management software for Internet platforms, as a "looser alliance." Visa U.S.A. president Carl Pascarella is a BroadVision director.
Visa, BroadVision, Nuance Communications, and Motorola Inc. are cornerstones of the V-Commerce Alliance, which is promoting a system for speech recognition over the Internet.
The two-way flows of information can be mutually beneficial, Mr. Chaffee said. Visa gains insight into new technologies, and its partners "are benefiting from Visa's global perspective and well-informed position relative to electronic commerce."
Mr. Chaffee oversees a separate category of international strategic investments. These include joint ventures with member banks in payment infrastructures like VisaNet do Brasil, a merchant-acquiring operation.
Mr. Chaffee said there is more investment activity on the domestic side because of the United States' technology dynamism and leadership, but he stressed that Visa's commitment is global and diversified.
He added, "On the international side, there is a strong demand to do more of this, because the ones we have done have worked so well."
American Banker
