Google Drains Brains To Google Ventures

(MoneyWatch)  The news that Google Sites chief Joe Kraus has moved to Google Venture, Google's venture capital arm, is part of a larger strategy that has more to do with human resources than capital investments.

Like many rivals in IT, Google (GOOG) doesn't have any place for many of its top executives to go; no one is going to supplant Larry Ellison at Oracle (ORCL) or Marc Benioff at Salesforce.com (CRM), to name a couple. But Oracle and Salesforce.com do have a way to deal with high-powered and creative executives without losing them to rival outfits: they provide capital for start-ups. Benioff got more than Ellison's blessing to start Salesforce, and Benioff has himself invested in start-ups by his own executives, like Tien Tzuo, who started cloud billing vendor Zuora last year.

Kraus, founder of JotSpot, the enterprise wiki vendor that Google acquired in 2006, in many ways fits the profile of the type of executive the search giant has been losing to rivals like Facebook. He's got bigger fish to fry than babysitting a project he started years ago, or being a glorified product manager, even if it is for one of the most innovative companies on earth.

It's simply that people like Kraus, or Sheryl Sandberg -- who was Chief of Staff for Bill Clinton's Treasury Department before joining Google -- have greater aspirations than running a project or running global sales for a division of a giant corporation. They want to be creative, which in the language of business means, not writing a novel or making a movie, but rather creating a new company or solving a business problem no one else has managed to solve, or in many cases, doing one in order to accomplish the other.

That's what several other Google executives have gone on to do, not by joining rivals, but by joining venture capital firms. Notable executives who left Google to join venture capital firms include Jon Steinberg -- who joined Polaris Venture Partners -- as well as Kai-Fu Lee, Suhkinder Singh Cassidy and Chris Sacca.

The so-called brain-drain isn't due to either disillusionment with a growing bureaucratization of Google or frustration with its engineering-driven culture, which was famously described by its outgoing design head, Douglas Bowman earlier this year. It's simply that there's only so much room for creative business executives who want to lead their own companies in any one organization.

Now, Google realizes that it can actually retain the vision and creativity of those executives while giving them the freedom to be truly creative -- and with a $100m budget to boot. When Google launched Google Venture earlier this year, it stated that investments won't necessarily represent strategic investments for Google, but that wouldn't be precluded either.

Acquisitions by Google of portfolio companies are possible, but this is not the goal or focus of our investment activities. Our focus is building great companies and generating long term financial return.

That philosophy should satisfy both executives like Kraus and Google's insatiable appetite for new offshoots to its main business; Google Venture executives can pick the projects they believe in without having to prove a Google tie-in, while Google obviously gets first dibs on any companies for which there is a compelling fit.