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Best Buy Capital to Invest in Tech Innovations

New venture capital arm looks to find "innovative growth options."


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Best Buy, looking to take a big step beyond retail, is actively developing their own venture capital arm, Best Buy Capital, to invest at the ground floor in new technologies.

While the big-box retailer has not responded to multiple requests for comment from CE Pro, the company has posted job openings for positions within Best Buy Capital.

They are actively recruiting finance professionals, preferably those with experience in technology and capital markets.

So what exactly is Best Buy Capital? "Best Buy Capital will serve as a source of innovative growth options for the enterprise rooted in smaller, more innovative, and potentially disruptive opportunities," the posting says.

According to the posting:

Best Buy Capital is a newly created function to support minority investments across the enterprise. Best Buy Capital will have 2 main initiatives in supporting minority investments in the enterprise:

  1. A program ("Core Fund") supporting investment opportunities for current business units consistent with our past investment activities; and

  2. A new strategic initiative ("Alpha Fund") which provides a market-based mechanism for Best Buy to proactively participate in and encourage consumer innovations and disruptions by making direct investments in companies that are early on in its lifecycle.


The combination of the Core Fund and the Alpha Fund investment programs will:

  • Create a portfolio of option in emerging, disruptive technologies and innovations that impact consumers;

  • Hedge against Best Buy's current mass-market oriented business which is largely dependent on traditional development patterns and cycles;

  • Enhance Best Buy's brand value proposition to be the consumers' trusted advocate for innovations and disruptions;

  • Enhance Best Buy's positioning in the ecosystem to be the partner of choice for emerging consumer innovations and technologies;

  • Provide real-time, market based insights into emerging innovations and disruptions that could have an impact on Best Buy's current and near-term business; and

  • Catalyze outside-in, market-based innovations and thinking through-out the enterprise.

As you can imagine, Best Buy's plan to build not one but two capital funds requires recruitment beyond an ad on Monster.com and is not suited for the kind of in-house personnel development you'd use to produce General Managers or Category Buyers out of the rank-and-file staff.

For that reason, they're recruiting via top-tier MBA schools, and through executive head-hunters. Clearly, in order to hit the ground running, it's crucial for Best Buy Capital's principal and support staff to already be well connected in the tech world.

A Retailer as an Investor?


In retail, it's commonplace for powerhouse retailers to develop close ties with manufacturers that can offer them house brand commodity products that deliver higher margins that competing national brands.

While it's easy to understand Best Buy's desire to be involved with emerging technologies, their timing seems remarkable.

The first thing you might wonder is ... "How are they going to be paying for this?"

The global credit market has contracted enormously, and there's no longer the huge amount of low-interest money sloshing around that there was at this time last year.

What this means in real terms is that it's going to cost them a lot more to leverage their investments than it would have a year ago.

On the other hand, with the current round of layoffs on Wall Street in the wake of the sub-prime meltdown, Best Buy may be able to find an ideal candidate who's willing to work for what they're able to pay.

What Does It All Mean?


Perhaps the best way of looking at Best Buy's plan is to consider how it can benefit them strategically.

Consider it along the lines of Michael Porter's 5 forces.

Let's say they invest in something that becomes a retail success:

Supplier Power: Having an inside track on a new technology means that they will know the costs and thus can offer a price at a modest margin.

They will also have the ability to know future enhancements and improvements and thus can plan a staged rollout to maximize users upgrade expenditures.

Barriers to Entry: By being an investor, they will instantly become the customer of favor and, even if they only own "minority interest," can use their power to be the first or only customer. They could even demand exclusive features and options that no one else can have on the product.

Threat of Substitute: Someone can still build a better mousetrap, but Best Buy (via this channel) is trying to gain primacy in the mousetrap business and thus gain a competitive advantage.

Buyer Power (see Supplier Power): As both buyer and supplier, it's not unreasonable to assume that Best Buy would give themselves great terms.

Degree of Rivalry: Retail is a dog-eat-dog world. Best Buy would have the ability via exclusivity of product/technology, exclusivity of features or by influencing their rivals purchase price at wholesale to control rivalry or the profitability of their rivals to some degree.

Think about the implications for that if they get into a technology that becomes a household item.

It's not unheard of for a retailer to venture far from their core business, such as branching into real estate development, but the historical success of such companies is mixed.

Investors look to Best Buy to be a winner in the retail marketplace. If that means investing in tech start-ups, with an admittedly long-term view before seeing a return pays off, investors may be pleasantly surprised.

Lee Distad is a freelance CEDIA Certified Professional Designer who offers design and process consultation to firms in the Custom Installation industry, as well as copy writing and other professional writing services. Lee’s business and industry blog can be read at http://www.leedistad.com




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