In a significant revelation about corporate investment strategy, IBM's venture capital chief Emily Fontaine has detailed exactly what types of startups the technology giant is backing with its substantial $500 million fund. The approach represents a unique model where IBM becomes the first customer for many of these emerging technologies.
IBM as Client Zero: Drinking Their Own Champagne
Fontaine explained that IBM Ventures, the company's investment division, strategically places bets on products and technologies that IBM itself plans to use internally. "At IBM, we are client zero. We drink our own champagne and what I mean by that is we use our own capabilities internally to drive a ridiculous amount of value," Fontaine told Fortune in an exclusive interview.
The venture capital head provided a concrete example of how this strategy works in practice through IBM's AI-driven internal HR application called "AskHR." She described a scenario where young employees needing assistance with housing and mortgage rates can now get immediate answers through the AI system, eliminating lengthy bureaucratic processes that previously required multiple steps through HR departments.
Focus Areas: AI and Quantum Computing Dominate Portfolio
The investment focus is crystal clear: artificial intelligence and quantum computing represent the primary areas of interest for IBM Ventures. The fund specifically targets business-to-business (B2B) companies that align well with IBM's extensive enterprise client base.
To date, IBM Ventures has made 23 strategic investments that include some notable names in the technology space:
- Hugging Face (develops tools for machine learning)
- Not Diamond (optimizes AI model selection task-by-task)
- Unstructured (prepares data for large AI models)
- QEDMA (focused on quantum computing software)
- Reality Defender (deepfake detection technology)
Fontaine emphasized that the fund seeks "investments that are ready to scale, ready to partner, deploying responsible AI, [using] what we call the 'capital-plus' model." The "plus" component refers to IBM's unique ability to help portfolio companies reach new customers through the vast client network IBM already serves.
Proven Results and Quantum Security Imperative
The investment strategy is already delivering tangible benefits for IBM. Fontaine revealed that the company expects to save approximately $4.5 billion this year after implementing AI tools internally. This massive cost reduction demonstrates the practical value of their investment approach.
On the quantum computing front, Fontaine noted that while IBM has built and tested its own quantum chips, their venture investments have mainly focused on software and algorithms. She highlighted QEDMA, an Israeli startup developing software to fix errors in quantum computers that often produce significant "noise" in their results.
The financial industry appears to be driving much of IBM's push into quantum technology. Fontaine explained that quantum computers could eventually become powerful enough to challenge the encryption systems that banks currently rely on, creating an urgent need for "quantum-safe" security systems.
"The banks are at the forefront of wanting a quantum strategy. The banking industry is really leaning in, saying, 'What's our strategy around quantum?' You need to be quantum safe, is what you need to be doing," Fontaine added.
While Fontaine didn't disclose specific earnings figures for IBM Ventures, she expressed satisfaction with the results. The report noted that four startups have already exited the portfolio, including two acquisitions: Wiz bought Gem Security for approximately $350 million, while Cisco acquired Lightspin for an estimated $200-250 million.
The collaboration rate with portfolio companies exceeds 90%, with IBM evaluating each investment across three key areas: products or capabilities, ecosystem partnership potential, and industry disruption potential. For particularly disruptive technologies, IBM Ventures works closely with IBM Research to maximize impact.
