I will talk about the successes we have had, and give my biased view of how most folk in the room can actually do the same thing. There is no magic to it – you just have to understand what your goals are, what resources you have at your disposal, and then you will grow slowly or quickly, at whatever pace you want. Everybody can do that and it is not a big deal, but there are some pitfalls along the way, and some organisational things that I will touch on.
I will start with Qualcomm, since we are not a consumer-facing company and many of you may not know of us. We are the most valuable company in market cap in the semi-conductor sector. We are also the largest tablets fabless company, with $25bn revenues.
Last year, we shipped close to 750 million chipsets. It is mind-boggling how the smartphone platform has taken off. We expect that between now and 2017 there will be 7 billion more smartphones – the world’s population one time more. This is an incredible platform and we are clearly the market leader.
Qualcomm Ventures is considered a leader in corporate venture capital and in mobile. We will continue to expand at the rate we are, and we will not go too fast. We are at the stage where we have some good returns and exits, which I shall talk about, and are establishing some strategic value back to Qualcomm, so we want to continue in that space.
Last, on the self‐promotion slide, is that across all mobile sectors we have an early-stage bent, but we invest across all stages all across the world. We have invested approximately $100m a year, and we have 100‐plus portfolio companies. We pride ourselves on the fact that 85% of our portfolio companies get a follow‐on round, so this is really good in terms of how we select and support them.
We have had a few successes in the past three years. We had three companies that were all $1bn on exit. Waze, which was the most recent, but prior to that we had NetQWin and InvenSense. We then had a number of other smaller exits.
Google has bought one more of our companies, Divide. This is interesting because when I pitched the company, the question we always got was, why, if Google can do it? It has been proved that Google can do that, and Google can do Waze, but they ended up buying both companies. That is the beauty of the venture capital system, and the entrepreneurial system.
We are all part of big companies and we can all theoretically do everything that start ups can do, but we just have corporate priorities and core businesses to protect, and we are also a little slower. It turns out that frequently the best innovation comes from the outside. Most companies recognise that, and even a company that prides itself on innovation, like Google, has recognised that something as fundamental as a platform that Divide provides, which basically divides your smartphone into your home and your enterprise, needs to be bought from the outside.
I would like to point out how we think about the world. This is limited to the countries in which we invest.
The way we look at the world is for core technology innovation – for things that affect the mobile phone either today or in the near future. We will look to the US, obviously, and Europe, and then Israel and also Korea, as places where we can see brand new things coming out that can essentially change the nature of technology, innovation or the curve on the mobile phone site.
For business model innovation, we will look at India, China, Brazil and, sometimes, Korea. You cannot predict gangnam‐style rap in the US. There are some things local to Korea that can affect us but, as a whole, those three countries – Brazil, India and China – are big enough so that companies that form there do not have to go outside the country to be successful because there are big, captive audiences.
The last one is a newer concept, called reverse innovation. This has been popularised, at least in the US, by General Electric and Prof Vijay Govindarajan at the Tuck School of Business. The idea there is that in companies in India and China especially – and I am sure that Brazil will have the same thing in a few years – we are now seeing first‐hand where companies will start with very low‐cost products. The cost is low but that does not mean that the products are not robust and that they do not have the features, but they will start there because that is what the local market can bear. Then, very quickly, they add features and that will then start to become relevant outside the emerging markets and in industrialised nations. At that point, because of the way they grew up, their costs are inherently lower and the products are more or less equivalent, and then they can actually disrupt companies out of existence in the western world.
We have at least one portfolio company of that kind, and we are seeing many more coming out of India and China, which have aspirations to go beyond the boundaries of their home country. That is how we look at things, and how we make investment decisions, or expansion decisions into geographies. When we expanded into each of these countries, that was our world view.
I have previously said that 49% of our investments are outside the US. Actually, this figure for new investments is now closer to 50% to 53%, and I think it will grow. That is where we are seeing a great deal of innovation coming. We have a number of people outside the US and we will see that continue to change and increase.
If you look at the overall venture capital (VC) dollars, we are overindexed outside the US – 70% of VC dollars go to North America, but we are at 60%. We are about right with the global allocation in Europe and in China, and we are overindexed a great deal in Israel, where we have had much success. In a few other places we are overindexed, as in India.
I have mentioned three or four billion‐dollar exits. Two of them came outside the US. Waze was in Israel and NetQin was in China. We have a robust portfolio outside the US which we believe will lead to more of these. Again, it is not true that exits out of the US are not big. They can be big and you just have to look for them. If you have people on the ground, you can find these companies early on. When people give you push-back, saying expanding into these countries will take time, yes, it will take time but clearly there are valuable companies being formed in every part of the world.
Let us move on to going global, how we have done it, and some of the lessons we have learned, and what I would tell people from my biased point of view. This is not one size fits all. It really depends on what your objectives are as a corporate venture unit, what the corporation’s objectives are, where the corporation operates today and where you want to find innovation.
For us, one of the key things we looked at when we wanted to go outside the US – and especially going outside what we call technology centres like Europe and Israel – was what do we want to solve? What is the one big problem we want to solve? As we saw it, in most western countries, US included although some of Europe is a little different, was that access to data – whether broadband or wireless – is almost a given and you do not actually think about it. You just have access and you do not normally think about your data plans on your smartphones. Yes, you complain about it, but you have access. You do not have to worry about browsing the internet and taking your emails.
That is absolutely not true in emerging markets. In most of the emerging markets, like India and Brazil, internet access penetration – broadband or wireline – is very low. For them, the mobile phone is actually the first and the only piece of hardware they will use to access the services we use on our PCs at home. However, this access is actually very expensive, so many consumers buy smartphones but don’t use data because data is very expensive.
A consulting study concluded that $2.2 trillion is the additional GDP that can be generated with better connectivity in emerging markets. That is a big problem and everybody can relate to that. We all know how easy it is for us, but when you go to Brazil or India – and China is actually much better now – access to data is so critical. Often in these countries, people will buy for a day. There are actually hourly plans you can buy. They will have it for a day when they need it, and then they will switch it off.
How do you expand? My philosophy with the way we have done this is to go slowly. There is no hurry. The countries will still be there and there is innovation going on. We started in the US and went to China first and then did Europe, India, Israel in 2009, Korea and then we recently opened the Brazil office. We may be done for a while at this point. This covers all the geographies that are important to Qualcomm from a business perspective – all the high‐tech areas where we believe the next technical breakthrough will come from. We have done this over a period of almost 12 years and the reason is that each of these regions will take some time and you therefore do not want to rush into them.
I am asked: how do you get people in these regions? You are sitting in Europe or in the US, so how do you hire people in China or India? The way we have done it, although it may differ for others, is that many of our country leads have come from the home office. By that, I mean that Qualcomm based in San Diego is a very diverse company and we have people from all across the globe who have migrated to the US and joined the company and done well. Many of them have a desire to go back – whether it is to do so temporarily or on a permanent basis. We have actually found those leaders and then sent them back to lead venture operations in those countries. That is a really important tool for us and it has worked very well because corporate venturing faces many challenges and you do not want to add the challenge of hiring somebody where they know nothing about the parent corporation, and nothing about venture.
Two quick points. First, make sure your staff will add value. This is especially true for international geographies. You are slightly disconnected from the home country and so you do not know the business units as well, and you have to have people who are not investing – whose job is not to invest but to help investment managers and portfolio companies to get closer to the mother ship, and then prepare management for the long haul. This will be very long haul. We invested in India in 2008 and we have not seen a single exit so far. We have seen many up rounds, but not an exit – but this year we have already seen two or three that will come up. It will be a long haul.
Another important point is that when you go to a new country, you have to pick a stage. When you start out, you cannot say: “Invest across all stages.” The ecosystem needs to become comfortable with you. Once they know what stage you invest in and what sort of value you bring in, then at some point in the future you can go across stages. We pick early stage.
I will not say that everybody has to do it the way we do it with QPrize. This is basically a global competition that we run where we give $100,000 convertible notes to people with, essentially, a piece of paper or a PowerPoint presentation. It has been very successful, but 84% of the submissions come from outside the US. We have been hugely successful in getting these companies to the next stage.