As economies grow and develop, what is considered a utility, or basic service, becomes increasingly broad.
But even as internet connections arguably join gas, water, electricity and telecoms as core services, the utilities sector is facing pressure to innovate technologically and disrupt established business models.
This is leading to a resurgence of corporate venturing across the globe in the utilities sector.
And utilities, historically the most volatile supporters of corporate venturing compared with other sectors, are looking to apply lessons from previous failed experiments in the 1980s and late 1990s to early 2000s.
Many groups maintain in-house teams of corporate venturers, often seasoned with experienced venture capitalists and entrepreneurs rather than promoted business unit managers.
Other groups, however, recruit independent firms to their needs through closer alignment and cornerstone limited-partner commitments rather than backing a swathe of disparate funds.
The corporate venturing unit is also increasingly integrated to business strategy and used as a tool to help change the parent company’s culture through opening the business to incubate new ideas internally and externally at earlier stages than have previously been the preserve of utility investors.
Funds
Global Corporate Venturing has tracked 23 fund or programme launches since 2011, which is an increase from 2010’s seven launches.
However, experience and longevity still counts and the most influential groups are often those that have demonstrated success, such as Deutsche Telekom’s T-Venture group, which is again ranked first by Global Corporate Venturing (see table).
Of the launches, most chose to commit to managers with strong venturing pedigrees and with a motivation to work with strategics, as alternative institutional investors have declined in number and interest – a factor notably absent in previous waves of corporate venturing.
In Japan, KDDI is working with Global Brain for its Open Innovation Fund, Saudi Arabia’s STC has backed Iris Capital, Netherlands-based KPN has cornerstoned Germany-based Shortcut Ventures – originally called Fastlane Ventures before people became confused with the same-titled group based in Russia – France’s EDF helped set up Electranova Capital run by private equity firm Idinvest after previously closing its Easenergy team that took equity stakes in return for supplying people to portfolio companies, and France Telecom has also backed Iris, along with advertising agency Publicis, and Ecomobilité Ventures.
Corporations are increasingly looking at how they partner peers or firms with similar interests or needs from other sectors, sometimes leading to mergers of groups, including Norway-based energy companies Hafslund and Eidsiva creating Energy Future Invest at the start of the year.
France Telecom has also allowed its veteran team at Innovacom to spin out while retaining a limited-partner interest, while Germany-based power group RWE’s Innogy Ventures team’s strong track record allowed a bank to commit to the fund.
In the UK, power utility Scottish & Southern Energy has done the same by moving the management to Scottish Equity Partners. While utilities have a reputation – understandably so – for making sure the technologies it uses have low fault rates and high survival potential, the speed of technological change, demand on certain services – such as internet connections from video and data down-loads – and regulatory pressure in other areas to replace or change power sources means corporate venturing units are looking more globally and often earlier for deals.
Spain-based phone operator Telefónica’s Wayra programme started in Latin America in April last year and now covers a dozen countries. It is perhaps the world’s largest accelerator programme for entrepreneurs (see profile and collaborates with its US-based corporate venturing unit for later-stage deals.
A similar strategy is being pursued by China Telecom, which set up its Shanghai Innovation Incubation Base in March as well as the Esurfing Innovation Technology Company for venture deals.
In Turkey, meanwhile, local telecoms group Turkcell set up the Startup Factory at Özyegin University in March 2011 and has already expanded its premises in response to increasing demand.
İhsan Elgin, head of the factory, said in an online interview: “We were expecting to receive around 100 business idea applications, but we received a total of 210. Ten were admitted to the factory. “We recently produced our first graduate. The first project we supported has now moved to its new office in Etiler following the investments it has collected and the sales it has made. However, it is still a member of our ecosystem, benefiting from our facilities and resources.
“Three of the projects in our factory are actually dissertation projects prepared by academics, and those three have received TL850,000 ($475,000) of angel investment as well as TL450,000 of government incentive.”
The Startup Factory is now affiliated with the European Business Angel Network, an association for early-stage investment, rather than relying on finding independent venture capital firms willing to work with early-stage deals.
A similar seed project has begun in Asia through Philippines-based Globe Telecom’s Kickstart Ventures and Singapore Telecom’s work through its SingTel Innov8 and Optus units.
People
New in-house units often turn to established managers to build the team with a breadth of skills while retaining the strategic, political and cultural awareness of the parent group and its needs.
Deena Shiff became head of Telstra Applications & Ventures Group in August last year after five years as group managing director of Telstra Business.
With chief executives focused on future innovation to help find an escape from a burning platform or keep up with demands, there has been pressure on senior strategy executives.
Payman Saebi left logistics group Royal Mail’s nascent corporate venturing unit to join BT’s strategy office while Daniel Ritz, who had effectively been responsible for nеw business development at Swisscom and also in charge of its corporate venturing unit, Swisscom Ventures headed by Dominique Mégret, left to join United Arab Emirates-based Etisalat, which is expected to develop its corporate venturing strategy as a result.
Naturally, the expansion or creation of so many units has led to changes in teams.
Edgar Hardless, previously vice-president of strategic investments at SingTel, stepped up to the role of chief executive of Innov8 after Yvonne Kwek moved following its launch.
Rob Trice, one of the industry’s thought leaders and eco-system builders, left the position of managing director at SK Telecom Ventures to take an advisory role in the US office of Swisscom entures.
The merger of Hafslund Ventures with Eidsiva’s Energy Future Invest came after Rasmus Hansson left Hafslund in March 2011. He is now a partner at Nor Kraftkapital.
Suli Chen joined UK-based utility Centrica’s British Gas Venture Capital in April as an investment associate.
One of the entities featuring most changes has been the corporate venturing unit of Canada-based telecom operator Rogers.
Michael Lee has been managing partner at the $150m Rogers Venture Partners since January following a role as the parent group’s chief strategy office.
He was joined by Jim Hinson from the role of chief operating officer at Tenaya Capital, a venture capital firm spun out from investment bank Lehman Brothers, and Voytek Siewierski from Japan-based financial services group Mit-sui & Co Venture Partners in March.
This was about the same time as Jason Zan left to be a founding adviser at Palindrome Advisors and Sean Evans left to be a vice-president of corporate development and strategy at Post-media Network, while Jonas Brandon left the Rogers venture capital arm last year.
But there have also been moves in the other direction. After nearly two years at Vodafone Ventures, Frederic Lardieg was an investor and board observer at a number of companies, including LocalResponse and VoucherCloud before moving to venture capital firm Octopus entures.
And Vodafone Ventures head Peter Barry left after nearly eight and a half years to set up advisory group Tane Mobile in June.
Deals
Investments:
Barry had led Vodafone’s corporate venturing team from a pure scouting effort in early 2004 to one of the most active units worldwide, with 20 of its 25 deals coming in the past two years.
As the mobile phone opera-tor said on its corporate venturing site: “Vodafone Ventures’ fund has been active since 2000. We have increased our engagement with the venture community since 2006 and are now one of the top 10 mobile investors in the world.”
While corporate venturing units with parent groups in the sector have become increasingly active, many of their deals have been outside the core utilities sector.
Vodafone Ventures’ deals this year include identity protection supplier Finsphere and battery fuel cell developer Cellera.Shortcut Ventures’ firstdeal was Spain-based social communication platform Yuilop.
The cross-border nature of deal scouting and investing partly indicates corporations’ role in bringing together Europe’s fragmented venture ecosystem, but a similar pattern is found elsewhere in the world, with Silicon Valley increasingly the focus of international firms activity and businesses in Asia investing across the region and further afield.
Japan’s NTT’s Investment Partners and Docomo Capital corporate venturing units have backed businesses, such as HighlightCam and Couchbase in the US and digital content provider Migo in the Philippines, as well as local entrepreneurs, including Shift.
Other deals are more focused on core business.
France’s Suez Environnement used its Blue Orange innovation investment fund to take a minority stake in Redox Maritime Technologies, a Norwegian company specialising in water disinfection using ozonation, to develop a service for bal-last water in ships.
Ruckus Wireless, a US-based wireless internet hard-ware developer, closed its series G funding round in Feb-ruary, raising $21.7m from a syndicate co-led by Singa-pore Telecom’s corporate venturing unit.
Jeff Karras, managing director of investments for Sing-Tel Innov8, said: “We invest in companies with technolo-gies that can potentially enhance the capabilities of the operators within the SingTel Group by delivering solutions across various product segments and verticals.
“Ruckus is one of these companies and with the changes in the carrier market, we are excited about the opportunities that lie ahead.”
Far harder has been successfully incubating ideas. Swisscom now uses Diino, a Sweden-based personal cloud service provider it incu-bated with investment company Novestra.
And despite the increased activity in accelerating early-stage entrepreneurs, most of the disclosed deals in Global Corporate Venturing’s data-base are after the series A round in the past year.
Exits:
Perhaps the utilities sector’s strongest performer in terms of ratio of profitable exits is Israeli phone operator Bezeq-backed StageOne Ventures, which has just two disclosed portfolio companies, Cvidya Networks and FiberZone, left from its $50m fund.
StageOne sold Oversi to Allot, while Nasdaq-listed F5 Networks bought TraffixSystems.
Other good exits include Canada’s Telus Ventures’ sale of portfolio company Checkwell Solutions, the country’s largest employment and volunteer background checking service, to US-based Sterling Infosystems, and technol-ogy provider Citrix’s purchase of Innovacom-backed Bytemobile.
Other than Telefónica’s sale of a minority stake in China Unicom for $1.4bn, one of the biggest disclosed exits for a utilities corporate venturing unit was also by Telefónica with its sale of Amobee to Singtel for $321m (see case study).
Parent companies are tapping other corporate venturing units for potential acquisitions using insights gained through having teams in the entrepreneurial community, including NTT buying phone maker Nokia-backed Netmagic Solutions to help it expand in India.
Expansion and growth in corporate venturing continues apace.