By CVC standards, Qualcomm Ventures, the corporate venturing unit of semiconductor manufacturer Qualcomm, is a grizzled veteran. Founded more than 20 years ago, it is one of the oldest units out there and has had time to figure itself out.
“We kept refining our playbook on sort of where do we play. Investors are always like, am I more financial? Am I more strategic? Do I invest in anything? I think we’ve got that pretty buttoned down.”
With a portfolio of around 360 companies and $2bn in capital invested, one might conclude it found a winning formula. The future is also looking increasingly digital, boding well for the CVC of a company enabling digital technology.
“Digital transformation is clearly no longer a buzzword. Every single industry, whether retail, whether manufacturing, whether logistics, whether finance, you name it – entertainment – everything is becoming digital. More and more, a lot of the excitement comes from bringing the offline world online,” says Carlos Kokron, managing director and head of Americas investments for Qualcomm Ventures
With a parent that is an oligarch within the highly-specialised, highly-competitive chip sector, it is important to the firm that it brings more to the table than just capital.
“A lot of the excitement comes from bringing the offline world online.”
“Money is largely abundant, so you need to find a differentiation. You need to find a way you can bring things to bear for the company, for the startups, that maybe other investors can’t,” says Kokron.
It also brings to the cap table a history of making blue-chip bets, with notable exits including video-conferencing platform Zoom, navigation system Waze, video doorbell maker Ring and fitness device producer FitBit.
Initial cheques are sized between $2m-10m and are deployed across seed to series D stages and beyond, though Qualcomm prefers the series A to series C range – late enough to be largely de-risked and not too late to retain influence as an investor.
An evergreen structure made the most sense when the unit started – easier to set up to deploy balance sheet money than going for some kind of 10-year closed-end structure – and it has stuck with it since.
Investment themes and portfolio
Qualcomm Ventures’ investment themes cover just about anything that depends on a computer chip. Automotive, artificial intelligence, 5G, internet of things, enterprise and cloud, consumer applications, extended reality and metaverse are all target areas.
Its portfolio companies are as varied as 5G provider for enterprises Celona, sales readiness platform MindTickle, IoT device platform Particle, telehealth company Tytocare, racing series Formula-E and drone management platform Airmap.
“More and more, we’ll see data being generated at the edge.”
Much of the focus in the future will be at the edge, explains Kokron. The edge, broadly speaking, describes the processing of data nearer to the end user, typically via smaller, decentralised data centres closer to populous areas, as opposed to core cloud functionality that comes from large-scale data centres farther away.
This proximity allows for much quicker data transfer, meaning that applications reliant on low-latency and lightning-quick reactions, such as numerous artificial intelligence-based and automated products such as self-driving cars, can work effectively.
Kokron explains: “Over the past 10-15 years, we’ve really seen the birth and the strength of the cloud, and that’s phenomenal and it’s fantastic. But more and more, we’ll see data being generated at the edge again. So we’re working with companies that help enable this vision.”
Doubling down on the extended reality (XR) segment, Qualcomm also recently launched a new vehicle called the Snapdragon Metaverse Fund to invest in virtual reality and augmented reality projects, whose applications have proliferated in the past few years.
Since launching, the fund has already made some investments, including in cloud platform for developers of XR technology Echo 3D and Tripp, a VR platform for meditation.
Like the rest of Qualcomm Ventures’ focus areas, XR relies on computer chips and the strategic aim of building an ecosystem around its parent’s core business is always at the forefront of the strategy but so is making sure that any given investment is a money maker.
“I’d say we are a very disciplined strategic investor, and what I mean by that is we are an investor first,” explains Kokron of where the unit stands on the strategic-financial spectrum.
“You have to think, act like a financial investor. We hope that every investment of ours becomes a unicorn – of course we know that’s not reality, but that we aim high.”
Downturns aren’t all bad
The excess spoils over the past couple of years are coming to an end in today’s economic environment.
“The frenzy of the last year of rounds – getting closed in two weeks at 3x the last valuation from five months ago, et cetera – that’s not going to happen,” says Kokron of the near future.
“And quite frankly it’s healthy, right? Whatever we were seeing last year was way too much.”
“You see a lot of great companies get started in the downturn scenarios.”
It is not all doom and gloom, though – market downturns often provide fertile ground for new business, especially when investors are generally well capitalised and talented people are looking to make moves.
“We see a scenario where a lot of smart engineers and entrepreneurs are maybe in companies that say, my companies, my RSU are not worth much. So, I want to go and start something. So, typically, you see a lot of great companies get started in the downturn scenarios,” says Kokron.
The drop in valuations also works to investors’ benefit, and those with longer investment horizons can bank on the economy eventually returning by the time their investments mature. It is time for some discipline, he says, but feels optimistic about venture capital coming out the other side. Talented people are always going to want to work in startups.
Latin America
A growing focus for Qualcomm Ventures has also been the fastest-growing VC market in the world: Latin America. Kokron describes its growth over the past five years as a phenomenal transformation.
Qualcomm’s portfolio in the region includes startups such as edge computing company Azion, online delivery service Loggi, residential rental platform QuintoAndar and laboratory testing platform Hilab.
“The market really started to shape up in around circa 2010-12. We had a good first epoch through 2018 or so, and then over the past four or five years it’s just completely changed.”
Kokron attributes what he calls a significant step-change in activity across the region to several factors, one of them being the global digital transformation that has corporates jumping in to play a role lest new technologies and business models disrupt them.
Another is the chipping away of the perception that despite Latin America’s large population – between 600 million and 700 million people – there were too few startups, entrepreneurs, investors and early-stage money.
“All of these barriers, over the past 10-20 years, have been like dominoes falling,” says Kokron.
Qualcomm Ventures had its first unicorn exit in early 2018 when its ride-hailing portfolio company was sold to Didi in the first exit of its kind in the region, during a year when the number of unicorn startups in the Latin America jumped.
“Then people were like: Wow, you now have exits, too. You can make a lot of money.”
Not too long after that, heavy hitters such as internet and telecommunications firm SoftBank decided to back Latin America with a $5bn fund of its own and was not shy about deploying it liberally. Other big-name VCs such as Accel and Andreessen Horowitz began to invest more, as well.
Hurdles in the Chinese market over the past year or two have also had investors reallocate more capital to emerging markets, with Latin America drawing interest for its fast growth and less restrictive environment.
Today, you have all kinds of CVCs – from banking and retail to manufacturing, mining and transport – putting money in. Some of them are going through some familiar growing pains, according to Kokron.
“I think they’ve got some learning to do and some warming up to do,” he explains.
“Some of them are still asking: Oh, I want exclusivity, I want right of first refusal. These are things that, in our view, don’t tend to go well. If you ask for exclusivity, you’re probably limiting the size of the company.”
You can catch the entire conversation with Carlos on the Global Venturing Review podcast.
