After five years of operation, Swisscom Ventures, the corporate venturing division of the Alpine telecoms operator, has reached the bottom of its ski jump before the take-off, landing and verdict on its success can be judged.
And, just as ski jumping looks simple to the average spectator but in reality requires great skill and endless practice to master timing take-off, maintaining control during flight and then landing safely, so the in-house venture capital team at Swisscom are focused on delivering the strategic and financial results to warrant the continued support by senior management and leaders of its business units.
The signs are good that these results are being delivered. The group is understood to be preparing a number of strong exits from its portfolio and continues to have the support of Swisscom’s senior management that has undergone some change.
Daniel Ritz, chief strategy officer at Swisscom and co-chairman of the investment committee of Swisscom Ventures, along with Ueli Dietiker, chief financial officer and deputy chief executive, said: "Corporate venturing is an integral and important part of Swisscom’s innovation ecosystem.
"Investing in start-up companies allows us to be close to important new developments shaping the future of our business, to test contrarian ideas outside of our core business, and to expose our line managers to new services developed by our investees. Our corporate venturing team is at the heart of this effort and creates value for both Swisscom and our investees by combining investment management and business development skills."
This continued support for corporate venturing is relatively rare in the utilities sector, with Deutsche Telekom and France Telecom among the few in the Global Corporate Venturing list of most influential units, having a longer pedigree of continuous support. Historically, utilities’ venturing units have struggled to be given the time to deliver the financial and strategic benefits as venture-backed companies can take five to 10 years before showing profitable exits and the internal bureaucracies have been regarded by entrepreneurs as relatively slow-moving when compared with information technology groups.
The Swisscom Ventures team, therefore, appears focused on achieving sustainability. Dominique Mégret, head of Swisscom Ventures, said: "We are still at the bottom of the J-curve working on delivering strategic and financial returns. But, so far, it is harmonious as Swisscom values the Ventures group taking stakes and having entrepreneurs around making presentations.
"We have not been affected by the changes to our chief executive and chief strategy officer but new appointments always could lead to changes in priorities so my key objective is to besustainable in funding and let the strength of the portfolio speak for itself, that is, show value for zero cost, as financial returns more than cover investment. We will, however, wait to see concrete results, and the goodwill will remain only as long as we are selffinancing in the longer term and do not waste money.
"Corporate venturing evolves gradually as part of business development. The excitement and active support among business units, such as that seen in Intel for Intel Capital, will also require more time as we are not at the stage of providing major revenues or product innovation to the business group but we are a clear part of the company’s innovation ecosystem."
Swisscom’s innovation ecosystem connects from business development through applied research and development to corporate venturing and strategy, with Mégret’s team located in the strategic and business development unit.
However, the division has been set up to replicate successful venture capitalists in terms of having short reporting lines and the flexibility and independence to make quick decisions. Mégret said this was the most important decision that had been taken.
"The governance of our unit is equal to an independent VC as we have the liberty to make decisions without having to convince internal management but with top management support," he said.
And to provide the link between entrepreneurs and VCs and a large utility’s relatively more bureaucratic business units, Swisscom Ventures has picked people who founded or worked at start-ups, including Ursula Oesterle, vicepresident of innovations in Silicon Valley, California.
After working as an entrepreneur in the UK, Germany and France, where he co-founded Kick-Start Ventures, Mégret joined Swisscom in 2002 as head of the group’s strategy unit before starting Swisscom Ventures three years later.
He said: "Swisscom does corporate venturing to scout for new technologies, especially in emerging marketplaces, to foster the entrepreneurial spirit in the company and help Swisscom work with its thousands of suppliers, to provide strategic views on contrarian areas where there is no consensus, such as VoIP [voice-over-internet protocol] or The Cloud, and to make money.
"We use four metrics to measure our performance: not the return on investment [RoI], as we have only been going four to five years, but value of portfolio. RoI is important but it is too early to use here. Second, public relations, helping get Swisscom better known among entrepreneurs. Third, transfer of new ideas and technologies to Swisscom. Fourth, strategic, that is what are the emerging trends the chief executive or board might need to know about."
Telecoms has been the most deregulated utility and one where technological change has significantly affected its business model.
Swisscom loses 5% to 6% of its traditional revenues each year as use of fixed phone lines falls. As a result, new services, such as mobile data and phone, broadband and internet protocol television, now makes up about half its revenues, up from 20% less than 10 years ago, and a higher share of profits as it is a higher-margin business.
This burning platform of falling revenues in the traditional business and need to offset through new divisions has led Swisscom Ventures to invest primarily in technology companies where its parent might end up as a customer or help with business development.
John Cioffi, chief executive of Assia, which as well as Swisscom has gained investment from AT&T, T-Venture (Deutsche Telekom), Telefonica, SFR (a Vodafone and Vivendi- owned group based in France) and Mingly fund linked to China Telecom, said: "Corporate strategic venturing is exceptionally well matched to the encouragement of pertinent innovation in telecommunications.
"Telecoms start-ups must focus from the beginning on realistic, small steps of incremental revenue and on a customer. [This strategy], if well executed, will lead to a large eventual return.
"The focus on telecommunications customers’ needs and goals and what they are willing to pay for, along with the strategic investors’ understanding that this area takes longer [to hold a portfolio company] than institutional venture capitalists are willing to wait, allows a combination of investment and revenue that is ultimately healthy for the investor and innovation."
Swisscom has invested €55m ($71m) from the company’s balance sheet rather than a separate fund in 20 deals, and its most recent investment was to provide $1.8m as sole strategic investor for Poken, a Switzerlandbased company that produces a keychain for connecting to social networking platforms.
Mégret said: "Poken is at the nexus of the mobile and events spheres, with unique capabilities relating to NFC [near-field communication, which is a short-range high frequency wireless communication technology enabling the exchange of data between devices over limited distances], RFID [radio frequency identification] and social networking."
Fact box – Swisscom Ventures
Formed: 2005
Assets: €55m
Key people: venture investment committee, Swisscom – Daniel Ritz, head of strategy and business development; Ueli Dietiker, chief financial officer and deputy chief executive; management team, Swisscom Ventures – Dominique Mégret, head; Pär Lange and Nils Granath, investment officers; Ursula Oesterle, vice-president of innovations in Silicon Valley; Carlo Grassi, financial manager
Portfolio: 20, Assia, Swisscom Auto-ID, CoComment, Datamars, Dino, Evolva, Firecomms, Iccross, Kyte, LiberoVision, MVP – fund, Omnisens, Poken, Quantenna, RSD, SBI – fund, Sensimed, Sequans, SolvAxis, Transmedia