Venture investment by telecoms corporations remains robust, as the sector continues to be transformed by internet use and the shift to mobile devices. Those in the sector are finding their scope for investment is broadening.
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David Famolari, director at Verizon Ventures, the corporate venturing unit of the US-based telecoms company,said: “Over the past 10 years we have been identifying and analysing the potential in new technologies from passionate entrepreneurs innovating in the sector. But recently there has been an uptick in start ups focusing on alternative ways to bring highly refined hardware and faster software to market. As Verizon and telecoms in general become broader technology companies, we can cast our net wide and we are seeing a lot of promise in a few key areas.”
It is argued by some that venturing groups in the sector need to add more than simply intelligence. Dominique Mégret, head of Swisscom Ventures, the corporate venturing unit of the Switzerland-based telecoms group, in a panel at the Global Corporate Venturing Symposium in May, said: “We do not add value just listing all the hot industries or hot topics of the telecoms industry, because the CEO is being bombarded by experts and strategists all the time about the next disruption, and that is not where we add value.”
He added: “Where we add value is understanding the VCs [venture capitalists] and being able to have a little bit of a hands-on, practical experience as to whether Skype is just a hype or a reality, as a company. That was not obvious, just to look at it from a purely hypothetical point of view. It is all about being inside the community, behind the scenes, understanding what is behind the marketing announcements. I would put it this way, a very pragmatic approach to strategy, and if you think about the definition of the word strategy, at least from the Greek, it is the science of optimising the way you implement your resources, so it is actually a very operational thing, it is not about high-level theoretical discussion.”
Some groups are looking at broader ways to enhance their corporate venturing activities through open innovation. Ana Segurado, investment director at Telefónica, said the group was now placing significant emphasis on its new open-innovation effort Open Future. She said: “The idea is to focus our efforts, helping entrepreneurs in a more efficient way. Open Future will allow us to identify talent all over the world and connect all our programmes and investment tools so that we can focus investments on companies we know well and from a very early stage.” (See report)
The groups are looking at a variety of topics. Mégret said: “If you take the three most strategic topics for [telecoms], it is about access and how much money do you want to put into access, and it is about in-house networking and the cloud. We have invested selectively in all three areas to address those key issues.
“For the cloud, we have been doing a lot of investments, open source, all of them Silicon Valley-based companies, because we want to support the internal initiative at Swisscom to develop a new operating system and that requires avery close intimacy to these start ups, and having a foot on the equity side helps reassure both sides. The start ups would like to know what is going on in Switzerland in the corporates and the corporates would like to know if the start ups are able to deliver the job, so it is a reinforcing mechanism in that case.”
Dan Keoppel, executive director at Verizon Ventures, said the networking sector would be changing significantly this year. “SDN/NFV [software defined networking/network functions virtualisation] technologies are being deployed within carrier networks this year. Significant amounts of capital will be shifting from conventional networking hardware into lower-cost switches, commodity hardware and software to knit it together. Watch for larger carriers to take on development of software instead of buying from vendors.”
He said adoption of the cloud by businesses would speed up because of “application migration and management tools and services to allow enterprises to take advantage of cloud scale for legacy application for enterprise. New PaaS [platform-as-a-service] players building better integrated solutions – building on the backs of all those other PaaS vendors.”
Telecoms groups also have an opportunity in the video sector. Verizon’s Famolari said: “There is plenty of opportunity in video – everything from infrastructure for efficient video delivery, indexing, storage and caching, to advanced technologies for mobile video capture, editing and streaming. It will be interesting to see the evolution of real-time mobilebroadcast video services, as well as advances in object recognition, event detection and classification for video analysis and computer vision.”
For investors, connected devices and internet of things could be viewed as a services-style investment. Verizon’s Famolari added: “The crux of connected devices and internet of things lies in the middleware and the smart connective tissue to knit disparate service elements together. Intelligent and contextual service enablers use connectivity and data analysis to help users better understand, programme and tailor their environments and theindustrial instrumentations and applications that improve operational insight and efficiency.”
On mobile investment, Keoppel said the shift to small cells was a big trend, and that telecoms groups would also be focused on 4G deployment. “Small cell technologies become a big ticket item next year and beyond, but that is only part of the solution. The increase in mobile data consumption through 4G deployment will require optimisation technologies to reduce cost of delivery.”
On digital security, he said there would be “multi-layer threat assessment, how to manage enterprise security across the cloud”. He also said that consolidation in digital marketing would start to roll up themany entrants over the next 12 months.”
Deals
Deals by T-Venture, the venturing unit of Deutsche Telekom, included the series B round for Germany-based mobile games start up Flaregames, backing mobile advertising platform Opera Mediaworks, the series B round for Boxfish, a US-based developer of a television analytics platform, and backing German ICT product recycling company Teqcycle Solutions, a 2013 spin-off from Teqport Services.
SingTel Innov8, the $200m corporate venturing subsidiary of Singapore Telecommunications, was one of the backers of US-based online video content provider Maker Studios, which was sold to media company Disney for $500m in a deal that could eventually rise to $950m if “strong performance targets” are met. Singtel Innov8 also backed US-based big data analytics company Guavus in a $20m series E round.
SingTel Innov8 was also a backer of TubeMogul, a US-based provider of digital branding software, which raised $43.75m in its initial public offering (IPO). Deals by Singtel Innov8 included backing Bitglass, a US-based developer of data protection technology for businesses, Nexage, a US-based creator of a mobile advertising exchange, and Fab, a US-based design website.
Swisscom Ventures did 10 deals in 2013 and has done nine by early July 2014. These included backing Sophia Genetics, a Switzerland-based specialist in data-driven medicine, cloud monitoring company Boundary, and cloud network company Plumgrid.
Verizon Ventures, the corporate venturing unit of the US-based telecoms company, invested in multiple deals, including Run, a US-based mobile-focused advertising management platform, MobileRQ, a US-based mobile app marketing platform, ActionX, a US-based mobile commerce platform for acquiring and retargeting mobile customers, CloudBees, a US-based, enterprise PaaS technology provider for developers to build and deploy new business applications, and Newlans, a US-based broadband signal processing company.
Rogers Venture Partners, the corporate venturing unit of Rogers Communications, backed companies including Docurated, a platform that transforms file storage solutions such as Box and Dropbox into searchable content, and Addvocate, a US-based employee advocacy platform for firms to promote their brands and businesses via their employees.
Funds
UK-based telecoms company Vodafone established a NZ$50m ($42.2m) start up incubator in Christchurch, New Zealand, and a new start up hub in the UK at the same time as closing its Silicon Valley research facility, as part of a shake-up of its Xone incubator. Despite the Xone hub moving across the Atlantic, Vodafone’s corporate venturing unit, Vodafone Ventures, and its business unit, Vodafone Global Enterprise, retained their headquarters in Silicon Valley, according to the company.
Optus-Innov8 Seed, an Australia-based seed fund and accelerator which is a collaboration between Optus and SingTelInnov8, is now open for applications all year round. The accelerator invests up to A$250,000 ($235,000) per start up.
SingTel also launched a new business mentoring service called Innov8 Sparks that will support Asia-Pacific start ups that want to break into new markets. SingTel Innov8 is backing the programme, while other founding members include AIS The Start up, which acts as the digital product development arm of mobile operator AIS, the Globe Telecom-owned Kickstart Ventures, Optus-Innov8 Seed and Indonesia-based developer support initiative Telkomsel.
Michael Boshammer and Oliver Fietz are set to take over as managing directors of T-Venture. Boshammer and Fietz will replace Patrick Meisberger, who is leave his role as managing director and chief operating officer of T-Venture after 10 years.
The appointments mark the latest in a series of changes at T-Venture, after Thorsten Claus, of the US office of T-Venture joined venture capital firm Next World Capital, and Brook Wessel, also of T-Venture, joined Australian telecoms company Telstra Global, starting new businesses in close collaboration with Telstra Ventures, the company’s corporate venturing unit. The departure of Meisberger, Claus and Wessel followed the departure in May 2013 of T-Venture’s long-standing CEO Georg Schwegler to become a freelance consultant.
Tracy Isacke, who headed Telefónica’s late stage investment unit Telefónica Ventures from Silicon Valley, has moved to US-based Silicon Valley Bank, where she will work on corporate venturing relationships alongside Claire Lee.
Telefónica plans to have significant overlap in investment between its new open future initiative (see report), as well as its accelerator programme Wayra, its fund-of-funds programme Amerigo, which backs venture firms, and Telefónica Ventures, once it starts investing again.
Telefónica’s Javier Placer is overseeing the four initiatives. Ana Segurado, previously of Amerigo, is now directly responsible for Telefónica Ventures, while Valentin Fernandez Garcia is directly responsible for Amerigo, and Gonzalo Martin Villa-Peňa is in charge of Wayra. Jack Leeney is US head of investments, while Doron Shpasser is Israel head of investments.
Olivier Cognet has left his role at Belgium-based telecoms company Belgacom to take up a position as managing partner and chief financial officer of Ginko Ventures. Although precise details concerning the relationship between the two companies have not been revealed, Switzerland-based Ginko will make strategic investments in support of its industrial partner, China-based electronics contract manufacturer Foxconn.
Sebastian Blum has left US-based mobile online media developer Cooliris, where he was vice-president of business development, to take up a position as partner at European venture capital firm Active Venture Partners. Blum was managing director of the US arm of T-Venture from 2006 to 2010, having previously spent more than four years as an investment manager for the unit.
Digital Prosperity Fund backs Bidu
Venture capital firm Amadeus Capital Partners is using its MTN-backed Amadeus IV Digital Prosperity Fund to target the growing middle class in emerging economies, in which the increasing proliferation of online access is set to lead to significant potential for the transfer of business models already being popularised in developed nations, according to Pat Burtis, a partner at Amadeus.
The fund made its first investment late last month, contributing to a $9m early-stage round raised by Bidu, the Brazil-based owner of an online price comparison service for insurance. A large factor in Amadeus’s formation of the fund is a rapidly growing middle class in emerging economies across the world, which provides a ready audience for online services.
The Digital Prosperity Fund will target start ups in a range of emerging markets, investing between $7m and $12m over the life of an individual company. South Africa-based telecoms company MTN is the cornerstone investor, having provided $75m in July 2013.
“We had our first close last year on $75m,” Burtis said. “We see MTN as a great partner for us. They began in South Africa and have been extremely entrepreneurial across Africa and the Middle East. Given their history of rolling out new products and services in developing markets, they were interested in getting some visibility in, and access to interesting technologies and business models outside of Africa, as well as those within Africa. So we were very keen to have them as a partner in the fund.
“The fund is targeting companies serving the emerging middle classes globally, so Africa, Latin America, the Middle Eastand Asia, and specifically technology companies in traditional technology and telecoms sectors in the sense of mobile, internet services and digital media.”
He added: “We did a fair amount of research on this before launching the fund. We picked 19 countries, and if you aggregate the population and income of the middle class and top quintile in those 19 emerging markets, you have a population of 300 million people with a per capita GDP of $20,000. This is not the bottom of the pyramid, it is essentially the same economic force as Europe 10 years ago if you look at the numbers.”
Another important factor is the proliferation of internet and mobile technology in those markets, bringing greater numbers of people online and allowing them to engage with online services for the first time.
The enhanced flexibility offered by the cloud also means companies can be set up more easily in these countries, allowing the transfer of models such as Bidu’s price comparison service to new markets where they can be disruptive.
“The ‘cloudification’ of so many things means that you can now start a business cost-effectively and efficiently almost anywhere,” Burtis explained. “You can have storage, computing power, development capabilities anywhere in the world and this means that it does not really matter where you are when you are starting a company.”
“We looked at these three factors and said there are actually the seeds of some very exciting technology and business models that can lead to some really great companies in these markets. In the case of some, like Brazil, you have existing large industries like the insurance market where the internet has not been a factor yet, so we like that dynamic where you can come in and augment an existing industry with a new channel.”
Telefónica embraces open innovation
In a move to shake up its corporate venturing strategy, Spain-based telecoms company Telefónica is stepping up its open innovation and putting its late-stage venturing on hold.
Ana Segurado, investment director at Telefónica, said the group is now placing significant emphasis on its new open innovation effort Open Future. Segurado said: “The idea is to focus our efforts, helping entrepreneurs in a more efficient way. Open Future will allow us to identify talent all over the world and connect all our programmes and investment tools so that we can focus investments on companies we know well and from a very early stage.”
Tracy Isacke, who headed Telefónica’s late-stage investment unit Telefónica Ventures from Silicon Valley, has moved to US-based Silicon Valley Bank, where she will work on corporate venturing relationships alongside Claire Lee.
Segurado said Telefónica Ventures’ investment is on hold pending a strategic review. “We are reviewing a number of companies in the portfolio of Telefónica Ventures and will focus on those with clear alignment with Telefónica strategy, before we start investment activity again, probably managed from Spain.”
The group’s most recent exit was the sale of digital media company Eventful to CBS.
Jack Leeney, now US investment head of Telefónica Ventures, said: “The core of Eventful’s platform solves a problem the biggest consumer internet players have all struggled with, which is nailing down local events with complete contextual accuracy. I have been thrilled to work with the board of Eventful for some years now, and see them join CBS as they bridge traditional and digital media, a theme Telefónica continues to evolve and expand on globally.”
Telefónica plans a significant overlap in investment involving its new Open Future initiative, as well as its accelerator programme Wayra, its fund-of-funds programme Amerigo, which backs venture firms, and Telefónica Ventures, once it starts investing again.
Telefónica’s Javier Placer is overseeing the four initiatives. Segurado, previously of Amerigo, is now directly responsible for Telefónica Ventures, while Valentin Fernandez Garcia is directly responsible for Amerigo, and Gonzalo Martin Villa-Peňa is in charge of Wayra. Doron Shpasser is Israel head of investments.
Segurado said the Open Future programme had set up partnerships with local and national governments in Spain and Latin America, including with the Spanish provinces of Andalucia, Extremadura and Galicia, as well as launching programmes with other governments, including Costa Rica, Ecuador and Chile.
She cited examples of the programme. “Extremadura is an area of Spain where one of the pillars of the economy is agriculture. We are helping them develop agricultural technology such as drones and sensors to help the agricultural areas become more efficient. We are also in discussions with a big technology corporation to work on activity in smart cities.”
Segurado added the programme was also looking globally, with Telefónica considering a presence in Germany, and it had also closed an agreement with Chinese university Xinhua and local telecoms company China Unicom to pursue open innovation activities in China.
The business is also looking to pursue many of its activities virtually. Segurado said: “We are using a virtual incubator we have developed. This is a cloud platform any entrepreneur can enter and be connected to our network of incubators and connected with Telefónica to progress in their project.”
She said the most interesting projects would be offered a presence in co-working spaces of Telefónica.