- IN THIS ISSUE:
- * Corporate Venturing – Some Thoughts and Experiences
- - Be clear about the goals.
- - Focus on both the financial performance and technology positions.
- - Maintain highest levelmanagment commitment for the long haul.
- - Be able to make decisions quickly.
- - Use all internal and external sources to generate high volume ‘deal flow’.
- - Honor the intellectual property position of the startup. Avoid conflicts of interest.
- - Build collaborations with the startups that provide mutual benefits.
- - Don’t accept a low quality deal for strategic reasons.
- - Follow a hybrid strategy that uses startup oriented VC funds and independent investments.
- - Use relationships with the VC funds to start up and to learn the business.
If you happen to be in Stockholm, I am arranging the traditional TapioFriendz Business Networking Party at O-Baren, Sturehof in Stockholm on Wednesday Feb 23 at 19:00 – 21:00. Very informal: meet some colleagues and buy yourself a beer.
Several people have asked how to follow up the sales and partnering leads I have written about in the recent IOW issues. We have now set up a possibility for each one of you to go to our webboard, discuss the various companies and agree upon who takes the contacts further. Geri Vukas, Business Development Manager (EUS), has posted the first message. The address: http://webboard.ericsson.se/webacademy, go to ‘IOW Forum’.
CORPORATE VENTURING – SOME THOUGHTS AND EXPERIENCES
I attended an IBF conference “Corporate Venturing and Strategic Investments” in Palm Springs. There were some 150 delegates from corporation and venture capital firms discussing how corporation can best implement a venture funding strategy. The quality of discussion was generally very high and I certainly learnt a lot. Here are some of the thoughts that the event provoked. This is my perspective to things and does not intend to be a textbook on the issue, there was so much material it is too overwhelming to put here.
THE BASICS. The head of Chevron Technology Ventures gave a best rundown on the basic success criteria for a venture activity. These are the basics but they are important to know. Chevron is focusing on early stage investments (seed and first rounds) – I also think Ericsson should focus on early stage, the speed is so high that in later stages we can only act as a side-by-side investor with experienced VC funds, supporting the valuation of the investment target with our strategic partnership capability (which I hope we will develop). The Chevron Success Factors:
TIME TO DEAL. What is the acceptable time these days to drive a deal from discovery to execution? The panel of Philips, France Telecom and 3M voted the acceptable TTD to be six weeks. Period.
INTEGRATION WITH ORGANIZATION. The goals of a venture fund or a corporate venture unit can be 1) to maximize financial return, 2) find an investments with strategic synergies or 3) a combination of both. It is important to define the right interface in the company who gives support and influences decisions: 1) business development, 2) finance and 3) business units. Business development is a natural coordinator (if it has any execution power), finance is too often forgotten (experts who know “financial engineering” and involving business units can speed up decision making but can be very dangerous due to a tilted view and inability to “buffer” internal NIH effect.
“An investment must have a business unit owner who cares DEEPLY.” – Compaq
USE WARRANTS IN A START-UP DEAL TO DRIVE PERFORMANCE. Kimberlie Cerrone is a consultant and patent attorney whose list of credentials takes ten minutes to read. For example, she is General Counsel at Visto (a Nokia Ventures company) and several others. She seems to be a factory of useful ideas, one of them was the following: a startup should structure a deal with a larger corporation by using performance-bound warrants. The large corporation would then go back to business units and organize the partnership support so that the conditions to execute the warrant will be met. A simple and efficient way to make an elephant respect a mouse!
THE RIVER OF NO RETURN. Joseph Schoendorf of ACCEL Partners (the Internet strategy advisor of WalMart) used Procter & Gamble as an example of how to drive dramatic culture change. When P&G recently set up its Internet spinoff, the chosen employees were told that in the case of a failure, there will be no opportunity to return and be re-employed by P&G.
SONERA KNOWS BRANDING. Sonera was featured as an syndicate investment partner in the presentation of two VC firms: Advent International and MediaOne. One of them praised Sonera as “probably the smartest wireless company in the world, Finland is a great test market for us.”. Neither Telia nor Sweden were mentioned at the conference even once. Sonera was represented at the conference by Panu Vuorela from Sonera Ventures in Mountain View, CA.
CORPORATE PROFILES. Companies who spoke: Compaq, E*Trade, Hearst, Panasonic, UPS, Visa, Nortel, Cisco, Chevron, Motorola, Bechtel, Hewlett-Packard, Acer, MCI Worldcom, Adobe, Novell, 3M, Lucent, AOL, France Telecom, Oracle, Philips, Comcast, Dell, Intel, Johnson & Johnson
Lucent has a $100m fund primarily (2/3) targeting later round investing. It partners with top VC firms and it has a new special focus on the Israeli high tech industry.
Nortel does not have a separate fund but it has a well-development venture investment strategy since 1998. Reasons for investments are: 1) grow core, 2) complete product offer (support OEMs with warrants or equity), invest in suppliers (use warrants) and 4) venture-invest in customers (against equipment purchase). They want to reach an early awareness and exposure in the startup community. Nortel’s investment in existing and professionally managed venture funds stands at $100m (ACCEL, NEA, Battery Ventures, IVP). Nortel has allocated an account manager for each relationship. The VC partner gets an insider look into Nortel plans as well as a first look at planned Nortel spinouts.
Motorola Ventures is a part of strategic business development activity at Motorola, reporting directly to the office of CEO. Partnering with small companies, Motorola offers them 1) technology, 2) brand, 3) devices and 4) global presence. The speaker did not say much (maybe due to his background in the defence intelligence community). The message from CEO Chris Galvin to him: 1) “I want you to be sufficiently annoying every day.” and 2) “I will cover your speeding tickets but not your parking tickets.” I believe the venture activity has been very difficult to implement at Motorola – there are few deals Motorola Ventures have been able to drive to completion through the corporate bureaucracy.
Cisco‘s venture investing activity is growing rapidly, they plan to invest “this year as much as in the six past years altogether”. “We have to start to be creative about becoming a $1tr company.” Again, the goal in the investment is direct business benefit, no VC fund, the venture group reports directly to the CTO. Half of the investments aim at an eventual acquisition upfront. They seek some sort of exclusivity in the deals for competitive protection. Cisco has a VC partner in Israel. “We have a wonderful human network, there are so many wealthy Cisco ex-employees in Silicon Valley.”
MCI Worldcom has a venture arm which manages $1bn, mainly investments in broadband and next generation networks so far. Also for them, Juniper has been a great investment. MCIW is planning to include wireless in their investment focus soon, as they completed the acquisition of Sprint. By the way, it sounded like the the person who will be heading the wireless group for MCI Worldcom is the CEO of SkyTel whom MCIW acquired a while ago… Ericsson could cooperate a lot with MCIW venture activities, for example on iPulse business opportunities (iPulse is being tested by them internally).
France Telecom has a very active $200m direct investment program, launched in 1996. They have made 250 investments worldwide, some of them very successful such as the sale of Four11 to Yahoo in 1996. The unit also manages FT selling out spinouts from France Telecom. http://www.innovacomvc.com
Philips has an venture division (part of Corporate Business Development) handling its internal and external venturing activity, located in Silicon Valley, Amsterdam and Israel. A small unit, 10 people worldwide. Focus on financial returns – target 2000 is to invest $50m in 15 deals (later rounds).
Panasonic Digital Concepts Center is an incubator acting as a “portal” between startups, VCs and Matsushita units in Japan. Sounds like our former visions on CyberLab? Very much indeed, they founded PDCC in November 1998, I am sure Ericsson served as a case study for the Japanese management. Some interesting companies in their investment portfolio: 2Roam (mobile portal technology) and Dynaptics (impulse buying enabler technology) and Fortnocs ( real-time payment processing ASP). – http://www.vc.panasonic.com.
Intel changed the name of its venture activity recently to Intel Capital. 250 transactions mounting up to $1bn invested in 1999, 100 professionals working in the group. Intel 64 Fund and Intel Communications Fund are in addition to this. A recent global focus: 1/3 of investments abroad.
Compaq has an internal venture arm. They have a partnership with Samsung and a strong relationship with CMGI.
Dell has no separate VC fund but it invest actively to retain dealflow in disruptive technologies. 50 investments made so far, growing $125m into $1bn. Michael Dell has his own VC fund MSD Capital and they share deal flow with each other.
Acer has a number of venture funds, one in Silicon Valley (Acer Technology Ventures Fund, $40m http://www.acer.com/acervcap/index.htm). The company claims to have a strong Internet strategy, spearheaded by one of its divisions, Acer Digital Services Group.
Hewlett-Packard invested $80m in 1999 with a 300% return. Venture investing is a tool to gain strategic benefits. Investments are selected through a rigid selection process.
Oracle established in 1999 Oracle Venture Fund. The motive is in boosting the sales of data bases. Therefore, their venture activity is very “tactical” and aims at adding value to the relationship. http://www.oracle.com/ventures
Adobe has one of the most famous corporate venture funds in the valley, Adobe Ventures. They have $175 m under management and they claim to see through 1000 – 2000 deals per year. Adobe’s main lesson: VC fund is a full-time activity, don’t mix it with M&A.
Hearst Interactive Media has an internal venture arm which has made investments in Women.com, Exodus, Genealogy.com, MedScape, Quokka Sports, Starmedia, Talk City and several others. Strategic synergies and business development support are key.
Visa International has a $500 million global investment portfolio, managed from San Francisco.
AOL has since two years a venture arm called AOL Investments, no fund. They invest mostly in later rounds with a strong operating relationship between the partnering companies. AOL also has an early stage “greenhouse” activity for content creation. AOL’s biggest mistake? “A company called Amazon.com approached for a seed round financing of $200k for 20% of the company. Because of AOL’s bureaucracy we were not able to decide fast enough….” Ericsson could perhaps work with AOL on mobile Internet opportunities?
E*Trade started its venture activity in 1996, at the same time as the company was established. In 1999 they set up a $100m fund focusing on both b2b and b2c spaces. The company has made 25 investments so far, ten of them last year. Eight of the companies have gone public (with over $1bn market cap each). The unit has 15 employees.
For upcoming strategic investment conferences, see http://www.ibforum.com/.
- NEW VENTURE FUNDS
Siemens venture fund has grown to $1.2bn in value from the original $100m just 18 months ago. CS First Boston and other friends of Siemens are doing a good job helping them get it right. The logic behind this is simple and can be explained with a gambling analogy: It pays for a casino owner to attract a celebrity (strategic investor) to play at his Casino and have him/her win since it spreads the good word, makes the celebrity happy and attracts lots of other, monetizable players. The biggest opportunity for Ericsson lies in playing this card right.
INNOVATIVE BUSINESS MODELS
eFusion. Our VoIP competitor eFusion unveiled an application service provider (ASP) business model for the deployment of a set of market-ready online voice services for e-commerce companies and Internet service providers (ISPs). In response to growing market demand for value-added services, eFusion has added a new business model to enable the provision of an array of applications and services on a pay-per-use basis. http://www.efusion.com
Most small businesses have a Web site, but few use them to sell their wares. Enter the eBusiness Service Provider (eBSP) — a new breed poised to kick-start these sites. Learn more with today’s exclusive new research from Cahners In-Stat Group. http://cgi.zdnet.com/slink?/adeska/adt0202ns/4410:1995180
QUICK TAKES – Remember when you could choose between search engines Lycos and Webcrawler? Now the search engine portal SearchPower lists 2,400+ specialized search engines… A Swedish startup Bar-Mail AB is about to launch a product in the area of bar-code based messaging… Telcobuy.com is a b2b electronic trading hub for the telco and ISP industries. Will our products be auctioned and commoditized?… Infoapps.com is building a portal for people shopping information appliances… MobileID mobile Internet messaging portal launched and cut a distribution deal with Cellmania.com. The CEO David Hayden built up email outsourcing service CriticalPath… – (To view the embedded hyperlinks, view this section online at http://webacademy.ericsson.se.)
SELECTED THOUGHTFUL READING - See you next week. – (go to http://webacademy.ericsson.se for links to stories)
