Operators are increasingly investing in start-ups to get ahead of the game
June saw KPN (AMS: KPN) launch a venture capital fund, Orange (EPA:ORA) invest in an IoT start-up, and Zain (KSE:ZAIN) make a significant capital injection into VC firm Wamda…
Operators are increasingly investing in start-ups to get ahead of the game
June saw KPN (AMS: KPN) launch a venture capital fund, Orange (EPA:ORA) invest in an IoT start-up, and Zain (KSE:ZAIN) make a significant capital injection into VC firm Wamda Capital.
Speaking to senior industry figures, it is clear that there is not one particular factor which is driving the trend, but rather a range of benefits attracting telcos to the opportunity.
Operators are looking for new ways to compete and innovate in the digital age, and to make some smart investments along the way. It serves as yet more evidence that telcos are not satisfied with simply being dumb pipes.
KPN committed €35m (US$39m) to KPN Ventures, which is dedicated to investing in start-ups. At the time, CFO Jan Kees de Jager said it would allow KPN to partner with agile and innovative firms, which he said was important as technology and consumer demands were changing.
In return, KPN can offer start-ups access to its networks, knowledge base and security, and the potential to offer a product to its millions of subscribers.
Operators have been left looking flat-footed when they have tried to innovate in the past. Their size, governance and culture are just some of the factors which have hindered them in comparison to nimbler start-ups in Silicon Valley.
Ana Segurado, director of Telefonica’s (BMAD:TEF) Open Future – its venture capital and innovation unit – told TelecomFinance that innovating internally had its drawbacks.
“Sometimes what you identify outside the company is better than what you are developing internally and you find internal obstacles to introducing new companies, so doing it from the outside is easier,” she said.
Capitalising on professionals
Segurado added that the venture capital industry is often home to professionals who are better suited to innovation, a profile that can be difficult to incorporate into a large company. Instead, Telefonica has chosen to work with venture capital professionals externally through its funds to tap into that talent pool.
Open Future has oversight over a range of different funds including Telefonica Ventures, Amerigo, Wayra, and the most recent, Communications Investment Platform (CIP) – a US$200m partnership with investment firm Coral Group announced in May.
Across its portfolio it has investment in 580 start-ups across the globe at different stages in their development. Between Telefonica and the partners in its funds, €630m (US$706m) has been committed to its investments.
Some of its recent investments have been in French IoT network group Sigfox, and Cyanoden, which creates non-Google software for Android.
“Open Future provides products and services that are identified outside of the company and can complement our internal R&D development,” Segurado said.
“We believe in it as a force for innovation, helping us be more disruptive.”
Mutual benefit
In the Middle East another operator has taken a different approach to venture capital. Rather than setting up its own fund, Kuwait City-based Zain has participated in a funding round for MENA-focused investment firm Wamda Captial.
In return for its undisclosed investment, made at the start of June, Zain will get access to start-ups Wamda invests in.
Emre Gurkan, Zain’s chief strategy and business development officer, said its goal was to “capitalise on the most promising B2B and digital ideas that can bring synergies to Zain and which can impact operations or revenues in Zain’s core business”.
One operator doing things differently is Orange. The French group’s Orange Digital Ventures division invested in IoT start-up Actility in mid-June. As a point of difference, Orange’s venture capital activities are very much inside the group.
Speaking to TelecomFinance, Yann Kandelman – Orange’s head of digital development, group development and strategy – said he believes the operator has found a structure which gets around pitfalls telcos have suffered in the past.
“We have implented the processes to replicate the agility and ability to make decisions as fast as any venture capital firm, but within the Orange group,” Kandelman said.
It has a dedicated steering committee for the initiative, headed up by deputy CEO Pierre Louette, which decides which investments to make.
“It is a process that is different from our traditional investment committee. Investing €1m or €2m in a start-up requires a different approach to spending billions on a network operator.”
The new R&D
Orange says it is less focused on return on investment than dedicated venture capital funds, and has other priorities. One of its aims is to develop synergies. Kandelman pointed to his company’s investment in Afrimarket, a money transfer service that allows the sender to specify on which goods the money may be spent, as a prime example of this.
The service is designed with France’s African diaspora in mind, allowing them to send money back to the continent safe in the knowledge that it will be spent on the intended use, adding value for Orange’s subscribers.
Another benefit of Orange Digital Ventures is that it allows the operator to keep its ear to the ground so it can better anticipate disruptive technologies. Young companies like Skype and WhatsApp have made a significant dent in the market share of telcos. Orange hopes that it will be able to see the next big threat a lot sooner than it has in the past.
Kandelman noted that the number of corporate ventures was on the up and predicted the trend would continue.
“Corporate venture is here to stay – M&A is the new R&D.”
