What investment activity do we see in the telecom operator market?
A short analysis on telecom investment activity, indicating growth markets.
Corporate venture capital is hot! 2017 CVC investment activity increased 19% over 2016 in terms of deals completed, and 18% in total capital invested.
Telecom operators are well positioned to become an interesting partner for fast-growing technology companies as they have deep roots and knowledge of communication-, analytics, security-, cloud- and other IT-related segments. Moreover, they have a large established customer base and network of technology- and channel partners. Young technology companies that are able to leverage this knowhow, customer base and network successfully, clearly have a competitive advantage in a fast-developing technology market. Operators on the other hand face the challenge to innovate faster. They are active in multiple markets that are heavily affected by disrupting technologies. For this reason, many operators have an investment arm or innovation department and have developed strategies to stimulate outside-in innovation by working together and possibly investing in fast growing technology companies.
At KPN we have created an investment fund KPN Ventures to invest in strategically relevant startups and a KPN New Business division to build & grow new business lines, often by creating successful win-win partnerships with innovative technology companies. Within KPN New Business, the Startup Liaison Office coordinates an extensive startup program (Partnerworld) to organize events, provide mentoring and support startups in doing business with KPN as a whole.
What investment activity do we see in the telecom operator market?
One of the oldest and most active operators doing venture capital transactions is Comcast Ventures (since 1998). They have built a large professional investment team as well as an operational team which supports their portfolio companies in business development. Some other Telecom operators which have recently started their investment activity are for example Orange Digital Ventures (2015) and KPN Ventures (2015).
We have analysed the venture capital investment activity over 2016 to 2018H1 of some of the key telecom operators worldwide, indicating the investment units’ focus segments and growth markets. As you can see, most operators specifically invest in adjacent (telco)-related market segments, such as data & analytics, cybersecurity, IOT and Enterprise solutions. Some operators also extend their focus towards new growth segments. For example: Comcast, Liberty Global and Orange have also invested in Fintech and Insurtech, whereas Telstra Ventures, KPN Ventures, Telus Ventures and Swisscom Ventures have invested in Digital Healthcare.
Telecom Investment activity indicating growth markets (2016–2018H1)
Operators tend to invest in all different investment stages. The majority of the transactions between 2016 and 2018 H1 (50%) are Series A and B investment rounds. In general, companies raising a Seed or early Series A round are not mature enough the set up a successful collaboration with a large telecom operator in the short term. Operators prefer to invest and set up collaborations with more mature and validated propositions.
Operators tend to invest as a financial investor, aiming for a financial return on investments through the increase in valuation of these high-growth startups, but also aim for strategic benefits: gain insights in new developments, create partnerships with innovative technology companies, sometimes also creating options for future acquisitions (the latter is not an objective of KPN Ventures).
Partnerships could take various forms, such as:
- A distribution or reseller partnership (selling the solution to telco customers);
- Operator as a (launching) customer of the technology;
- Operator as a co-development partner, combining resources to perform research and create new innovations together;
- Operator as marketing partner to stimulate innovation and promote new products in a specific market;
- Operator as a supplier of ICT technology, supporting emerging companies with connectivity, hosting, security services, possibly through API’s;
Two international examples of operators investing together:
Telecom operators often invest in a consortium of other financial investors and/or with other corporate investors (e.g. other telecom operators or other technology firms, such as Cisco, Intel or Bosch). With KPN Ventures we are well connected to the venture units of Orange, Telus, Telia and Swisscom to exchange best practices and, when appropriate, look at investment opportunities together.
Orange Digital Ventures, Swisscom Ventures and KPN Ventures participated together with several other investors in a series D round of $75million in Actility. Actility is a French scale-up that has become the leader in LPWAN communication network technology. Both operators work together with Actility to roll-out a LoRa-based IOT network in the markets where they operate. Another example case is MOJIO from Canada. This company received an investment from Deutsche Telekom Capital Partners, Telus Ventures and Iris Capital (who invests on behalf of Saudi Telecom Company) in a series B investment round of $30+ million. MOJIO is an open platform that enables users to connect their cars with other people, places and apps. In this case the operators aim to accelerate the global adoption of connected car solutions.
Looking forward
In its first 3 years, KPN Ventures has invested directly in 12 startups and indirectly in 16 startups, through its investments in 5 external VC funds. We aim to become one of the leading corporate venture capital investors in the telecom world, supporting and benefiting from the growth of the international technology leaders of tomorrow, and providing KPN with many new opportunities to learn faster, experiment more efficiently and successfully bring innovations to its customers. Making our customers’ life more free, easier and happier.
