Dominique Mégret on running a mature corporate venturing unit, how it leverages the parent company to deliver strategic and financial value and how the Swiss startup ecosystem is coming of age.
Swisscom Ventures is one of the most active corporate venture capital arms (CVC) in the world and Switzerland’s leading early-stage ICT investor. How did you get there?
It all started in Silicon Valley as Swisscom has been there for the last 20 years with the objective to bring external innovation inside Swisscom. Most disruptive innovations in our industry came from startups outside the telecom labs – if you cannot beat them, join them! That is why we started Swisscom Ventures in 2007 and capitalized on those Californian relationships. As we learned from the best VCs, we started to invest in CH as well with our second generation fund. We saw that the Swiss market had actually great potential with a high quality of proprietary IP at considerably lower valuations than in the US. Building upon that experience from Silicon Valley and Switzerland, we recently closed a third fund of more than CHF 200m that is primarily funded by external institutions alongside Swisscom as anchor investor. About half of this fund will be invested in Switzerland, the other half in the USA/Europe.
What kind of objectives do you pursue with your investments?
We have both fnancial and strategic objectives: Strategically, we facilitate partnerships between startups and Swisscom. For the startups that means access to a potential customer or distribution channel and for Swisscom access to innovation to reduce our costs or differentiate our products. On the fnancial side, it is all about delivering top returns. Clearly, it is always a balancing act, to achieve both strategic and fnancial goals.
Is there a concrete example where working with a portfolio company has created direct value for Swisscom’s customers?
A good example is KeyLemon, a Martigny-based company specialized on biometric authentication. Based on their expertise we co-developed a voice recognition feature for our TV platform to innovate and differentiate from our competitors and provide additional value to Swisscom’s residential customers. Today, you find this feature in our TV offering as a voice-enabled remote control that even understands Swiss German dialect. Earlier this year, KeyLemon was successfully sold to AMS.
How does Swisscom Ventures collaborate with operating business units at Swisscom?
We introduce startups into the line and try to establish or develop a relationship with Swisscom. We push external innovation topdown and bottom-up: Top-down we work through Swisscom top managers in our investment committee. Bottom-up we closely collaborate with a network of Venture Associates in the line, that foster business development and establish collaborations with external companies.
What is your view about the Swiss startup ecosystem and how has it evolved?
I think that the ecosystem has evolved positively on the back of world class research institutions and increasingly experienced entrepreneurs, support professionals and investors. But we need to be more ambitious and increase the amount of VC investment (CHF1bn in 2017) to keep up with the rest of the world (USD 155bn). Ultimately, we should aim at catching up with best-in-class innovation countries like Sweden (USD 1.8bn) or Israel (USD 4bn),
that have economies of similar size to Switzerland.
What is Swisscom Ventures’ role in this market environment?
In the Swiss startup ecosystem, we are increasingly taking a lead role for early-stage A-round investments in ICT companies as a first institutional investor after business angels and other early supporters.
Where do you see the CVC industry in five years from now?
CVC has emerged as an important function in the open innovation ecosystem for large corporates alongside M&A, strategy and R&D. So, the number of CVCs has grown from 250 dedicated units when we frst started to about 1’500 worldwide today. In my view, there will certainly be downcycles on the road ahead, which are healthy for the system as a whole, but ultimately CVC is here to stay as one of the key investor types in the ecosystem.
In particular, Asian corporates are driving the trend that will bring CVC to the next order of magnitude. For instance, Softbank has closed their Vision Fund with USD 100bn and deployed USD30bn already, on par with Tencent that has spent upwards of USD30bn between 2015 and 2017.