Venture capital investment as the main method of funding start-ups has been on the rise, with venture capital activity in the United States reaching its highest levels in 2018.
According to PwC and CB Insights, US venture capital funding registered at around $99.5bn in 2018, marking its second highest recorded total since the peak of the dot-com boom in 2000.
Giant corporates started to enter the venture capital investment scene, and created their own venture investment arms, to get a better understanding of the process, and what makes a start-up more desirable, Daily News Egypt interviewed Head of Ericsson Ventures, Vice President of Ericsson, Albert Kim.
Kim revealed that Ericsson Ventures invests in leading companies to drive innovation in new areas, accelerate their core business, and generate strong returns. The transcript for the interview is below, lightly edited for clarity:
What is Ericsson’s ventures portfolio size, and what is your start-up selection criteria?
We have about 17 active companies at the moment.
When it comes to selection, our process includes several dimensions, the first one is what sector the start-up is active in, and it all comes back to driving strategic value.
At the end of the day Ericsson is a networks company, which keeps us within a certain range of sectors, starting from radio technology, to cloud-computing, edge cloud, Internet of Things (IoT), cyber-security, and then more new areas such as autonomous driving, virtual reality and augmented reality. So, everything comes back to networking.
From a stage perspective, we are pretty agnostic, so we invest in every early-stage company, the closer it is to our core sector, however, the further we go away from the core, we want to invest in a more mature company, with already existing products, and tens of millions in revenues.
Then we do typical investment diligence, with market sizing, to de-risk investment, so it is a typical check list, that’s how we select a start-up, what is important to us is a strong investment syndicate, as we want to be surrounded by other investors who are interested in funding the company.
Does Ericsson Ventures engage in the operations of companies they fund?
Good question, we don’t directly, but in some sense we do, we take a seat in the board of director of those companies, mostly on a non-voting basis, as an observer.
So we engage in board discussions, participate in the strategy, even in management, but we don’t go and directly micro-manage.
However, my team is very active in business development, we can assist with technical discussion, and offer a free business development assistance to the company.
Is the ROI the main focus of Ericsson Ventures, or the benefit to the mother company?
Both are equally important for us, we have a very strict requirement on financial performance, but again the way we drive that performance, is through making sure that the company works strategically well with Ericsson.
Can you elaborate on the amount of investments you usually offer, control percentage?
Usually between $1m and $5m, we invested as much $10m once.
In regard to our control percentage, it is purely based of valuation, so let’s say we invest a $2m in a company worth $100m, we get a 2%.
However we stick to an accounting rule, that when you are below 20% ownership, you don’t need to consolidate financial.