Deutsche Telekom Sets Up DM100 Million Venture Arm

In autumn 1997, Deutsche Telekom established a corporate venturing arm which will invest DM100 million (ecu 50 million) of its parent’s money in telematics enterprises over the next three years. T-Telematik Venture Holding (T-Venture) will devote some 60% of its resources to direct investments and 40% to investment in externally managed venture funds. This mixed direct and indirect investment strategy will enable T-Venture to balance risk and gain exposure to a wider constituency of young telematics enterprises.

Through this move, Deutsche Telekom joins the ranks of other German corporate venturers such as Siemens, Bayer, Daimler-Benz, Boehringer, BASF and SAP. Dr Thomas KYhr, T-Venture’s managing director, said that the primary impetus behind the establishment of T-Venture is strategic. Deutsche Telekom is seeking a window on technology through its investment subsidiary. In turn, it expects that T-Venture investees will benefit from access to Deutsche Telekom’s global network of industrial, scientific, financial contacts and the added credibility conferred by having Deutsche Telekom as a shareholder. According to Dr KYhr, the role venture backed companies have played in economic growth and job creation was also a factor in Deutsche Telekom’s decision to establish a corporate venturing arm.

As the world’s third largest telecommunications company, Deutsche Telekom is well positioned to analyse both the technological and commercial potential of telematics enterprises. T-Venture will draw extensively on this know-how, along with the extensive venture capital experience of Dr KYhr, who, together with Dr Klaus Nathusius, established the ICVP corporate-backed venture fund in the early 1980s. The T-Venture team includes four investment professionals, as well as Dr KYhr. One, Jurgen Peters, comes from a venture capital background, having worked at DBG and Berliner Bank Beteiligungs, while the other three have international project management experience. T-Venture plans to build a team of eight to ten professionals by the end of next year.

T-Venture will lead investments in start-up and early-stage high-technology and service-oriented companies in the telecommunications and information technology sectors. It will take minority stakes only, typically committing from DM500,000 to DM5 million per company. Dr KYhr confirmed that, although Deutsche Telekom’s primary focus is strategic, standard commercial venture capital criteria will be as important as technological considerations for the investment decision-making process.

While Germany will be the main focus of T-Venture’s direct investment activities, the group may also back enterprises originating elsewhere in Europe, particularly in Austria, Switzerland and France. T-Venture will not lead investments outside Europe although, in “exceptional circumstances”, it will consider participation as a co-investor. T-Venture anticipates that it will take from two to three years to build its initial direct investments portfolio.

By contrast, the fund investment component of the programme should be fully committed by early next year, according to Dr KYhr. One fund investment, a commitment of DM18 million to Technologieholding’s Strategic European Technologies vehicle (EVCJ, August/September, page 7), has already been made, and another is close to completion.

Given Deutsche Telekom’s desire for exposure to innovative technologies, T-Venture will only participate as a core investor with board representation. It will also seek co-investment rights.

T-Venture will keep an open mind where exit routes are concerned. Although integration into Deutsche Telekom is a possible alternative to either a trade sale or IPO, T-Venture, as a minority shareholder, will be guided by management’s wishes, commercial considerations and the investee company’s best interests. Realisation proceeds may be reinvested, and Deutsche Telekom will keep the corporate venturing programme under constant review with a view to further development.